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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

Solutions

Chapter
Section
Chapter 4, Problem 1Q
Textbook Problem

Financial ratio analysis is conducted by three main groups of analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios on which they focus?

Expert Solution
Summary Introduction

To explain: Primary emphasis of the three groups of analysts and the way that emphasis affect the ratios on which they focus.

Introduction:

Financial Ratio Analysis: Financial ratio analysis is one of the tools of financial analysis of a firm. It represents the relationship between two or more items of the financial statement.

Answer to Problem 1Q

Primary emphasis of three groups,

  • Credit analysts: Credit analyst’s main emphasis is on analyzing the credit worthiness, liquidity and solvency of the firm, which can be analyzed through the total asset to debt ratio, debtor turnover ratio and creditor turnover ratio.
  • Stock analysts: Stock analysts are interested in the firm’s earning capacity, profitability and risk factors. These factors can be analyzed from earning per share, price/earnings ratio and return on equity.
  • Managers: Managers of the firm are interested to know the overall condition of the firm that is the liquidity, solvency and profitability, so, all the ratios are required by the managers to make their plans and decisions.

Explanation of Solution

  • Financial ratio analysis is an effective tool of financial analysis of a firm; it can be used by various groups of users to analyze the firm’s condition.
  • Some are interested to know the firm’s long run condition while another wants to know the short run condition of the firm.
  • There is a wide variety of ratio’s which provides the required information about the financial health of the firm.
Conclusion

So, the primary emphasis of the three groups of analysts is liquidity, solvency and profitability.

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Chapter 4 Solutions

Fundamentals of Financial Management (MindTap Course List)
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Ch. 4 - Differentiate between ROE and ROIC.Ch. 4 - Indicate the effects of the transactions listed in...Ch. 4 - DAYS SALES OUTSTANDING Baker Brothers has a DSO of...Ch. 4 - DEBT TO CAPITAL RATIO Bartley Barstools has a...Ch. 4 - DuPONT ANALYSIS Doublewide Dealers has an ROA of...Ch. 4 - MARKET/BOOK RATIO Jaster Jets has 10 billion in...Ch. 4 - PRICE/EARNINGS RATIO A company has an EPS of 2.00,...Ch. 4 - DuPONT AND ROE A firm has a profit margin of 2%...Ch. 4 - ROE AND ROIC Hilyard Industries net income is...Ch. 4 - DuPONT AND NET INCOME Ebersoll Mining has 6...Ch. 4 - BEP, ROE, AND ROIC Duval Manufacturing recently...Ch. 4 - M/B AND SHARE PRICE You are given the following...Ch. 4 - RATIO CALCULATIONS Assume the following...Ch. 4 - RATIO CALCULATIONS Graser Trucking has 12 billion...Ch. 4 - TIE AND ROIC RATIOS The H.R. Pickett Corp. has...Ch. 4 - RETURN ON EQUITY Midwest Packagings ROH last year...Ch. 4 - RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has...Ch. 4 - RETURN ON EQUITY Central City Construction (CCC)...Ch. 4 - CONCEPTUAL: RETURN ON EQUITY Which of the...Ch. 4 - TIE RATIO AEI Incorporated has 5 billion in...Ch. 4 - CURRENT RATIO The Petry Company has 1312,500 in...Ch. 4 - DSO AND ACCOUNTS RECEIVABLE Harrelson Inc....Ch. 4 - P/E AND STOCK PRICE Fontaine Inc. recently...Ch. 4 - BALANCE SHEET ANALYSIS Complete the balance sheet...Ch. 4 - RATIO ANALYSIS Data for Barry Computer Co. and its...Ch. 4 - DUPONT ANALYSIS A firm has been experiencing low...Ch. 4 - RATIO ANALYSIS The Corrigan Corporations 2014 and...Ch. 4 - FINANCIAL STATEMENTS AND TAXES Part I of this...Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....

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