Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Textbook Question
Chapter 3, Problem 6MC
Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
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The P/E ratio is most useful in .... :
Comparing the premium that the market places on the total dollar value of earnings among competitors.
Comparing the premium that the market places on the total dollar value of earnings per share among competitors.
Comparing the return on earnings among competitors.
Forecasting the future earnings of a company.
Based on these calculations, which company appears to be more risky and which company appears to be more profitable? How can you tell? (Keep in mind that the current ratio and debt to equity ratio are "risk ratios" and the gross profit ratio and return on equity ratio are "profitability ratios").
Calculate the following profitablity leverage management ratios
a. Gross profit margin
b. Net profit margin
c. Return on investment
d. Return on Stockholders' equity
Calculate the following market-based ratios:
a. Price-to-earnings ratio
b. Market price-to-book value ratio
Chapter 3 Solutions
Financial Management: Theory & Practice
Ch. 3 - Define each of the following terms:
Liquidity...Ch. 3 - Financial ratio analysis is conducted by managers,...Ch. 3 - Over the past year, M. D. Ryngaert Co. has...Ch. 3 - Profit margins and turnover ratios vary from one...Ch. 3 - How might (a) seasonal factors and (b) different...Ch. 3 - Why is it sometimes misleading to compare a...Ch. 3 - Greene Sisters has a DSO of 20 days. The company’s...Ch. 3 - Vigo Vacations has $200 million in total assets,...Ch. 3 - Winston Watchs stock price is 75 per share....Ch. 3 - Reno Revolvers has an EPS of $1.50, a free cash...
Ch. 3 - Needham Pharmaceuticals has a profit margin of 3%...Ch. 3 - Gardial Son has an ROA of 12%, a 5% profit...Ch. 3 - Ace Industries has current assets equal to 3...Ch. 3 - Assume you are given the following relationships...Ch. 3 - Prob. 9PCh. 3 - The Morrit Corporation has $600,000 of debt...Ch. 3 - Complete the balance sheet and sales information...Ch. 3 - The Kretovich Company had a quick ratio of 1.4, a...Ch. 3 - Data for Lozano Chip Company and its industry...Ch. 3 - The Jimenez Corporation’s forecasted 2020...Ch. 3 - Why are ratios useful? What three groups use ratio...Ch. 3 - Calculate the projected profit margin, operating...Ch. 3 - Calculate the projected inventory turnover, days...Ch. 3 - Prob. 4MCCh. 3 - Calculate the projected debt ratio, debt-to-equity...Ch. 3 - Calculate the projected price/earnings ratio and...Ch. 3 - Prob. 7MCCh. 3 - Use the extended DuPont equation to provide a...Ch. 3 - What are some potential problems and limitations...Ch. 3 - What are some qualitative factors that analysts...
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- Calculate the projected debt ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest-earned ratio, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?arrow_forwardUse the extended DuPont equation to provide a breakdown of Computrons projected return on equity. How does the projection compare with the previous years and with the industrys DuPont equation?arrow_forwardDescribe and justify why you would use the following ratios as an analyst to evaluate the performance of a company. Profitability Ratios Liquidity Ratios Gearing Ratios Investment Ratiosarrow_forward
- ‘This ratio is fluid measure of the market’s confidence in the company’. The statement is valid in relation to which of the following ratio in Altman Z Score analysis?arrow_forward1. Calculate Computron’s market value ratios—that is, its price/earnings ratio and its market/book ratio. What do these ratios tell you about investors’ opinions of the company? 2. Use the DuPont equation to provide a summary and overview of Computron’s financial condition. What are the firm’s major strengths and weaknesses?arrow_forwardWhich 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_forward
- __________ focus more on underlying determinants of future profitability than the past price movements of a firm's stock. A) Credit analysts B) Fundamental analysts C) Systems analysts D) Technical analysts Please provide an accurate answer.arrow_forwardSuppose you, a stock analyst, are performing a ratio analysis and comparing a discount merchandiser with a high-end merchandiser. Suppose further that both companies have identical ROEs. If you apply the DuPont equation to both firms, would you expect the three components to be the same for both companies? If not, explain what balance sheet and income statement items might lead to the differences in the DuPont equation components.arrow_forward
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