FIN 3010 quiz Financial Modelling Answers

What is the meaning of each financial ratio?

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Q.1. You are an investment analyst domiciled in Country Z doing a cross-country comparison of the financial performance of two manufacturing companies in the pharmaceuticals industry. Both companies, X and Y (located in Countries X and Y), have similar expected sales of $600 million. Country X has a corporate income tax. Country Y has no income tax but relies on indirect taxes. Selected data for companies X and Y are as follows: Соmpaпy X Соmpany Y Pretax income $120 million $72 million Return on sales 12.0% 12.0% Required: Determine which company promises to have the better financial performance? What tax considerations might affect your conclusions?

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A firm's market-to-book ratio might be greater than 1.0 due to accounting reasons. An example of an accounting reason that would cause the market-to-book ratio to increase is   a. straight-line methods of depreciation.     b. using LIFO versus FIFO for inventory.     c. level 1 fair values.     d. off-balance-sheet assets arising from investments in successful research and development programs that are expensed according to conservative accounting principles.

EBITDA is one indicator of a firm's financial performance and is used as aproxy for the earning potential of a firm.1) Explain why EBITDA can be used to analyze and compare profitability amongfirms in different industries and even in different countries. 2) Explain what is the EV multiple. And then explain why it is analogous to thepayback period in finance or managerial accounting

Please see the attached graph for questions below. What is the difference between the two companies on this ratio? What is a plausible explanation as to why they would differ? Is one company clearly different than the other? Are there economic or end-market influences that explain why the ratios differ? What might they be? Over time, is each company’s overall financial performance improving, declining, or is something strange going on? Do you think evaluating financial statements is a good idea? What do you regard as some of the shortcomings of financial ratio analysis?

Give typing answer with explanation and conclusion  _____ 2.) A company has a tax burden ratio of 0.4, a compound leverage factor of 0.6, a return on sales of 0.9, a leverage ratio of 0.7, and an asset turnover of 0.3. What is the ROE for the company?               A.) 2.90%               B.) 4.54%               C.) 6.48%               D.) 11.4%               E.) None of the above

When converting dollar amounts on our financial statements to percentages for vertical analysis, what is it that makes this an easier way to compare companies to each other? A It provides a way for outside stakeholders to understand the numbers better in an easier format B It forces us to look closer at our financial statements to ensure we don't have missing amounts C It allows us to compare things based on growth or decline easier than comparing dollar amounts that could be vastly different values D It allows the analysis of numbers too large to comprehend by most stakeholders

TRUE OR FALSE Horizontal analysis is possible for both an income statement and a statement of financial position. Financial analysis is primarily a matter of making relevant mechanical computations. It is possible that a decrease in gross profit rate may be offset by a decrease in expenses, thus resulting in an increase in net income. On a, common-size income statement, net income is given an equivalent of 100% Short-term creditors generally are more concerned with vertical analysis than with horizontal analysis. Percentage changes are usually computed by using the latest figure as a base. Industry standards tend to place the performance of a company in a more meaningful perspective. The peso amount of change during an accounting period for an item appearing in financial statements is less significant than the change measured as a percentage. An increase in sales volume generally is accompanied by a proportionate increase in net income. Common-size financial statements show peso…

Give typing answer with explanation and conclusion Which of the following is false? A) All else constant, if a firm can decrease its operating costs, then return on equity will decrease. B) Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as profitability ratios. C) The portion of net income that a firm reinvests in itself is called the retention ratio. D) If DJ's has total assets of $300,000, net fixed assets of $120,000, and the average daily operating costs of $3,000, then its value of the interval measure is 60 days.

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(a) – Explain the concept of Tax Deduction in WACC. Does this tax deduction make debt finance Cheaper Then Equity Finance?  (b) – Compare Dividend Valuation Model with Capital Asset Pricing Model in the context of calculating cost of equity? Can use of these two methods result in differing values of business?

A)Calculate the following ratios: • Return on Capital Employed (ROCE) • Current Ratio • Gearing Ratio • Price/Earnings (P/E) Ratio  B) Based on the above ratios explain, which company George H. and James W. should invest in and discuss the limitations of your analysis.

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Answer the following question in essay. What do you understand by current ratio? What are it uses? What are its limitations? Ratio analysis is widely used as a tool of financial analysis, yet it suffers from various limitations. Explain. How can solvency of a firm be measured? What you understand by Liquidity ratios? Discuss their significance. Page 1 Module PSFM08 MANAGERIAL ACOUNTING WITH FINANCIAL ANALYSIS AND REPORTING Explain the importance of profitability ratio. How they are worked out?