PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 28, Problem 6PS
Financial ratios True or false?
- a. A company’s debt–equity ratio is always less than 1.
- b. The quick ratio is always less than the current ratio.
- c. The
return on equity is always less than thereturn on assets .
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Students have asked these similar questions
Under what situation will return on equity be higher than return on investment?
a. When assets exceed liabilities.
b. When the debt to equity ratio is greater than 1.0.
c. When net income is higher than it was in the previous year.
d. When a company earns more on borrowed money than the interest it must pay.
In Debtors turnover ratio , a low ratio means company collects money fast
Select one:
True
False
When is the return on assets equal to the return on equity?
a. When the company issues equal amounts of long-term debt and common stock.
b. When the company only issues equity to finance its borrowing.
c. When the current ratio of the company equals 1.
d. When the company issues no dividends for a given time period.
Chapter 28 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 28 - Prob. 1PSCh. 28 - Financial ratios Table 28.10 gives abbreviated...Ch. 28 - Performance measures Look again at Table 28.10. At...Ch. 28 - Prob. 5PSCh. 28 - Financial ratios True or false? a. A companys...Ch. 28 - Book rates of return Keller Cosmetics maintains an...Ch. 28 - Prob. 8PSCh. 28 - Prob. 9PSCh. 28 - Prob. 10PSCh. 28 - Prob. 11PS
Ch. 28 - Prob. 12PSCh. 28 - Prob. 13PSCh. 28 - Prob. 14PSCh. 28 - Performance measures Describe some alternative...Ch. 28 - Prob. 16PSCh. 28 - Prob. 17PSCh. 28 - Prob. 18PSCh. 28 - Financial ratios Sara Togas sells all its output...Ch. 28 - Prob. 20PSCh. 28 - Prob. 21PSCh. 28 - Prob. 22PSCh. 28 - Prob. 23PSCh. 28 - Prob. 25PSCh. 28 - Prob. 26PSCh. 28 - Prob. 27PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.arrow_forwardWhich of the following statements are false? Select all that apply a. Liquidity ratios are used to measure the speed with which various accounts are converted into sales. b. When ratios of different years are being compared, inflation should be taken into consideration c. Return on total assets (ROA) is sometimes called return on investment d. Generally, inventory is concerned with the most liquid asset that a firm possesses. e. A P/E ratio of 20 indicates that investors are willing to pay $20 for each $1 of earnings.arrow_forwardWhich of the following statements is not true about the current ratio? A benchmark of 3.00 to 1.00 is believed to be the ideal benchmark for the current ratio of a company. The current ratio measures an organization’s liquidity. The current ratio is found by dividing current assets by current liabilities. A current ratio below 1.00 to 1.00 signals the potential for financial difficulties.arrow_forward
- The Debt to Equity ratio calculation measures Group of answer choices c. How much debt the company has for every dollar of Equity b. The amount of Assets that are financed by debt None of the above a. The ability of the company to pay its’ current obligationsarrow_forwardDetermine whether each of the following changes in risk ratios is good news or bad news about a company.a. Increase in receivables turnover.b. Decrease in inventory turnover.c. Increase in the current ratio.d. Increase in the debt to equity ratio.arrow_forwardWhich of the following assumptions is embodied in the AFN equation? a. All balance sheet accounts are tied directly to sales. b. Common stock and long-term debt are tied directly to sales. c. Last year's total assets were not optimal for last year's sales. d. Fixed assets, but not current assets, are tied directly to sales. e. Accounts payable and accruals are tied directly to sales.arrow_forward
- Which of the following events will cause a company’s current ratio to decrease? a. The sale of inventory for credit (accounts receivable) b. Issuing stock for cash c. The sale of inventory for cash d. Paying off long-term debt with casharrow_forwardIn the Merton model of corporate equity which is based on the Black Scholes formula, what is the quantity (S0/KT)? Assume that interest rates are zero (r=0) so the time value of money can be ignored, therefore S0 = ST. (a) Debt-to-equity ratio. (b) Debt-to-assets ratio. (c) Assets-to-debt ratio. (d) Assets-to-equity ratio. (e) Equity-to-assets ratiarrow_forwardLeverage implies that a company a. contains debt financing b. contains equity financing c. has a high current ratio d. has a high earnings per sharearrow_forward
- Which of the following typically is true for profitability ratios? a. Growth stocks have lower price to earnings ratios.b. Companies in more competitive industries have higher profit margins.c. The gross profit ratio declines as competition increases.d. When a company has debt, its return on equity will be lower than its return on assets.arrow_forwardA company's current ratio is 2.0. Which of the following actions would lower the current ratio, assuming everything else remains the same? A) Borrow using short-term notes payable and use the proceeds to reduce long-term debt. B) Use cash to reduce accruals. C) Use cash to reduce accounts payable.arrow_forwardAnalyze and compare the following firms financial ratio results. Which seems to be in a better financial position? Why? Ratio Firm A Firm B Debt-To-Equity 0.65 2.23 Current Ratio 1.74 0.83 Net Profit Margin 8.07% 9.59% Return On Equity 12.81% 47.17% -arrow_forward
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