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Explain how do analyst use ratios to analyse a firm's leverage? Which ratio convey more important information to a credit analys

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter7: Analysis Of Financial Statements

Section: Chapter Questions

Problem 2Q: Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and...

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Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Explain how the credit analyst's focus will differ from the investment analyst's focus. What do each of the following ratios measure? Liquidity ratios Activity ratios Leverage ratios Profitability ratios Market ratios Explain the difference between Horizontal and Vertical analysis.
Explain how do analysts use ratios to analyse a firm’s leverage?
Discuss how a financial manager can use ‘current ratio’ and ‘debt ratio’ in ratio analysis to better manage a firm.
What is financial leverage? Explain the concept in relation to financial ratios.
Explain why financial analyst are interested in liquidity and solvent ratios
What is the usefulness of using Ratio analysis in financial reporting? What is industry average? How it benefits?
b. Explain how do analysts use ratios to analyse a firm’s leverage?
What are the siginificance of financial ratios (i.e. current ratio; DSO; TATO; profit margin; ROA; ROI)? How do they help us interpert financial data? What are the differences between ratios (i.e. profiability; liquidity; leverage)? What information do they provide for us?
Explain why a long term creditor should be interested in liquidity ratios. Include some examples or scenarios.
Which ratios convey more important information to a credit analyst those revolving around the levels of indebtedness or those measuring the ability to service debt?
What is the difference between the ratios that use the market price and the other ratios? Why might you get a different picture about firm performance from the different ratio types? Describe a specific scenario where this might occur.