Chapter 4, Problem 26IC

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Chapter
Section

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

a.

Summary Introduction

To determine: The usefulness of ratios and the 5 main categories of ratios.

Ratio Analysis:

Ratios are used to compare two arithmetical figures. In case of the ratio analysis of the company, the financial ratios are calculated. The financial ratios examine the performance of the company and are used to compare with other business. It indicates relationship of two or more parts of the financial statements.

Explanation

The uses of ratios are as follows:

• Ratios help the manager to know the performance of the company and take necessary steps to improve the companyās performance.
• Ratios help lenders in calculating the repayment of debts.
• Ratios help stockholders in forecasting future dividends and earnings...

b.

Summary Introduction

To determine: The current and quick ratio for the year 2019, the company liquidity potion for 2017, 2018, and 2019 and all the analysts have equal interest in company liquidity ratio.

Introduction:

Liquidity is a term used to define a company’s ability to repay its obligations on time. It is analyzed as a part of evaluation of that company. The lender and potential investors of a firm consider it before making decision related to a company.

c.

Summary Introduction

To determine: The inventory turnover ratio, days sales outstanding ratio, fixed asset turnover ratio, and total assets turnover ratio for the year 2019.

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.

d.

Summary Introduction

To determine: The debt-to capital and times-interest-earned ratio, the manner in which Firm D compares the industry with respect to financial leverage and the conclusion from these ratios.

e.

Summary Introduction

To determine: The operating margin, profit margin, basic earning power, return on assets, return on earnings, and return on invested capital and comment on these ratios.

f.

Summary Introduction

To determine: The price/ earnings ratio and market/ book ratio for the year 2019. The investor’s opinion on these ratios.

g.

Summary Introduction

To explain: The summary and overview of Company D financial condition using DuPont equation and the major weaknesses and strengths of the firm.

h.

Summary Introduction

To explain: The manner in which improvement in days sales outstanding would affect the stock price.

i.

Summary Introduction

To explain: The way inventories would be adjusted and the way these adjustments affect Company D stock price and profitability.

j.

Summary Introduction

To explain: Whether as a credit manager Person X would countinue to extend the credit to Company with not maintaing proper financial ratios.

k.

Summary Introduction

To explain: The measures that should have been taken by Company D in 2017.

l.

Summary Introduction

To discuss: The limitations and potential problems in analyzing the financial ratios.

m.

Summary Introduction

To discuss: The factors that must be considered by the analysts while evaluating the company.

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