M9 Which of the following statements is the most reasonable conclusion from the given information below of ABC Company?Net profit:P54,000Debt ratio: 35%Total liabilities:P295,750Industry average return on asset: 10.3%ABC Company's ROA is above the industry average, which suggests it is generating more return on its investment inAassets when comparted to firms in the industry.ABC Company's ROA is above the industry average, which suggests it is generating less return on its investment inВassets when comparted to firms in the industry.ABC Company's ROA is below the industry average, which suggests it is generating more return on its investment inCassets when comparted to firms in the industry.ABC Company's ROA is below the industry average, which suggests it is generating less return on its investment inassets when comparted to other firms in the industry.

Return on assets indicates that how much is the company is profitable regarding it's assets, it…

Answered: Which 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 10P

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The income statement comparison for Rush Delivery Company shows the income statement for the current and prior year. A. Determine the operating income (loss) (dollars) for each year. B. Determine the operating income (percentage) for each year. C. The company made a strategic decision to invest in additional assets in the current year. These amounts are provided. Using the total assets amounts as the investment base, calculate the ROI. Was the decision to invest additional assets in the company successful? Explain. D. Assuming an 8% cost of capital, calculate the RI for each year. Explain how this compares to your findings in part C.
Macon Mills is a division of Bolin Products. Inc. During the most recent year, Macon had a net income of $40 million. Included in the income was interest expense of $2,800,000. The companys tax rate was 40%. Total assets were $470 million, current liabilities were $104,000,000, and $72,000,000 of the current liabilities are noninterest bearing. What are the invested capital and ROI for Macon?
Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. Compute the break-even point for each company. Explain why the break-even point for Quintex, Inc., is higher. 3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in Quintexs profits is so much greater than that of Trimax.
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?
Payne Products had $1.6 million in sales revenues in the most recent year and expects sales growth to be 25% this year. Payne would like to determine the effect of various current assets policies on its financial performance. Payne has $1 million of fixed assets and intends to keep its debt ratio at its historical level of 60%. Payne’s debt interest rate is currently 8%. You are to evaluate three different current asset policies: (1) a restricted policy in which current assets are 45% of projected sales, (2) a moderate policy with 50% of sales tied up in current assets, and (3) a relaxed policy requiring current assets of 60% of sales. Earnings before interest and taxes are expected to be 12% of sales. Payne’s tax rate is 40%. What is the expected return on equity under each current asset level? In this problem, we have assumed that the level of expected sales is independent of current asset policy. Is this a valid assumption? Why or why not? How would the overall risk of the firm vary under each policy?
Suppose the firm makes the change but its competitors react by making similar changes to their own credit terms, with the net result being that gross sales remain at the current 1,000,000 level. What would be the impact on the firms after-tax profitability?
Blue Co. has a total liabilities of P400,000 on which 40% is a long-term liability. The non-current asset of the firm is half of the total asset and it is determined that its current ratio is 3:1. If the firm has a net profit of P144,000, what will be the return on asset? (type the answer in percentage with “%”)
The Diamond Corporation has the following ratios: A0*/S0 = 1.6; L0*/S0 = 0.4; Profit Margin = 0.10; and Dividend Payout Ratio = 0.45, or 45%. Sales last year were $100 million, suppose Diamond’s financial consultants report (1) that the Inventory Turnover Ratio (sales/inventory) is 3, compared with an Industry Average of 4, and (2) that Diamond could reduce inventories and thus raise its Turnover Ratio to 4 without affecting its Sales, Profit Margin, or other Asset Turnover Ratios. A. Under these conditions, use the AFN equation to determine the amount of additional funds Diamond would require during the 1st year if sales grow at a rate of 20% per year. B. Under these conditions, use the AFN equation to determine the amount of additional funds Diamond would require during the 2nd year if sales grow at a rate of 20% per year.
Consider a retail firm with a net profit margin of 3.93 %, a total asset turnover of 1.87, total assets of $42.3 million, and a book value of equity of $18.6 million.a. What is the firm's current ROE?b. If the firm increased its net profit margin to 4.58 %, what would be its ROE?c. If, in addition, the firm increased its revenues by 19 % (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE?
Consider a retail firm with a net profit margin of 3.94%, a total asset turnover of 1.84, total assets of $44.9 million, and a book value of equity of $18.3 million. a. What is the firm's current ROE? b. If the firm increased its net profit margin to 4.83%, what would be its ROE? c. If, in addition, the firm increased its revenues by 23% (maintaining this higher profit margin and without changing its assets or liabilities), what would be its ROE? **round to one decimal place**
The following is Firm Y's current statement of comprehensive income. If the firm is currently operating at 75% capacity, how much must sales increase before Firm Y needs to buy new fixed assets? Sales $50,000 CoGS 30,000 EBDIT 20,000 Depreciation 10,000 EBIT 10,000 Interest expense 5,000 Taxable income 5,000 Taxes (35%) 1,750 Net Income 3,250 Dividends 975 Multiple Choice 50% 75% 30% 66.67% 33.33%
Perseverance Corporation is deciding whether to pursue a restricted or relaxed current asset investment policy. The firm's annual sales are expected to total P3,600,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is P150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.2. What's the difference in the projected ROES under the restricted and relaxed policies? [Round off to one decimal place.)

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