Answered: 1. The leverage ratio is the proportion…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 6QE: A firm had the following values for the four debt ratios discussed in the chapter: Liabilities to...

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1. The leverage ratio is the proportion of debts that a bank has compared to its equity/capital.

Please answer one that is most correct

Select one:

a. Debt to Equity = Total debt / Shareholders Equity.

b. Debt to Capital = Total debt / Capital (debt+equity)

c. There are different leverage ratios such as. Debt to Equity = Total debt / Shareholders Equity. Debt to Capital = Total debt / Capital (debt+equity) Debt to Assets = Total debt / Assets.

2. Which of the following amortization methods is most likely to evenly distribute the cost of an intangible asset over its useful life?

Select one:

a. Units-of-production method.

b. Straight-line method.

c. Double-declining balance method

3. What ratio is a cash and marketable securities based (it removes Inventory) ?

Select one:

a. Quick Ratio

b. Current Ratio

c. Dupont Analysis set of ratios

4. Which of the following is an appropriate method of computing free cash flow to the firm?

Select one:

a. Add operating cash flows to after-tax interest payments and deduct capital expenditures.

b. Add operating cash flows to capital expenditures and deduct after-tax interest payments.

c. Deduct both after-tax interest payments and capital expenditures from operating cash flows

5. What does the P/E ratio measure?

Select one:

a. The “multiple” that the stock market places on a company’s EPS.

b. The relationship between dividends and market prices.

c. The earnings for one common share of stock.

6. A company chooses to change an accounting policy. This change requires that, if practical, the company restate its financial statements for:

Select one:

a. All prior periods.

b. Current and future periods.

c. Prior periods shown in a report.

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