FNCE 3010 (Durham). HW2 (Financial ratios)


 Augustus Golden
 2 years ago
 Views:
Transcription
1 FNCE 3010 (Durham). HW2 (Financial ratios) 1. What effect would the following actions have on a firms net working capital and current ratio (assume NWC is positive and current ratio is initially greater than 1)? (a) Inventory is purchased. (b) A supplier is paid. (c) A shortterm bank loan is repaid. (d) A longterm debt is paid off early. (e) A customer pays off a credit account. (f) Inventory is sold at cost. (g) Inventory is sold for a profit. (a) NWC is unchanged. If inventory is purchased with cash, then there is no change in the current ratio. If inventory is purchased on credit, then there is a decrease in the current ratio if it was initially greater than 1.0. (b) NWC is unchanged. Reducing accounts payable with cash increases the current ratio if it was initially greater than 1.0. (c) NWC is unchanged. Reducing shortterm debt with cash increases the current ratio if it was initially greater than 1.0. (d) NWC and current ratio decrease. (e) NWC and current ratio are unchanged. (f) NWC and current ratio are unchanged. (g) NWC and current ratio increase. 2. Explain what peer group analysis means. As a financial manager, how could you use the results of peer group analysis to evaluate the performance of your firm? How is a peer group different from an aspirant group? Peer group analysis involves comparing the financial ratios and operating performance of a particular firm to a set of peer group firms in the same industry or line of business. Comparing a firm to its peers allows the financial manager to evaluate whether some aspects of the firm s operations, finances, or investment activities are out of line 1
2 with the norm, thereby providing some guidance on appropriate actions to take to adjust these ratios if appropriate. An aspirant group would be a set of firms whose performance the company in question would like to emulate. The financial manager often uses the financial ratios of aspirant groups as the target ratios for his or her firm; some managers are evaluated by how well they match the performance of an identified aspirant group. 3. Why is the Du Pont identity a valuable tool for analyzing the performance of a firm? Discuss the types of information it reveals as compared to ROE considered by itself. Return on equity is probably the most important accounting ratio that measures the bottomline performance of the firm with respect to the equity shareholders. The Du Pont identity emphasizes the role of a firm s profitability, asset utilization efficiency, and financial leverage in achieving an ROE figure. For example, a firm with ROE of 20% would seem to be doing well, but this figure may be misleading if it were marginally profitable (low profit margin) and highly levered (high equity multiplier). If the firm s margins were to erode slightly, the ROE would be heavily impacted. 4. Bellevue Corp. had additions to retained earnings for the year just ended of $310,000. The firm paid out $160,000 in cash dividends, and it has ending total equity of $6.5 million. If Bellevue currently has 180,000 shares of common stock outstanding, what are earnings per share? Dividends per share? Book value per share? If the stock currently sells for $78 per share, what is the markettobook ratio? The priceearnings ratio? Net income = Addition to RE + Dividends = $310K + 160K = $470K Earnings per share = NI / Shares = $470K / 180K = $2.61 per share Dividends per share = Dividends / Shares = $160K / 180K = $0.89 per share Book value per share = TE / Shares = $6.5M / 180K = $36.11 per share Markettobook ratio = Share price / BVPS = $78 / $36.11 = 2.16 times P/E ratio = Share price / EPS = $78 / $2.61 = times 5. You want to examine the financial ratios for Dell Computer Corporation. Go to and type in the ticker symbol for the company (DELL). Next, go to the financial ratios link. You should find financial ratios for Dell and the industry, sector, and S&P 500 averages for each ratio. (a) What do TTM and MRQ mean? 2
3 (b) Look at Dell s valuation ratios and growth rates. Discuss briefly Dell s ratios relative to the comparison groups. (a) TTM is trailing twelve months. These values are computed over the average of the last 4 quarters. MRQ means most recent quarter. (b) Dell s PE is substantially lower than comparable firms. Dell and the comparable firms are all near their five year low and well off their five year highs. Dell s pricetosales is also substantially lower than the industry average. On the other hand, Dell s pricetobook is higher than the industry average, suggesting that Dell has been successful at creating value historically. Dell s growth rates substantially lag the rest of the industry. But, this largely reflects Dell s past success. 3
4 6. Polly s Paper Products (PPP) has 100,000 shares of stock outstanding. The shares are trading at $10 each. Use these financial statements for the following questions: Assets Polly s Paper Products (PPP) (in thousands of $ s) Balance sheet (2005) Liabilities and Owners Equity Cash 150 Accounts payable 225 Accounts Receivable 300 Notes payable 125 Inventory 75 Current liabilities 350 Current assets 525 Longterm Debt 700 Fixed assets 1850 Owners equity 800 Retained earnings 525 Total assets 2375 Total liabilities and owners equity 2375 Income statement (2005) (in thousands of $ s) Net sales 1000 Cost of goods sold 600 Depreciation 100 EBIT 300 Interest paid 60 Taxable income 240 Taxes 82 Net income 158 Dividends 40 Addition to retained earnings 118 Compute the following financial ratios using 2005 data and describe briefly what each ratio tells us about the firm: (a) Current ratio (b) Quick ratio (c) Cash ratio (d) Total asset turnover (e) Debtequity ratio (f) Equity multiplier (g) Total debt ratio (h) Longterm debt ratio (i) Profit margin 4
5 (j) Return on assets (k) Return on equity (l) EPS (m) PE ratio (n) Markettobook ratio (a) Current ratio = CA / CL = 525 / 350 = 1.5 A positive current ratio indicates that the firm probably has sufficient liquidity to meet shortterm needs. However, if it is too high, the firm may not be managing its NWC efficiently (a higher return could be obtained if assets were put to better use). (b) Quick ratio = (CA  Inventory) / CL = (52575) / 350 = 1.29 Similar to current ratio. The firm does not have an unusually large part of its current assets tied up in inventory. (c) Cash ratio = Cash / CL = 150 / 350 =.43 The firm seems to have a reasonable amount of cash on hand. It is hard to say more without knowing more about the business. (d) Total asset turnover = Sales / Total assets = 1000 / 2375 =.42 A high value for TAT indicates that the firm is using its assets efficiently. If the same level of sales can be obtained using less assets, ROA (and ROE) will be increased. (e) Debtequity ratio = Debt / Equity = 1050 / 1325 =.79 A high debtequity ratio means the firm is highly levered. ROE, but at the cost of greater risk of financial distress. This can increase (f) Equity multiplier = Total Assets / Equity = 2375 / 1325 = 1.79 Same information as debtequity ratio. Note that ROE = EM x ROA. (g) Total debt ratio = D/A = 1050 / 2375 =.442 (h) Longterm debt ratio = LTD / (LTD + equity) = 700 / 2025 =.346 (i) Profit margin = NI / Sales = 158 / 1000 =.158 Profit margin shows how efficient the firm is at generating earnings from sales. It is one of the three components of ROE in the Du Pont identity. (j) Return on assets = NI / TA = 158 / 2375 =.067 Return on assets measures the returns earned by the entire firm (debt and equity). This firm is earning a moderate return. Depending on how risky the firm s earnings are, the stock may trade at a slight discount to book value. Much depends on expectations for the firm s future earnings. (k) Return on equity = NI / Equity = 158 / 1325 =.119. Measures the return on capital earned by shareholders. ROE is higher than ROA due to the firm s leverage. This is respectable though not spectacular ROE. 5
6 (l) EPS = / = 1.58 (m) PE = 10 / 1.58 = 6.33 (n) Market to book = 1M / = 0.75 PPP is a value stock. 6
Key Concepts and Skills. Standardized Financial. Chapter Outline. Ratio Analysis. Categories of Financial Ratios 11. Chapter 3
Key Concepts and Skills Chapter 3 Working With Financial Statements Know how to standardize financial statements for comparison purposes Know how to compute and interpret important financial ratios Know
More informationComputing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio =
1 Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = Cash / CL 98 / 540 =.18 times 2 Computing Leverage
More information5.2 Financial Ratio Analysis
5.2 Financial Ratio Analysis Outline Standardized Financial Statements Ratio Analysis The Du Pont Identity Using Financial Statement Information 1 1 I. Standardized Financial Statements CommonSize Balance
More informationChapter 3 Financial Statements Analysis and LongTerm Planning
University of Science and Technology Beijing Dongling School of Economics and management Chapter 3 Financial Statements Analysis and LongTerm Planning Sep. 2012 Dr. Xiao Ming USTB 1 Key Concepts and Skills
More informationChapter 17: Financial Statement Analysis
FIN 301 Class Notes Chapter 17: Financial Statement Analysis INTRODUCTION Financial ratio: is a relationship between different accounting items that tells something about the firm s activities. Purpose
More informationCHAPTER 2 FINANCIAL STATEMENTS, TAXES AND CASH FLOW
CHAPTER 2 FINANCIAL STATEMENTS, TAXES AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. Liquidity measures how quickly and easily an asset can be converted to cash without significant
More informationChapter 3 Analyzing Financial Statement
Chapter 3 Analyzing Financial Statement Five major areas to analyze. (1) Liquidity Position (2) Management of Assets (3) Management of Debt (4) Company's Profitability (5) Market's View of Company (1)
More informationCHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH
CHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 1. Time trend analysis gives a picture of changes in the company s financial situation over
More informationCHAPTER 2 INTRODUCTION TO CORPORATE FINANCE
CHAPTER 2 INTRODUCTION TO CORPORATE FINANCE Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and
More information1) In words, an equity multiplier of 2 means that for every $1:
Questions in [New Questions] 1) In words, an equity multiplier of 2 means that for every $1: [A] of debt, a firm has $2 in equity. [B] in equity, a firm has $2 in debt. [C] in assets, a firm has $2 in
More informationChapter 1 Financial Statement and Cash Flow Analysis
Chapter 1 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Longterm debt c. Sales d. Inventory
More informationSolutions Manual. Fundamentals of Corporate Finance 8 th edition Ross, Westerfield, and Jordan
Solutions Manual Fundamentals of Corporate Finance 8 th edition Ross, Westerfield, and Jordan Updated 03052007 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concepts Review and Critical Thinking
More informationChapter 2 Financial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Longterm debt c. Sales d. Inventory
More informationCHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW
CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Solutions to Questions and Problems NOTE: All endofchapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and
More informationEnd of Chapter Solutions Essentials of Corporate Finance 6 th edition Ross, Westerfield, and Jordan. Updated 08012007
End of Chapter Solutions Essentials of Corporate Finance 6 th edition Ross, Westerfield, and Jordan Updated 08012007 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concepts Review and Critical
More informationBusiness 2019 Finance I Lakehead University. Midterm Exam
Business 2019 Finance I Lakehead University Midterm Exam Philippe Grégoire Fall 2002 Time allowed: 2 hours. Instructions: Calculators are permitted. One 8.5 11 inches crib sheet is allowed. Verify that
More informationChapter Review and SelfTest Problems
CHAPTER 3 Working with Financial Statements 83 2. Standardized financial statements. We explained that differences in size make it difficult to compare financial statements, and we discussed how to form
More informationThe following information is available on Toy Inc. There are 100 shares outstanding, each selling for $25
The following information is available on Toy Inc. There are 100 shares outstanding, each selling for $25 Corporate tax 34.00% Interest rate 4.25% Retention ratio 65.00% Case A. Toy Inc. Zero growth in
More informationMGMT 326: Chapter 3 Practice Problem KEY. CommonSize Statements: Prepare a commonsize income statement for Wildhack.
MGMT 326: Chapter 3 Practice Problem KEY Bayley Chapter 3: What you need to know for the midterm and final exams... The last two slides of the Ch. 3 PowerPoint (emailed to all students the week of 6/9)
More informationIncome Measurement and Profitability Analysis
PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance
More informationIntegrated Case. 425 D Leon Inc., Part II Financial Statement Analysis
Integrated Case 425 D Leon Inc., Part II Financial Statement Analysis Part I of this case, presented in Chapter 3, discussed the situation of D Leon Inc., a regional snack foods producer, after an expansion
More informationTYPES OF FINANCIAL RATIOS
TYPES OF FINANCIAL RATIOS In the previous articles we discussed how to invest in the stock market and unit trusts. When investing in the stock market an investor should have a clear understanding about
More information14. Calculating Total Cash Flows.
14. Calculating Total Cash Flows. Greene Co. shows the following information on its 2008 income statement: Sales = $138,000 Costs = $71,500 Other expenses = $4,100 Depreciation expense = $10,100 Interest
More informationRatio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved.
Ratio Analysis CBDC, NB February, 2008 Presented by ACSBE Financial Analysis What is Financial Analysis? What Can Financial Ratios Tell? 7 Categories of Financial Ratios Significance of Using Ratios Industry
More informationFinance Master. Winter 2015/16. Jprof. Narly Dwarkasing University of Bonn, IFS
Finance Master Winter 2015/16 Jprof. Narly Dwarkasing University of Bonn, IFS Chapter 2 Outline 2.1 Firms Disclosure of Financial Information 2.2 The Balance Sheet 2.3 The Income Statement 2.4 The Statement
More informationChapter 4. Financial Analysis: Sizing up Firm Performance. Chapter Contents. Learning Objectives
Chapter 4 Financial Analysis: Sizing up Firm Performance Learning Objectives Chapter Contents Principles Used in this Chapter 1.Why Financial Statements are Analyzed 2.Common Size Statements Standardizing
More informationChapter 2 Financial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis Balance Sheet Assets Cash Inventory Accounts Receivable Property Plant Equipment Liabilities and Shareholder s Equity Accounts Payable Notes Payable
More informationChapters 3 and 13 Financial Statement and Cash Flow Analysis
Chapters 3 and 13 Financial Statement and Cash Flow Analysis Balance Sheet Assets Cash Inventory Accounts Receivable Property Plant Equipment Total Assets Liabilities and Shareholder s Equity Accounts
More informationCHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH
CHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 5. The sustainable growth rate is greater than 20 percent, because at a 20 percent growth rate
More informationInvestment Analysis (FIN 383) Fall Homework 9
Investment Analysis (FIN 383) Fall 2009 Homework 9 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tue
More informationChapters 34 Financial Statements, Cash Flow, and Analysis of Financial Statements. Balance Sheet. Total Liabilities and Shareholder s Equity
Chapters 34 Financial Statements, Cash Flow, and Analysis of Financial Statements Balance Sheet Assets Cash Inventory Accounts Receivable Property Plant Equipment Liabilities and Shareholder s Equity
More informationFSA Note: Summary of Financial Ratio Calculations
FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and
More informationChapter 4 Analysis of Financial Statements ANSWERS TO SELECTED ENDOFCHAPTER QUESTIONS
Chapter 4 nalysis of Financial Statements NSWERS TO SELECTED ENDOFCHPTER QUESTIONS 41 a. liquidity ratio is a ratio that shows the relationship of a firm s cash and other current assets to its current
More informationChapter 4 Sample Problems
Chapter 4 Sample Problems 1. TCBW last year had an average collection period (days sales outstanding) of 35 days based on accounts receivable of $460,000. All of the firm's sales are made on credit. The
More informationChapter 4 Analysis of Financial Statements
Chapter 4 Analysis of Financial Statements Answers to EndofChapter Questions 41 The emphasis of the various types of analysts is by no means uniform nor should it be. Management is interested in all
More informationChapter 3 Analysis of Financial Statements ANSWERS TO ENDOFCHAPTER QUESTIONS
Chapter 3 nalysis of Financial Statements NSWERS TO ENDOFCHPTER QUESTIONS 31 a. liquidity ratio is a ratio that shows the relationship of a firm s cash and other current assets to its current liabilities.
More informationMBA Finance PartTime Financial Statement Analysis and Cash Flows
MBA Finance PartTime Financial Statement Analysis and Cash Flows Professor Hugues Pirotte Spéder 1 1 Levers of Performance Return on Equity Return on Invested Capital Leverage Profit Margin Asset Turnover
More informationFundamental analysis
Fundamental analysis 2 June 2016 CERN Finance Club c.laner@cern.ch Introduction Let s cover the two main types of investment analysis used in traditional investing Today: Fundamental analysis Next time:
More informationNWC = current assets  current liabilities = 2,100
Questions and Problems Chapters 2,3 pp4547 1. Building a balance sheet. Penguin Pucks, Inc., has current assets of $3,000, net fixed assets $6,000, current liabilities of $900, and longterm debt of $5,000.
More informationcomment on the following by ( ) or ( ) 1. The financial staff s task is to obtain and use funds so as to maximize the market share of the firm. 2.
comment on the following by ( ) or ( ) 1. The financial staff s task is to obtain and use funds so as to maximize the market share of the firm. 2. Two key limitations of the proprietorship for of business
More informationFINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS
SYLLABUS Compulsory part Basic ratio analysis 1. State the general functions of accounting ratios. 2. Calculate and interpret the following ratios: a. working capital/current ratio, quick/liquid/acid test
More informationChapter 9 Solutions to Problems
Chapter 9 Solutions to Problems 1. a. Cash and cash equivalents are cash in hand and in banks, plus money market securities with maturities of 90 days or less. Accounts receivable are claims on customers
More informationFinancial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards
More informationLiquidity analysis: Length of cash cycle
2. Liquidity analysis: Length of cash cycle Operating cycle of a merchandising firm: number of days it takes to sell inventory + number of days until the resulting receivables are converted to cash Acquisition
More informationWhat Do ShortTerm Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?
What Do ShortTerm Liquidity Ratios Measure? What Is Working Capital? HOCK international  2004 1 HOCK international  2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK
More information28. Identify whether each of the following items increases or decreases cash flow:
Problems 28. Identify whether each of the following items increases or decreases cash flow: Increase in accounts receivable Increase in notes payable Depreciation expense Increase in investments Decrease
More informationTopic 4 Working Capital Management. 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital. 4.
Topic 4 Working Capital Management 1. Concept of Working Capital 2. Measuring Working Capital and Net Working Capital 3. Optimization i i of Working Capital 4. Applications 80 Learning objectives This
More informationSolutions to Chapter 4. Measuring Corporate Performance
Solutions to Chapter 4 Measuring Corporate Performance 1. a. 7,018 Longterm debt ratio 0. 42 7,018 9,724 b. 4,794 7,018 6,178 Total debt ratio 0. 65 27,714 c. 2,566 Times interest earned 3. 75 685 d.
More informationKEY EQUATIONS APPENDIX CHAPTER 2 CHAPTER 3
KEY EQUATIONS B CHAPTER 2 1. The balance sheet identity or equation: Assets Liabilities Shareholders equity [2.1] 2. The income statement equation: Revenues Expenses Income [2.2] 3.The cash flow identity:
More informationCHAPTER 2 ACCOUNTING STATEMENTS, TAXES, AND CASH FLOW
CHAPTER 2 ACCOUNTING STATEMENTS, TAXES, AND CASH FLOW Answers to Concepts Review and Critical Thinking Questions 1. True. Every asset can be converted to cash at some price. However, when we are referring
More informationFIN 3000. Chapter 4. Financial Analysis. Liuren Wu
FIN 3000 Chapter 4 Financial Analysis Liuren Wu Overview 1. Why Do We Analyze Financial Statements 2. Common Size Statements Standardizing Financial Information 3. Using Financial Ratios 4. Selecting a
More information1.1 Role and Responsibilities of Financial Managers
1 Financial Analysis 1.1 Role and Responsibilities of Financial Managers (1) Planning and Forecasting set up financial plans for their organisations in order to shape the company s future position (2)
More informationSolutions to Problems
Solutions to Problems 1. From abbreviated financial statements (dollars in millions): Liquidity (1) Net working capital Current assets Current liabilities: $150 $100 $50 (2) Current ratio Current assets/current
More informationFinancial Ratios and Quality Indicators
Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you
More informationRatio Analysis. A) Liquidity Ratio :  1) Current ratio = Current asset Current Liability
A) Liquidity Ratio :  Ratio Analysis 1) Current ratio = Current asset Current Liability 2) Quick ratio or Acid Test ratio = Quick Asset Quick liability Quick Asset = Current Asset Stock Quick Liability
More informationSuggested Answers to Discussion Questions
Suggested Answers to Discussion Questions 1. (a) Fiscal policy would usually remain fairly strict during a strong economy with automatic stabilizers such as tax rates restraining inflation. (b) Interest
More information9901_1. A. 74.19 days B. 151.21 days C. 138.46 days D. 121.07 days E. 84.76 days
1. A stakeholder is: 9901_1 Student: A. a creditor to whom a firm currently owes money. B. any person who has voting rights based on stock ownership of a corporation. C. any person or entity other than
More informationFinancial Statement Analysis
Financial Statement Analysis 1 The Interrelationships of the 4 Financial Statements Statement of Cash Flows For the year ended December 31, 20x2 (000) Net cash flows from operating activities $ 1,470 Net
More informationMODULE 2. Business Analysis
MODULE 2 Business Analysis Types Of Business Analysis Comparative Statements Ratio Analysis Break Even Analysis Comparative Statements Comparative statements present the accounts of two or more consecutive
More informationReview for Exam 3. Instructions: Please read carefully
Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. You are not responsible for any topics that are not covered in the lecture note
More informationICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION
ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION OCTOBER 2006 Table of Contents 1. INTRODUCTION... 3 2. FINANCIAL RATIOS FOR COMPANIES (INDUSTRY  COMMERCE  SERVICES) 4 2.1 Profitability Ratios...4 2.2 Viability
More informationClass #5 Comparative Analysis Class #5 1
15.535 Class #5 Comparative Analysis 15.535  Class #5 1 Announcements Assignment #1: Hand in at start of class on Tuesday, Feb, 25 th. 2 page memo (any format) Complete individually or in group of up
More informationCurrent Ratio: Current Assets / Current Liabilities. Measure of whether company has enough cash to cover immediate expenses
1 Beta: a measure of a stock s volatility relative to the overall market (typically the S&P500 index is used as a proxy for the overall market ). The higher the beta, the more volatile the stock price.
More informationUnderstanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions
Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 3 Interpreting Financial Ratios Concept Check 3.1 1. What are the different motivations that
More informationLongterm Financial Planning
Longterm Financial Planning What is Financial Planning? Formulates the way financial goals are to be achieved. Requires that decisions be made about an uncertain future. Recall that the goal of the firm
More informationFinancial Planning for East Coast Yachts
Financial Planning for East Coast Yachts Prepared for East Coast Yachts Prepared by Dan Ervin, MaryAnn Lawrence, Kevin Klepacki, Katie Wilson, Andrew Wright January 1, 2010 Table of Contents iii Table
More informationSection 3 Financial and stock market ratios
Section 3 Financial and stock market ratios Introduction 41 Ratio calculation 42 Financial status ratios 43 Stock market ratios 45 Debt: shortterm or longterm? 47 Summary 48 Problems 49 INTRODUCTION
More informationChapter3 C FINANCIAL RATIO ANALYSIS. BSNL, India For Internal Circulation Only 1
Chapter3 C FINANCIAL RATIO ANALYSIS BSNL, India For Internal Circulation Only 1 RATIO ANALYSIS FINANCIAL ANALYSIS is the process of identifying the financial strengths and weakness of the firm by properly
More informationFI3300 Corporation Finance
Learning Objectives FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance Explain the objectives of financial statement analysis and its benefits for creditors,
More informationUnderstanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements
Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements In the United States, businesses generally present financial information in the form of financial statements
More informationProblem Review Set1. Question1
Problem Review Set1 Question1 a. Given the following financial statements, historical ratios, and industry averages, calculate Sterling Company's financial ratios for 2012. (Assume a 365day year.) Sterling
More informationChapter3 Solutions to Problems
Chapter3 Solutions to Problems P31. P32. Reviewing basic financial statements LG 1; Basic Income statement: In this oneyear summary of the firm s operations, Technica, Inc. showed a net profit for
More informationCHAPTER 5. RATIO ANALYSIS, FINANCIAL PLANNING AND FINANCIAL ANALYSIS
CHAPTER 5. RATIO ANALYSIS, FINANCIAL PLANNING AND FINANCIAL ANALYSIS The financial statements discussed in Chapter 4 provide valuable information about a firm s financial and business health. Ratio analysis
More informationTotal shares at the end of ten years is 100*(1+5%) 10 =162.9.
FCS5510 Sample Homework Problems Unit04 CHAPTER 8 STOCK PROBLEMS 1. An investor buys 100 shares if a $40 stock that pays a annual cash dividend of $2 a share (a 5% dividend yield) and signs up for the
More informationEngineering Economics 2013/2014 MISE
Problem: JS, Inc. shows the following accounting records for 2011: Sales commissions 15000 Beginning merchandise inventory 16000 Ending merchandise inventory 9000 Sales 185000 Advertising 10000 Purchases
More informationRATIO ANALYSIS FORMULAS + THEORIES
A) Cash Position Ratio :  1) Absolute Cash Ratio = Cash Reservoir Current Liabilities 2) Cash Position to Total asset Ratio = Cash Reservoir * 100 (Measure liquid layer of assets) Total Assets 3) Interval
More information140 SU 3: Profitability Analysis and Analytical Issues
140 SU 3: Profitability Analysis and Analytical Issues QUESTIONS 3.1 Profitability Ratios Questions 1 and 2 are based on the following information. The financial statements for Dividendosaurus, Inc., for
More informationRatio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets
Ratio Analysis CA Past Years Exam Answer Answer to Q.1: (Nov, 009) Fixed assets ` 18,00,000 Proprietor s funds ` 4,00,000 Note: 1 Ratio of fixed assets to proprietor s funds 0.75 Properietors Fund 0.75
More informationNIKE Case Study. Professor Corwin. An overview of the individual questions and their relation to the lecture topics is provided below.
NIKE Case Study Professor Corwin This case study includes several problems related to the valuation of Nike. We will work through these problems throughout the course to demonstrate some of the most important
More informationSOLUTIONS. Learning Goal 30
S1 Learning Goal 30 Multiple Choice 1. d 2. d 3. b 4. a Earnings per share is also used directly for comparing profitability on a pershare basis. 5. d 6. c An airline would have a much greater investment
More informationLearning Objective: Compare the financial implications of the different forms of business organizations. Learning Objective: Compare the
1. award: MC Qu. 6 Todd and Cathy created a firm that is... Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50 50 basis. Which type of entity did
More informationUsing Financial Ratios: Interested Parties
Using Financial Ratios: Interested Parties Ratio analysis involves methods of calculating and interpreting financial ratios to assess a firm s financial condition and performance. It is of interest to
More informationInterpretation of Financial Statements
Interpretation of Financial Statements Author Noel O Brien, Formation 2 Accounting Framework Examiner. An important component of most introductory financial accounting programmes is the analysis and interpretation
More informationJohn A. Jaeger, CCE Manager Credit & Accounts Receivable Follett Higher Education Group. Extend Credit Management Financial Analyst Investor
John A. Jaeger, CCE Manager Credit & Accounts Receivable Follett Higher Education Group Extend Credit Management Financial Analyst Investor Establish the Objectives Study the Industry and Economic Climate
More informationReturn on Equity has three ratio components. The three ratios that make up Return on Equity are:
Evaluating Financial Performance Chapter 1 Return on Equity Why Use Ratios? It has been said that you must measure what you expect to manage and accomplish. Without measurement, you have no reference to
More informationRatios from the Statement of Financial Position
For The Year Ended 31 March 2007 Ratios from the Statement of Financial Position Profitability Ratios Return on Sales Ratio (%) This is the difference between what a business takes in and what it spends
More informationAchievement of MarketFriendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development
Achievement of MarketFriendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development Equity Analysis, Portfolio Management, and Real Estate Practice Quizzes
More informationIs Apple overvalued? An Introduction to Financial Analysis
Is overvalued? An Introduction to Financial Analysis The fact that the stock price almost doubled during the last year, was evidence enough for many people to say that investors had gone crazy. Other people
More information1. Operating, Investment and Financial Cash Flows
1. Operating, Investment and Financial Cash Flows Solutions Problem 1 During 2005, Myears Oil Co. had gross sales of $1 000,000, cost of goods sold of $400,000, and general and selling expenses of $300,000.
More informationReview for Exam 3. Instructions: Please read carefully
Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation
More informationEquity Analysis and Capital Structure. A New Venture s Perspective
Equity Analysis and Capital Structure A New Venture s Perspective 1 Venture s Capital Structure ASSETS Short term Assets Cash A/R Inventories Long term Assets Plant and Equipment Intellectual Property
More informationTemplates available in Excel 97 (Excel 8) and higher versions:
Excel Templates Templates available in Excel 97 (Excel 8) and higher versions: All of the Excel templates in Research Insight can be customized to fit your own particular needs. Company Fundamental Analysis
More informationBrief Exercise 142 (20 minutes)
Brief Exercise 142 (20 minutes) 1. This Year Last Year Sales... 100.0% 100.0% Cost of goods sold... 62.3 58.6 Gross margin... 37.7 41.4 Operating expenses: Selling expenses... 18.5 18.2 Administrative
More informationHHIF Lecture Series: Financial Statement Analysis
HHIF Lecture Series: Financial Statement Analysis Alexander Remorov Based on the Materials by Daanish Afzal University of Toronto November 5, 2010 Alexander Remorov, Daanish Afzal (University of Toronto)
More informationStatements. viewpoints PART TWO
PART TWO 3 Analyzing Financial Statements viewpoints Business Application The managers of DPH Tree Farm, Inc., have released public statements that the firm s performance surpasses that of other firms
More informationChapter. How Well Am I Doing? Financial Statement Analysis
Chapter 17 How Well Am I Doing? Financial Statement Analysis 172 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain the need for and limitations of financial statement
More informationPortfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams
Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams 1. The comparisons with which ratios should be made include the following, except: a. The firm's own past performance
More informationAdvanced Placement (AP) Accounting Course and Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes
Advanced Placement (AP) Accounting Course and Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes Course Overview The Advanced Placement (AP) Accounting Course and Exam Pilot Program
More informationFinancial Statement Ratio Analysis
Management Accounting 319 Financial Statement Ratio Analysis Financial statements as prepared by the accountant are documents containing much valuable information. Some of the information requires little
More information