K1 Which of the following statements is the most reasonable conclusion from the giveninformation below of ABC Company?Net profit: P54,000Debt ratio: 35%Total equity: P549,250Industry average return on equity:17.7%ABC Company's ROE is above the industry average, which suggests it is generatingless return for stockholders when compared to other firms in the industry.ABC Company's ROE is below the industry average, which suggests it is generatingless return for stockholders when compared to other firms in the industry.ABC Company's ROE is below the industry average, which suggests it is generatingmore return for stockholders when compared to other firms in the industry.ABC Company's ROE is above the industry average, which suggests it is generatingmore return for stockholders when compared to other firms in the industry.

Solution Concept Return on equity is given as =net profit/total equity Working note ROE of ABC…

Answered: Vhich of the following statements is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 9P

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Analyze and compare Bank of America and Wells Fargo Bank of America Corporation (BAC) and Wells Fargo Company (WFC) are two large financial services companies. The following data (in millions) were taken from a recent years financial statements for both companies: a. Compute the earnings per share for both companies. Round to the nearest cent. a. Which company appears to be more profitable on an earnings-per-share basis? b. Which company would you expect to have the larger quoted market price?
For a recent year, OfficeMax and Staples are two companies competing in the retail office supply business. OfficeMax had a net income of 34,894,000, while Staples had a net loss of 210,706,000. OfficeMax had preferred stock of 28,726,000 with preferred dividends of 2,123,000. Staples had no preferred stock. The average outstanding common shares for each company were as follows: a. Determine the earnings per share for each company. Round to the nearest cent. b. Evaluate the relative profitability of the two companies.
Bob's Inc has the following balance sheet and income statement data see image... The new CFO thinks that inventory are excessive and could be lowered to cause the current ratio to equal industry average 3.00 w/o affecting either sales or net income. assuming that inventories are sold off and not replaced to get the current ratio to the target level and that the funds generated are used to buy back common stock at book value, by how much would the ROE change?
Which of the following statements are true about profitability ratios? Check all that apply. If a company has a net profit margin of 10%, it means that the company earned a net income of $0.10 for each dollar of sales. If a company’s operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in the return on assets ratio implies an increase in the assets a firm owns. If a company issues new common shares but its net income does not increase, return on common equity will increase.
Which of the following statements is most correct?(a) A decline in the inventory turnover ratio suggests that the firm's liquidity position is improving.{b) The profit margin on sales is calculated by dividing net operating income by sales(c) When a corporation buys back its own stock, this is called Treasury Stock. The firm's cash and equity are both reduced.(d) None of the above.
Gulf Controls, Inc., has a net profit margin of 10 percent and earnings after taxes of $600,000. Its current balance sheet follows: a. Calculate Gulf’s return on stockholders’ equity. b. The industry average ratios are as follows: Compare Gulf Controls with the average firm in the industry. What is the source of the major differences between the Gulf and the industry average ratios?
Last year Jullan Corp. had sales of P302,225 operating costs of P267,500 and year-end assets of P195,000. The debt-to-total-assets ratio was 27%, the interest rate on the debt was 8.2% and the firm's tax rate was 37%. The new CFO wants to see how the Return on Equity (ROE) would have been affected if the firm had used a 45% debt ratio. Assume that sales and total assets would not be affected, and that the interest rate and tax rate would both remain constant. By how much would the ROE change (increase or decrease in percentage) in response to the change in the capital structure?
Each of the following factors may cause a corporation to lower its dividend payout ratio EXCEPT A. the corporation's current and quick ratios are higher than industry average. B. the corporation's earnings predictability is high. C. current common shareholders are unable to participate in new equity offerings. D. the corporation's retained earnings balance is high.
Hackworth Co. is a privately owned firm with few investors. Investors forecast their earnings per share (EPS) to reach $3 this coming year. The average price-to-earnings (P/E) ratio for similar companies in the S&P 500 is 10. What is the estimated intrinsic value of Hackworth Co.’s stock per share? Market multiple analysis is also used to calculate the value of a company, which is further used to calculate the intrinsic value per share of the firm. Suppose you have the information given in the following table for Company X. Year 1 Year 2 EBITDA $7,650 $9,150 Total value of equity $76,500 $82,500 Total firm value $99,450 $132,000 What is value of the entity multiple of Company X in Year 1?
If we know that a firm has a net profit margin of 4.3 %, total asset turnover of 0.77, and a financial leverage multiplier of 1.36, what is its ROE? What is the advantage to using the DuPont system to calculate ROE over the direct calculation of earnings available for common stockholders divided by common stock equity?
For each of the companies described here, would you expect it to have a low, medium, or high dividend-payout ratio? Explain why. d. A dividend-paying company that experiences an unexpected drop in earnings from an upward-sloping trend line e. A company with volatile earnings and high business risk
Which of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.

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