Discuss the economic characteristics of firms that have the following mix of profit margin and asset turnover. In addition, for each case provide an example of an industry that has the same mixture of profit margin and asset turnover as mentioned below: High profit margin and low asset turnover. Low profit margin and high asset turnover

Discuss the economic characteristics of firms that have the following mix of profit margin and asset turnover. In addition, for each case provide an example of an industry that has the same mixture of profit margin and asset turnover as mentioned below: High profit margin and low asset turnover. Low profit margin and high asset turnover

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

Which of the following statements is true? a. The fixed asset turnover ratio assists managers in determining the estimated future capital expenditures that are needed. b. The average age of the fixed assets is computed by dividing accumulated depreciation by depreciation expense. c. If net sales increases, the fixed asset turnover ratio will decrease. d. A relatively low fixed asset turnover ratio signals that a company is efficiently using its assets.
The high-low method and least-squares regression are used by managers to _____________________. A. decide whether to make or buy a component part B. minimize corporate tax liability C. maximize output D. estimate costs
Using the data in the following table for a number of firms in the same industry, dothe following:•a. Compute the total asset turnover, the net profit margin, the equity multiplier, andthe return on equity for each firm.b. Evaluate each firm’s performance by comparing the firms with one another.Which firm or firms appear to be having problems? What corrective actionwould you suggest the poorer performing firms take? Finally, what additional data would you want to have on hand when conducting youranalyses?Firm (in million Dollars A B C D Sales $20 $10 $15 $25 Net Income after sales 3 0.5 2.25 3 Total Assets 15 7.5 15 24 Stockholders’ Equity 10 5 14 10
A firm with a below industry net profit margin can improve its return on total assets by: a. increasing its current ratio c. decreasing its fixed asset turnover b. decreasing its total asset turnover d. increasing its total asset turnover
Fill in the blank for part A and B. A. Higher margin businesses ________________________ than lower margin businesses. a. Usually use the same amount of operating assets b. Can use more operating assets c. Must use fewer operating assets d. Must have a higher asset utilization B. A lower margin business must have to be successful. a. Lower asset utilization b. Medium asset utilization c. Higher asset utilization d. Low sales revenue relative to its operating assets
A firm has a higher asset turnover ratio than the industry average, which implies the firm has a higher P/E ratio than other firms in the industry. the firm is more likely to avoid insolvency in the short run than other firms in the industry. the firm is more profitable than other firms in the industry. the firm is utilizing assets more efficiently than other firms in the industry. the firm has higher spending on new fixed assets than other firms in the industry.
PLEASE ANSWER ALL Write “True” if the statement is true and write “False” if the statement is false. The relevant range of activity is the activity level at which the company makes the highestamount profits. Fixed costs per unit decline as the activity level increase within the relevant range of activity. A period cost is defined as the cost incurred when asset is used up or sold for the purpose ofgenerating revenue. Opportunity costs could be defined as the revenue lost when one alternative is not taken infavor of another alternative.
The ABC Corporation has a profit margin on sales below the industry average, yet its ROA is above the industry average. What does this imply about its asset turnover?
Managers have some flexibility in setting the estimated useful lives of depreciable assets. Explain how this could allow managers to manipulate earnings. Would depreciation be considered a variable cost or a fixed cost? Explain how a change in sales price, variable cost, or fixed cost affects breakeven in units and breakeven in sales.
Company A has a higher Asset Turnover than Company B. Which of the following statements is true regarding these two companies? Company A has higher sales than Company B. Company A is more efficient in using its assets to produce sales than Company B. Company A has fewer assets than Company B.
To compete successfully for the better stockholders and better lenders, a business would need: Good employees Increasing sales revenue A higher asset utilization A lower asset utilization
The systematic examination of the relationships among selling prices, volume of sales and production, costs, and profits is termed a. cost-volume-profit analysis b. contribution margin analysis c. budgetary analysis d. gross profit analysis In a profit center, the manager has responsibility and authority for making decisions that affect a. assets b. investments c. long-term liabilities d. costs