Concept explainers
(a)
Ratio Analysis: Ratio analysis refers to the relationship that exists among the financial data that are available in the financial statement. It is expressed in the form of a mathematical formula, depicting the relationships that exist with one another items in the financial statement. It is used to analyze the performance of the company expressed for the intra company comparison, industry average comparison and intercompany comparison.
To Ascertain: If increase in the earnings per share is a good or a bad news for a company.
(b)
To Ascertain: If increase in the
(c)
To Ascertain: If increase in the debt to assets ratio is good or bad news for a company.
(d)
To Ascertain: If decrease in
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FINANCIAL ACCOUNTING>IC<
- Quiz 2: Solvency Debt-to-equity ratio Times interest earned ratio Debt service coverage ratio Cash flow from operations to capital expenditures ratio Profitability Return on assets ratio Return on sales ratio Asset turnover ratio Return on common stockholders equity ratio Leverage Earnings per share (EPS) Price/earnings (P/E) ratio Dividend payout ratio Dividend yield ratio A measure of a companys success in earning a return for the common stockholders. The relationship between a companys performance according to the income statement and its performance in the stock market. The ability of a company to remain in business over the long term. A variation of the profit margin ratio; measures earnings before payments to creditors. A companys bottom line stated on a per-share basis. The percentage of earnings paid out as dividends. The ratio of total liabilities to total stockholders equity. A measure of the ability of a company to finance long-term asset acquisitions with cash from operations. A measure of a companys success in earning a return for all providers of capital. The relationship between net sales and average total assets. The relationship between dividends and the market price of a companys stock. The use of borrowed funds and amounts contributed by preferred stockholders to earn an overall return higher than the cost of these funds. An income statement measure of the ability of a company to meet its interest payments. A statement of cash flows measure of the ability of a company to meet its interest and principal payments. How well management is using company resources to earn a return on the funds invested by various groups.arrow_forwardThe average liabilities, average stockholders' equity, and average total assets are as follows: 1. Determine the following ratios for both companies, rounding ratios and percentagesto one decimal place: a. Return on total assets b. Return on stockholders' equity c. Times interest earned d. Ratio of total liabilities to stockholders' equity 2. Based on the information in (1), analyze and compare the two companies'solvency and profitability. Comprehensive profitability and solvency analysis Marriott International, Inc., and Hyatt Hotels Corporation are two major owners and managers of lodging and resort properties in the United States. Abstracted income statement information for the two companies is as follows for a recent year (in millions): Balance sheet information is as follows:arrow_forwardWhich of the following can lead to an increase in the net working capital of a firm? A. A decrease in inventory. B. An increase in accounts receivable. C. An increase in accounts payable. D. A decrease in the checking account balance.arrow_forward
- All are financial measures, except: A. Market share B. Revenue growth C. Earnings per share D. Reduction of past due accountsarrow_forwardIndicate whether the following are a measure of (a) liquidity, (b) profitability, or (c) leverage. 1. Quick ratio 2. Times interest earned ratio 3. Current ratio 4. Ratio of net sales to assets 5. Return on total assets 6. Accounts receivable turnover 7. Return on stockholders' equity 8. Book value per share of common stock 9. Ratio of liabilities to stockholders' equity 10. Acid-test ratio 11. Earnings per share of common stock 12. Merchandise inventory turnover 13. Working capitalarrow_forwardWhat does the following scenarios from a two year period tell about a companys profitablity and efficient use of assets: a) profit margin ratio slightly decreases. b) return on total assets increased. c) return on equity increased. d) basic earnings per share increases.arrow_forward
- The current ratio measures a. The ability of a company to quickly collect cash from customers. b. The ability of a company to quickly sell its inventory to customers.c. The ability of a company to report profits in the urrent year. d. The ability of a company to pay its current obligations.arrow_forwardProfitability Ratios: a. Measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash. b. Measure the ability of the company to survive over a long period of time. c. Measure the income or operating success of a company for a given period of time.arrow_forwardWhich 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.arrow_forward
- The quality of earnings concept indicates thata. stockholders want the corporation to earn enough income to be able to pay its debts.b. net income is the best measure of the results of operations.c. continuing operations and one-time transactions are of equal importance.d. income from continuing operations is a more relevant predictor of future performancethan income from one-time transactionsarrow_forwardWhich of the following is true of the statement of cash flows? A It covers a span of time and is dated the same as the income statement. B It shows how the profits or losses of the company were generated. C It indicates when long-term debt will mature. D It reports on the qualitative behavior of the company's performance.arrow_forwardWhich of the following statements is likely to be true, for a company making profits? Select one: a. Retained profits at the year-end will be greater than shareholders' equity. b. The profit for the year will be greater than the gross profit. c. Retained profits at the year-end will be greater than retained profits at the beginning of the year. d. The operating profit will be less than the profit for the year.arrow_forward
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