Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
bartleby

Videos

Textbook Question
Chapter 12, Problem 91PSB

Comparing Financial Ratios

Presented below are selected ratios for four firms. Tweeter is a distiller. Clinton is a jewelry retailer, Smith is an airline, and Orlando is a hotel chain.

Chapter 12, Problem 91PSB, Comparing Financial Ratios Presented below are selected ratios for four firms. Tweeter is a

Required:

1. CONCEPTUAL CONNECTION Explain why the long-term debt to equity ratio is so much higher for the airline and hotel chain than it is for the distiller and jewelry retailer.

2. CONCEPTUAL CONNECTION Explain why the turnover ratios vary so much among the four firms.

3. CONCEPTUAL CONNECTION Explain why the return on equity for the airline and hotel chain is higher than for the distiller and jewelry retailer when their operating income and net income percentages are considerably smaller.

Blurred answer
Students have asked these similar questions
Interpreting Ratios. In each of the following cases, explain briefly which of the two companies is likely to be characterized by the higher ratio. (O LO3) a. Debt-to-equity ratio: a shipping company or a computer software company b. Payout ratio: Food Producer Inc. or Computer Graphics Inc. c. Ratio of sales to assets: an integrated pulp and paper mill and manufacturer or a paper mill d. Average collection period: Regional Electric Power Company or. Z-Mart Discount Outlets
Carson Electronics’ management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheet and income statements for the two firms are as follows: Calculate the following ratios for both Carson and BGT: a) Debt ratio: b) Average collection period: c) Fixed asset turnover: d) Return on equity:
Help with the realtionship between financial leverage and profitability. Pelican​ Paper, Inc., and Timberland​ Forest, Inc., are rivals in the manufacture of craft papers. Some financial statement values for each company follow. Use them in a ratio analysis that compares the​ firms' financial leverage and profitability. a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other. ​(1) Debt ratio ​(2) Times interest earned ratio b. Calculate the following profitability ratios for the two  companies. Discuss their profitability relative to each other. ​(1) Operating profit margin ​(2) Net profit margin ​(3) Return on total assets ​(4) Return on common equity c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican​ Paper? What are the risks that​ Timberland's investors undertake when they choose to purchase its stock instead of​ Pelican's?

Chapter 12 Solutions

Cornerstones of Financial Accounting

Ch. 12 - Prob. 11DQCh. 12 - 12. Why are higher asset turnover ratios...Ch. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 16DQCh. 12 - Which of the following use financial statement...Ch. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQCh. 12 - Which type of analysis compares a single...Ch. 12 - Which of the following types of analysis compares...Ch. 12 - Which of the following types of analysis is...Ch. 12 - Prob. 11MCQCh. 12 - Prob. 12MCQCh. 12 - Prob. 13MCQCh. 12 - Partial information from Fabray Companys balance...Ch. 12 - Hummel Inc. has $30,000 in current assets and...Ch. 12 - Prob. 16MCQCh. 12 - A firms quick ratio is typically computed as: a....Ch. 12 - Prob. 18MCQCh. 12 - Prob. 19MCQCh. 12 - Prob. 20MCQCh. 12 - Prob. 21MCQCh. 12 - Prob. 22MCQCh. 12 - Prob. 23MCQCh. 12 - When analyzing a companys debt to equity ratio,...Ch. 12 - Prob. 25MCQCh. 12 - Prob. 26MCQCh. 12 - Prob. 27MCQCh. 12 - Prob. 28MCQCh. 12 - Prob. 29MCQCh. 12 - Prob. 30MCQCh. 12 - Which of the following ratios is used to measure...Ch. 12 - Prob. 32MCQCh. 12 - Selected information for Berry Company is as...Ch. 12 - Which of the following ratios is used to measure a...Ch. 12 - Prob. 35MCQCh. 12 - Prob. 36MCQCh. 12 - Prob. 37MCQCh. 12 - Prob. 38MCQCh. 12 - Which of the following are not part of common...Ch. 12 - Prob. 40MCQCh. 12 - Prob. 41MCQCh. 12 - Prob. 42MCQCh. 12 - Which of the following is not included in the...Ch. 12 - When a Dupont analysis reveals that a company has...Ch. 12 - Prob. 45MCQCh. 12 - Cross Sectional Analysis Cross sectional analysis...Ch. 12 - Prob. 47CECh. 12 - Prob. 48CECh. 12 - Short-Term Liquidity Ratios Three ratios...Ch. 12 - Debt Management Ratios Selected data from the...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Selected financial...Ch. 12 - Profitability Ratios The following data came from...Ch. 12 - Prob. 54CECh. 12 - Prob. 55CECh. 12 - Prob. 56CECh. 12 - Prob. 57BECh. 12 - Prob. 58BECh. 12 - Prob. 59BECh. 12 - Short-Term Liquidity Ratios Larry, Curly, and Moe...Ch. 12 - Debt Management Ratios Glow Corporation provides...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Rumsford Inc.s financial...Ch. 12 - Prob. 64BECh. 12 - Profitability Ratios Tinker Corporation operates...Ch. 12 - Profitability Ratios Katrina Corp. is a publicly...Ch. 12 - Prob. 67BECh. 12 - Prob. 68ECh. 12 - Prob. 69ECh. 12 - Prob. 70ECh. 12 - Prob. 71ECh. 12 - Horizontal Analysis of Income Statements...Ch. 12 - Prob. 73ECh. 12 - Prob. 74ECh. 12 - Prob. 75ECh. 12 - Prob. 76ECh. 12 - Prob. 77ECh. 12 - Prob. 78ECh. 12 - Prob. 79ECh. 12 - Asset Efficiency Ratios Refer to financial...Ch. 12 - Prob. 81ECh. 12 - Prob. 82ECh. 12 - Prob. 83ECh. 12 - Prob. 84PSACh. 12 - Prob. 85PSACh. 12 - Prob. 86PSACh. 12 - A Using Common Size Statements The following...Ch. 12 - Prob. 88PSACh. 12 - Prob. 89PSACh. 12 - Prob. 90PSACh. 12 - A Comparing Financial Ratios Presented below are...Ch. 12 - A Preparation of Ratios Refer to the financial...Ch. 12 - Accounting Alternatives and Financial Analysis...Ch. 12 - Prob. 84PSBCh. 12 - Prob. 85PSBCh. 12 - Prob. 86PSBCh. 12 - Prob. 87PSBCh. 12 - Prob. 88PSBCh. 12 - Prob. 89PSBCh. 12 - Prob. 90PSBCh. 12 - Comparing Financial Ratios Presented below are...Ch. 12 - Prob. 92PSBCh. 12 - Problem 1 2-93B Accounting Alternatives and...Ch. 12 - Prob. 94CCh. 12 - Prob. 95.1CCh. 12 - Prob. 95.2CCh. 12 - Prob. 96.1CCh. 12 - Prob. 96.2CCh. 12 - Prob. 97.1CCh. 12 - Prob. 97.2CCh. 12 - Prob. 97.3CCh. 12 - Prob. 97.4CCh. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Prob. 98.1CCh. 12 - Prob. 98.2CCh. 12 - Prob. 98.3CCh. 12 - CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT The...Ch. 12 - Prob. 99.2CCh. 12 - Prob. 99.3CCh. 12 - Prob. 99.4CCh. 12 - Prob. 99.5C
Knowledge Booster
Accounting
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
  • 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.
    Certain financial ratios for The Gap for its most recent year are given below, along with the average ratios for its industry.  Based on those ratios, answer the following.  1) Does The Gap seem to prefer to finance its assets with debt or with equity?  How can you tell?  What percent of its assets are funded with debt?  What percent  of its assets are funded with equity?  2) A supplier to The Gap sells merchandise to The Gap and asks to be paid within 60 days.  While any of The Gap’s financial ratios might be of interest to the supplier, which of the ratios listed below do you think would likely be the most important one to the supplier?  Why?  3) Which of the ratios presented suggest that, compared to its industry, The Gap may have a problem controlling its operating expenses?  How can you tell?  Your answer should clearly indicate that you understand why the ratio that you chose answers this question.  Here is the data for The Gap and its industry. Financial Ratios…
    Methodology:• Based on the above information the consulting group will conduct ratio analysis for the following ratios:o Current ratio o Receivable’s turnover o Times’s interest earned o Profit margin o Days in inventory o Return on assets o Cash current debt coverage ratio • As a next step the group will compare the ratios calculated above with industry benchmarks. The benchmarks are indicated within brackets besides each ratio.o Current ratio (3 to 1) o Receivable’s turnover (13 times) o Times’s interest earned (9 times) o Profit margin (12%) o Days in inventory (50 days) o Return on assets (12%) o Cash current debt coverage ratio (2 times
  • -Based on the ratios calculated in Part 1, you will perform a ratio-based analysis. You should divide your discussion into four parts: liquidity, solvency, operational efficiency, and profitability. Ensure to choose the right ratios to discuss a specific part.   -Find the relationships among ratios and trends over the three years compared. Also, compare these relationships and trends with those of Target.   -In the last part of your discussion, you will show your investment decision: buy or not buy Walmart. You may want to split your investment between two companies. Tell me your rationale for your decision   - Your discussion and final investment decision should solely be based on the ratio analysis, although investors also use various non financial information in their investment decision-making.
    Identify the ratio that is relevant to answering each of the following questions.a. How much net income does the company earn from each dollar of sales?b. Is the company financed primarily by debt or equity?c. How many dollars of sales were generated for each dollar invested in fixed assets?d. How many days, on average, does it take the company to collect on credit sales made tocustomers?e. How much net income does the company earn for each dollar owners have invested in it?f. Does the company have sufficient assets to convert into cash for paying liabilities as theycome due in the upcoming year?
    Grammatico Company has just completed its third year of operations. The income statement is as follows: Selected information from the balance sheet is as follows: Required: Note: Round answers to two decimal places. 1. Compute the times-interest-earned ratio. 2. Compute the debt ratio. 3. CONCEPTUAL CONNECTION Assume that the lower quartile, median, and upper quartile values for debt and times-interest-earned ratios in Grammaticos industry are as follows: How does Grammatico compare with the industrial norms? Does it have too much debt?
  • 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?
    Read and understand the financial statements of Green Valley Merchandising, Compute for the following ratios of the said business entity: 1. Profitability Ratios a) Gross Profit Margin b) Return on Equity c) Return on Assets 2. Leverage Ratio a) Debt-to-Equity 3. Liquidity Ratios a) Current Ratio b) Quick-Asset Ratio
    Some of the financial ratios of V, W, X, Y, and Z companies are calculated and presented in the following table. Ratio V W X Y Z Quick Ratio 4.1 times 2.4 times 3.9 times 2.8 times 3.2 times Return on sales 12% 8% 10% 16% 14% Inventory Turnover Ratio 9.7 times 12.6 times 10.4 times 11.5 times 7.8 times Debt-to- equity Ratio 0.45 0.64 0.21 0.36 0.81   You are an individual investor assessing the publicly traded companies V, W, X, Y, and Z based on their profitability. If you are to choose one of the companies to invest your money, which one would you choose? Explain your reason You are the loans manager of a bank assessing the applications of companies V, W, X, Y, and Z for long-term debt. If you are to choose one of the companies to lend money, which one would you choose? Explain your reason You are the loans manager of a bank assessing the applications of companies V, W, X, Y, and Z for short-term debt. If you…
  • Two companies are in the retail sales business, but their performance results are different, which is evidenced by the following data: Financial performance ratio Return on capital employed (ROCE) Return on ordinary share financing (ROSF) 30% Average debt collection period Average debt payment period Gross profit margin Net profit margin Average stock turnover period 20% 63 days 50 days 40% 10% 52 days Comp A Company B 17% 18% 21 days 45 days 15% 10% 25 days Perform the analysis of these data and describe the differences between these two companies. It is known that in one of them the work with consumers is well organised, while the other one is offering competitive prices. Which of these advantages are attributable to each company?
    You have been asked by your CEO to evaluate, analyze and calculate commonly used ratios relating to a company’s profitability, liquidity, solvency and management efficiency.     Requirement:   Complete the balance sheet and sales data (fill in the blanks), using the following financial data:                   Debt/net worth                                                        60% x 37,000 = 22,200 (debt) = AP               Acid test ratio                                                            1.2 x 22,200 = 26,640               Asset turnover                                                           1.5 times               Day sales outstanding in accounts receivable     40 days               Gross profit margin                                                   30%               Inventory turnover                                                    6 times                                                                                 Balance sheet   Cash…
    Here you will find some income statements and balance sheets for Sears Holdings (SHLD) and Taget Corp (TGT). Assume that you are a financial manager at Sear and want to compare your firm’s situation with that of Target. Calculate represenatative ratios for liquidity, asset management efficiency, financial leverage (capital structure), and profitability for both Sears and Target. How would you summarize the financial performance of Sears compared to target (its benchmark firm)? Include Sears and Targets current ratio, acid-test ratio, average collection period, accounts receivable turnover, inventory turnover, debt ratio, timed interest earned, total asset turnover, fixed asset turnover, gross profit margin, operating profit margin, net profit margin, operating return on assets, and return on equity.
    • SEE MORE QUESTIONS
    Recommended textbooks for you
  • Cornerstones of Financial Accounting
    Accounting
    ISBN:9781337690881
    Author:Jay Rich, Jeff Jones
    Publisher:Cengage Learning
    Managerial Accounting: The Cornerstone of Busines...
    Accounting
    ISBN:9781337115773
    Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
    Publisher:Cengage Learning
    Financial Accounting: The Impact on Decision Make...
    Accounting
    ISBN:9781305654174
    Author:Gary A. Porter, Curtis L. Norton
    Publisher:Cengage Learning
  • Financial And Managerial Accounting
    Accounting
    ISBN:9781337902663
    Author:WARREN, Carl S.
    Publisher:Cengage Learning,
    EBK CONTEMPORARY FINANCIAL MANAGEMENT
    Finance
    ISBN:9781337514835
    Author:MOYER
    Publisher:CENGAGE LEARNING - CONSIGNMENT
  • Cornerstones of Financial Accounting
    Accounting
    ISBN:9781337690881
    Author:Jay Rich, Jeff Jones
    Publisher:Cengage Learning
    Managerial Accounting: The Cornerstone of Busines...
    Accounting
    ISBN:9781337115773
    Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
    Publisher:Cengage Learning
    Financial Accounting: The Impact on Decision Make...
    Accounting
    ISBN:9781305654174
    Author:Gary A. Porter, Curtis L. Norton
    Publisher:Cengage Learning
    Financial And Managerial Accounting
    Accounting
    ISBN:9781337902663
    Author:WARREN, Carl S.
    Publisher:Cengage Learning,
    EBK CONTEMPORARY FINANCIAL MANAGEMENT
    Finance
    ISBN:9781337514835
    Author:MOYER
    Publisher:CENGAGE LEARNING - CONSIGNMENT
    Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License