1. In financial statement analysis, what is the basic objective of observing trends in data and ratios?
1. In financial statement analysis, what is the basic objective of observing trends in data and ratios?
2. Distinguish between trend percentages and component percentages. Which would be better suited for analyzing the change in sales over a term of several years?
3. What is the quick ratio? Under what circumstances are short-term creditors most likely to regard a company’s quick ratio as more meaningful than its
4. Identify the ratios or other analytical tools used to evaluate profitability. Explain briefly how each is computed.
5. Net sales of Major General Store have been increasing at a reasonable rate, but net income has been declining steadily as a percentage of these sales. What appears to be the problem?
6. Why might earnings per share be more significant to a shareholder in a large corporation than the total amount of net income?
7. ABC Co. has a current ratio of 3 to 1. Ono Corp. has a current ratio of 2 to 1. Does this mean that ABC’s operating cycle is longer than Ono’s? Why?
8. Assume that Congress announces its intention to limit the prices and profits of pharmaceutical companies as part of an effort to control health care costs. What effect would expect this announcement to have on the price-earnings ratios and stock prices of pharmaceutical companies such as GlaxoSmithKline? Explain.
9. Spencer Company earned a 16 percent return on its total assets. Current liabilities are 10 percent of total assets. Long-term bonds carrying an 11 percent coupon rate are equal to 30 percent of total assets. There are no preferential shares. Is this application of leverage favorable or unfavorable from the viewpoint of Spencer’s shareholders?
10. An investor states, “I bought this share for P50 several years ago and it now sells for P100. It paid P5 per share in dividends last year so I’m earning 10 percent on my investment. Evaluate this statement.
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