Answered: No single ratio can predict the success…

No single ratio can predict the success or Failure of a company. What different types of Ratios are necessary for financial analysis? How is the Return on Assets (ROA) Ratio Calculated?

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 6Q: Why is it sometimes misleading to compare a company’s financial ratios with those of other firms...

See similar textbooks

Related questions

Q: Which of the following is NOT one of the ratios in Profitability group? Select one: a. Quick ratio…

A: Profitability ratios are those ratios which helps in measuring and determining the profitability of…

Q: Explain the Limitations of Financial Ratios in Business Decisions?

A: Financial ratios are very useful in showing the relationship between the items within the financial…

Q: Explain the term Using Ratios to Make Business Decisions?

A: There is lots of information in the financial reports summed up in numbers. We might not have…

Q: How does current ratio and quick ratio relate to a firm's financial profitability?

A: Current ratio and quick ratio are indirectly related to a firm's financial profitability.

Q: In comparing the current ratios of two companies, why is it invalid to assume that the company with…

A: Solution: Current ratio is calculated as = Current assets / Current liabilities Current assets…

Q: you are an investor how do you assess the financial ratios of the company? And why

A: FINANCIAL ratios are considered to be an important indicator for the companies financial stability…

Q: Which financial ratios would you recommend to evaluate a company's solvency? Once these ratios are…

A: To evaluate company solvency, Solvency ratios are the company long-term ability to cover the…

Q: The three input ratios (not output) to the DuPont model of financial statement analysis are: a) Net…

A: Du-point Analysis is the method of measuring the performance of the company. It measures the return…

Q: Which of the following income statement figures would probably be the best indicator of a company's…

A: Income statement: The income statement is one of the three primary financial statements used to…

Q: Accounting ratios are only as good as the data on which they are based.’ Discuss. What does ‘ROCE’,…

A: Hello, I am only answering first question as per the policy and if you want others to be answered…

Q: What is the purpose of published financial statements for companies and the ratio analysis?

A: Financial Statement-Financial statements provide information about a company's performance,…

Q: Advantage and disadvantages of ratios in analyzing financial performance

A: Ratio Analysis is the financial analysis technique which is used to analyse the financial condition…

Q: Which of the following statements is NOT correct? Statement 1: Debt utilization ratios are used to…

A: Statement 1: Debt utilization ratios measure a company's debt status in relation towards the total…

Q: What are the Limitations of Financial Ratios in Business Decisions?

A: Limitations of Financial Ratios in Business Decisions are as follows: Firms operating in various…

Q: Which of the following is true regarding the debt to equity ratio? a. The debt to equity ratio…

A: The debt to equity ratio represents proportion of company's liabilities to the shareholders equity.…

Q: Assessing a firm's overall solvency is best accomplished by evaluating current ratio Odebt to assets…

A: Solvency Ratio :— A solvency ratio is one of many metrics used to determine whether a company can…

Q: One of the most important applications of ratio analysis is to compare a company’s performance with…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Which of the following statements regarding the current ratio is true? a.The current ratio is more…

A: Ratio analysis is a method of measuring the financial position of the organization with different…

Q: What are the limitations to using financial ratio analysis [such as profitability ratios, liquidity…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: why is it sometimes misleading to compare a company's financial ratios with those of other firms…

A: Financial ratio is an arithmetic expression used to describe the significant relationship between…

Q: How might one establish norms (or target values)for the financial ratios of a company that is…

A: The question is based on the concept of ratio analysis used as financial analysis for a company. The…

Q: What does ‘ROCE’, EPS and P/E ratios and why are they important to a business entity?

A: ROCE means Return on Capital Employed. EPS means Earnings Per Share. P/E ratio means Price Earnings…

Q: Which of the following ratios helps in measuring the long term solvency of the company? Current…

A: Requirement ÷ratio helps in measuring the long term solvency of the company ANSWER ÷ correct…

Q: What does the current ratio inform you about a company? A. The efficient use of assets. B. The…

A: Current Ratio : The current ratio is the relation between the current assets and current liabilities…

Q: Which company is more reliant on equity to fund their assets based on the ratios you have? What are…

A: The Decision regarding the Capital Structure of a Company is a very important aspect. A company can…

Q: Comparative ratio analysis can be applied when analyzing performance of the company for one period…

A: Solution:- There are two types of analysis: a) Time Series Analysis:- It is the analysis and…

Q: Ratio is an expression of relationship between two or more items in mathematical terms. Ratio may be…

A: Ratio is an expression that defines relationship between two or more items in mathematical terms. It…

Q: What is the basic purpose for examining trends in a company’s financial ratios and other data? What…

A: Ratio analysis, horizontal analysis and vertical analysis are the analytical tools used by the…

Q: Which of the following ratios is used to measure the profit earned on each dollar invested in a…

A: Ratio analysis helps in analyzing the performance of the firm. The investors use ratios to determine…

Q: Which of the following ratios is not considered to be a test of profitability? Group of answer…

A: Profitability ratio includes :- Net profit margin Gross profit margin Operating profit margin…

Q: The ratio group most likely to be used to indicate a firm's ability to meet short-term financial…

A: Activity ratios are also known as turnover ratios or operating efficiency ratios.

Q: Which of the following ratios would NOT be considered to be a measure of a business economic…

A: The economic performance of a business can be measured by its ability to generate profits.…

Q: To evaluate a company’s performance, investors need a benchmark to which they can compare its…

A: Financial ratio is defined as an accounting ratio, which used to choose two main numerical value for…

Q: Ratios: Which of the following ratios is not considered to be a test of profitability? Long-Term…

A: Profitability ratios are a group of financial indicators that are used to evaluate a company's…

Q: What are the siginificance of financial ratios (i.e. current ratio; DSO; TATO; profit margin; ROA;…

A: Financial ratios are relationships obtained from the financial ratios of a company.There are several…

Q: When you are interpreting financial ratios, it is useful to compare a company's ratios to some form…

A: in financial analysis the performance of company are measured by comparing the performance with some…

Q: Which of the following are not part of the components ofthe DuPont system for measuring and…

A: DuPont system is used to measure the return on the equity.

Q: Which of the following statements is not true of horizontal analysis? a.Each item on a financial…

A: Horizontal analysis compares the each element of the financial statement of two different year. For…

Q: Explain why balance sheet accounts are generally “averaged” and income statement figures are just…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Question

No single ratio can predict the success or
Failure of a company. What different types of
Ratios are necessary for financial analysis?
How is the Return on Assets (ROA) Ratio
Calculated?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Which of the following is not included in the Dupont framework? a. a measure of profitability c. a measure of leverage b. a measure of efficiency d. a measure of market share
Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
Which of the following ratios is used to measure a firms profitability? a. Liabilities Ă· Equity c. Sales Ă· Assets b. Assets Ă· Equity d. Net Income Ă· Net Sales
What are the limitations to using financial ratio analysis [such as profitability ratios, liquidity ratios, gearing ratios, and investment ratios] computed from the financial statements of a company. What other alternatives could have been used to decide on the performance and investment-worthiness of a company.
To evaluate a company’s performance, investors need a benchmark to which they can compare its financial ratios. What are some of the problems associated with these comparisons?
Describe and justify why you would use the following ratios as an analyst to evaluate the performance of a company. Profitability Ratios Liquidity Ratios Gearing Ratios Investment Ratios
Ratios are subject to certain limitations and cannot be used as the only tool to assess performance of a firm. Elaborate the proposition by preparing ratios analysis of the firm’s profitability.
The business risk of a company is most accurately measured by the company's: a. Debt-to-equity ratio b. Efficiency in using assets to generate sales c. Operating leverage and level of uncertainly about demand output prices and competition
What is the purpose of a financial ratio analysis? Define a financial ratio for each of the following: Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios Growth Ratio Which do you think is/are most important to a company like walmart in making financial strategic decisions? Why?
How might one establish norms (or target values)for the financial ratios of a company that is justgetting started? Where might data for this purposebe obtained? Could information of this type beused to help determine how much debt and equitycapital a new firm would require?