Which of the following ratios would best disclose effective management of working capital by a given firm relative to other firms in the same industry? (a) A high rate of financial leverage relative to the industry average (b) A high number of days' sales uncollected relative to the industry average (C) A high turnover of net working capital relative to the industry average (d) A high number of days' sales in inventory relative to the industry average

Which of the following ratios would best disclose effective management of working capital by a given firm relative to other firms in the same industry? (a) A high rate of financial leverage relative to the industry average (b) A high number of days' sales uncollected relative to the industry average (C) A high turnover of net working capital relative to the industry average (d) A high number of days' sales in inventory relative to the industry average

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 1Q: Define each of the following terms: Liquidity ratios: current ratio; quick, or acid test,...

See similar textbooks

Similar questions

Calculate the projected inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Computron’s utilization of assets stack up against that of other firms in its industry?
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?
Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.22 (pages 6061) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.22 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large enough for the firm to disclose it. Amounts that are not meaningful are shown as n.m. A list of the 12 companies and a brief description of their activities follow. A. Amazon.com: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that reported in Exhibit 1.22. B. Carnival Corporation: Owns and operates cruise ships. C. Cisco Systems: Manufactures and sells computer networking and communications products. D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees. E. eBay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform. F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees. G. Johnson Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products. H. Kelloggs: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years. I. MGM Mirage: Owns and operates hotels, casinos, and golf courses. J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years. K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers. L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell, KFC, and Pizza Hut. REQUIRED Use the ratios to match the companies in Exhibit 1.22 with the firms listed above.
Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.23 (pages 6263) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.23 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. A list of the 12 companies and a brief description of their activities follow. A. Abercrombie Fitch: Sells retail apparel primarily through stores to the fashionconscious young adult and has established itself as a trendy, popular player in the specialty retailing apparel industry. B. Allstate Insurance: Sells property and casualty insurance, primarily on buildings and automobiles. Operating revenues include insurance premiums from customers and revenues earned from investments made with cash received from customers before Allstate pays customers claims. Operating expenses include amounts actually paid or expected to be paid in the future on insurance coverage outstanding during the year. C. Best Buy: Operates a chain of retail stores selling consumer electronic and entertainment equipment at competitively low prices. D. E. I. du Pont de Nemours: Manufactures chemical and electronics products. E. Hewlett-Packard: Develops, manufactures, and sells computer hardware. The firm outsources manufacturing of many of its computer components. F. HSBC Finance: Lends money to consumers for periods ranging from several months to several years. Operating expenses include provisions for estimated uncollectible loans (bad debts expense). G. Kelly Services: Provides temporary office services to businesses and other firms. Operating revenues represent amounts billed to customers for temporary help services, and operating expenses include amounts paid to the temporary help employees of Kelly. H. McDonalds: Operates fast-food restaurants worldwide. A large percentage of McDonalds restaurants are owned and operated by franchisees. McDonalds frequently owns the restaurant buildings of franchisees and leases them to franchisees under long-term leases. I. Merck: A leading research-driven pharmaceutical products and services company. Merck discovers, develops, manufactures, and markets a broad range of products to improve human and animal health directly and through its joint ventures. J. Omnicom Group: Creates advertising copy for clients and is the largest marketing services firm in the world. Omnicom purchases advertising time and space from various media and sells it to clients. Operating revenues represent commissions and fees earned by creating advertising copy and selling media time and space. Operating expenses includes employee compensation. K. Pacific Gas Electric: Generates and sells power to customers in the western United States. L. Procter Gamble: Manufactures and markets a broad line of branded consumer products. REQUIRED Use the ratios to match the companies in Exhibit 1.23 with the firms listed above.
Define each of the following terms: Liquidity ratios: current ratio; quick, or acid test, ratio Asset management ratios: inventory turnover ratio; days sales outstanding (DSO); fixed assets turnover ratio; total assets turnover ratio Financial leverage ratios: debt ratio; times-interest-earned (TIE) ratio; EBITDA coverage ratio Profitability ratios: profit margin on sales; basic earning power (BEP) ratio; return on total assets (ROA); return on common equity (ROE) Market value ratios: price/earnings (P/E) ratio; price/cash flow ratio; market/book (M/B) ratio; book value per share Trend analysis; comparative ratio analysis; benchmarking DuPont equation; window dressing; seasonal effects on ratios
A Comparing Financial Ratios Presented below are selected ratios the four firms, Badgley is a heavy equipment manu1icturer. Reagan is a newspaper publisher. Klein is a food manufacturer, and Taylor is a grocery chain. Required: 1. Which firm has the weakest current ratio? 2. CONCEPTUAL CONNECTION Explain why the turnover ratios vary so much among the four firms. 3. CONCEPTUAL CONNECTION Explain why the return on equity ratio is larger than the return on asset ratio for all four firms. 4. CONCEPTUAL CONNECTION Discuss whether the large differences in the return on equity ratios can exist over long periods of time.
Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
A firm's ROE is above the industry average, but its profit margin and equity multiplier are both below the industry average. Which of the following statements is correct? A. It's total assets turnover is above the industry average B. Its total asset turnover is below the industry average C. Its TIE ratio is below the industry average D. It's ROA equals the industry average E. Its total assets turnover equals the industry average
Which of the following statements regarding financial ratios is most CORRECT? Group of answer choices: Industry average ratios are good benchmarks to compare performance for all firms in the same industry. Ratios are by themselves good indicators of a firm's strong or weak position. Electric utilities generally have low debt ratios because of their more stable revenue streams. Ratio analysis works better for conglomerate frms than for single-business firms. None of these statements are correct.
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
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 uncertainty about demand, output prices and competition