Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios on which they focus?Why would the inventory turnover ratio be more important for someone analyzing a grocery store chain than an insurance company?Over the past year, M.D. Ryngaert & Co. had an increase in its current ratio and a decline in its total asset’s turnover ratio. However, the company’s sales, cash, and equivalents, DSO, and fixed assets turnover ratio remained constant. What balance sheet accounts must have changed to produce the indicated changes?Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery store and a steel company?How does inflation distort ratio analysis comparisons for one company over time (trend analysis) and for different companies that are being compared? Are only balance sheet items or both balance sheet and income statement items affected?If a firm’s ROE is low and management wants to improve it, explain how using more debt might help.Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?Refer to an online finance source such as Yahoo! Finance or Google Finance to look up the P/E ratios for Alphabet INC. (the parent company of Google), and Walmart. Which company has the higher P/E ratio? What factors could explain this?

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Answered: Financial ratio analysis is conducted…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Question

Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios on which they focus?
Why would the inventory turnover ratio be more important for someone analyzing a grocery store chain than an insurance company?
Over the past year, M.D. Ryngaert & Co. had an increase in its current ratio and a decline in its total asset’s turnover ratio. However, the company’s sales, cash, and equivalents, DSO, and fixed assets turnover ratio remained constant. What balance sheet accounts must have changed to produce the indicated changes?
Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery store and a steel company?
How does inflation distort ratio analysis comparisons for one company over time (trend analysis) and for different companies that are being compared? Are only balance sheet items or both balance sheet and income statement items affected?
If a firm’s ROE is low and management wants to improve it, explain how using more debt might help.
Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
Refer to an online finance source such as Yahoo! Finance or Google Finance to look up the P/E ratios for Alphabet INC. (the parent company of Google), and Walmart. Which company has the higher P/E ratio? What factors could explain this?