Classification of Financial ratios : Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories; Profitability Ratios Liquidity Ratios Solvency Ratios Profitability Ratio : Profitability ratio exhibits how the business is able to earn income for a specific period of time. Liquidity Ratio : Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds. Solvency Ratio : Solvency ratio exhibits how the business is able to sustain over a long period of time. To Identify : The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

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Answer 1

Question

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

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Answer 2

Question

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

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Answer 3

Question

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

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Answer 4

Question

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

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Answer 5

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

Answer 6

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

Answer 7

Chapter 2, Problem 11Q

a.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

Solvency Ratio: Solvency ratio exhibits how the business is able to sustain over a long period of time.

To Identify: The appropriate financial ratio, a pension fund would be interested to invest in a corporations’ 20-year bonds.

Answer 8

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

Answer 9

b.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Liquidity Ratio: Liquidity ratio exhibits how the business is able to meet its short-term obligations and any emergency need of funds.

To Identify: The appropriate financial ratio for a bank contemplating a short-term loan.

Answer 10

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

Answer 11

c.

To determine

Classification of Financial ratios: Financial ratios that exhibit the relationship among various financial data of the financial statements of a business, are broadly classified into three categories;

Profitability Ratios

Liquidity Ratios

Solvency Ratios

Profitability Ratio: Profitability ratio exhibits how the business is able to earn income for a specific period of time.

To Identify: The appropriate financial ratio for an investor in common stock.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 2 - What is meant by the term operating cycle?Ch. 2 - Define current assets. What basis is used for...Ch. 2 - Prob. 3Q Ch. 2 - Prob. 4Q Ch. 2 - Prob. 5Q Ch. 2 - Prob. 6Q Ch. 2 - Prob. 7Q Ch. 2 - Prob. 8Q Ch. 2 - What do these classes of ratios measure? (a)...Ch. 2 - Prob. 10Q

Solution Summary: The author explains the classification of financial ratios. Profitability, liquidity, and solvency are the three main categories.

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Chapter 2 Solutions