FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
10th Edition
ISBN: 9781337910972
Author: Brigham
Publisher: CENGAGE L
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Question
Chapter 4, Problem 8Q
Summary Introduction
To explain: The reason for misleading comparison of financial ratios of companies in the same industry.
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.
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why is it sometimes misleading to compare a company's financial ratios with those of other firms that operate in the same industry.
What are the Limitations of Financial Ratios in Business Decisions?
Which is not a potential problem of utilizing ratio analysis?
A. trends and industry averages are historical in nature.
B. financial data may be distorted due to price-level changes.
C. firms within an industry may not use similar accounting methods.
D. all of the above
E. answer not given
Chapter 4 Solutions
FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
Ch. 4 - Financial ratio analysis is conducted by three...Ch. 4 - Prob. 2QCh. 4 - Over the past year, M.D. Ryngaert Co. had an...Ch. 4 - Profit margins and turnover ratios vary from one...Ch. 4 - How does inflation distort ratio analysis...Ch. 4 - If a firms ROE is low and management wants to...Ch. 4 - Give some examples that illustrate how (a)...Ch. 4 - Prob. 8QCh. 4 - Suppose you were comparing a discount merchandiser...Ch. 4 - Prob. 10Q
Ch. 4 - Differentiate between ROE and ROIC.Ch. 4 - Prob. 12QCh. 4 - DAYS SALES OUTSTANDING Baxley Brothers has a DSO...Ch. 4 - DEBT TO CAPITAL RATIO Kayes Kitchenware has a...Ch. 4 - DuPONT ANALYSIS Hendersons Hardware has an ROA of...Ch. 4 - MARKET/BOOK AND EV/EBITDA RATIOS Edelman Engines...Ch. 4 - PRICE/EARNINGS RATIO A company has an EPS of 2.40,...Ch. 4 - DuPONT AND ROE A firm has a profit margin of 3%...Ch. 4 - ROE AND ROIC Baker Industriess net income is...Ch. 4 - DuPONT AND NET INCOME Precious Metal Mining has 17...Ch. 4 - Prob. 9PCh. 4 - M/B, SHARE PRICE, AND EV/EBITDA You are given the...Ch. 4 - RATIO CALCULATIONS Assume the following...Ch. 4 - Prob. 12PCh. 4 - TIE AND ROIC RATIOS The W.C Pruett Corp. has...Ch. 4 - RETURN ON EQUITY Pacific Packagings ROE last year...Ch. 4 - RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has...Ch. 4 - Prob. 16PCh. 4 - CONCEPTUAL: RETURN ON EQUITY Which of the...Ch. 4 - TIE RATIO MPI Incorporated has 6 billion in...Ch. 4 - CURRENT RATIO The Stewart Company has 2,392,500 in...Ch. 4 - DSO AND ACCOUNTS RECEIVABLE Ingraham Inc....Ch. 4 - P/E AND STOCK PRICE Ferrell Inc. recently reported...Ch. 4 - Prob. 22PCh. 4 - RATIO ANALYSIS Data for Barry Computer Co. and its...Ch. 4 - DuPONT ANALYSIS A firm has been experiencing low...Ch. 4 - Prob. 25SPCh. 4 - Prob. 26ICCh. 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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Similar questions
- Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?arrow_forwardExplain the Limitations of Financial Ratios in Business Decisions?arrow_forwardWhat is the basic purpose for examining trends in a company’s financial ratios and other data? What other kinds of comparisons might an analyst make?arrow_forward
- What is the value of common-sizing analysis? Why would a company do such an analysis on another company’s financial statements?arrow_forwardWhat are the limitations to using financial ratio analysis [such as profitability ratios, liquidity ratios, gearing ratios, and investment ratios] computed from the financial statements of a company. What other alternatives could have been used to decide on the performance and investment-worthiness of a company.arrow_forwardWhat is the overall purpose of financial ratios? What is their use relative to the economy, the firm’s industry, the firm’s main competitors, and the firm’s past relative ratios.arrow_forward
- What kinds of limitations exist in analyzing a company just by reading its financial reports?arrow_forwardTo evaluate a company’s performance, investors need a benchmark to which they can compare its financial ratios. What are some of the problems associated with these comparisons?arrow_forwardWhen you are interpreting financial ratios, it is useful to compare a company's ratios to some form of standard. Group of answer choices True Falsearrow_forward
- No single ratio can predict the success or Failure of a company. What different types of Ratios are necessary for financial analysis? How is the Return on Assets (ROA) Ratio Calculated?arrow_forward20. Which of the following factor does not affect a company's financial ratios? Select one: a. Aggressive revenue recognition practices. b. Accounting for similar economic fundamentals in a similar fashion c. The timing of asset purchases. d. The presence of nonrecurring items among the firms being analysed.arrow_forwardAny difference in the financial statements for financial firms compared to non financial firms?arrow_forward
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