Financial Ratios

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Firm A has a price-to-earnings ratio of 12.7-to-1. Firm B has recently reported earnings per share of $2.98. What is the price per share of Firm B according to the comparable multiples approach? A. $4.26 B. $12.70 C. $37.85 D. $0.24
A. Kevin Foster begins business by investing $20,000 in cash, equipment valued at $60,000, and $5,000 worth of supplies. What is the equity of the company? B. If Kevin Foster included $30,000 in notes payable (treated as part of liabilities), what is th
At year-end, the price-earnings ratio of General Motors was 11.3, and the price-earnings ratio of Microsoft was 28.14. Which company did the stock market favor? Explain.
Discuss what the P/E ratio is and the importance of the PE ratio.
You have decided to advance refund $10,000,000 of outstanding debt that is callable in five years. The interest rate on these bonds is 8%. You can issue new bonds at 6%. For every dollar of new debt issued, you will incur a 5% issuance cost. Interest paym
Tires Inc reports 2012 revenue of $20 billion. During 2012, its A/R rose by $0.8 billion, A/P increased by $1.3 billion, inventories decreased by $0.2 billion and unearned revenue increased by $0.6 billion. Its ratio of revenue to cash collected from cust
Which of the actions below could reduce company leverage? (choose all that apply) a) Negotiate lower interest rates on its short-term debt b) Raise additional equity capital c) Sell equity in the business at book value d) Sell plant, property & equipment
What is the acid-test ratio for the following data? Cash - $34,000 marketable securities - $16,000 accounts and notes receivable, net - $46,000 merchandise inventory - $61,000 prepaid expenses - $3,000 accounts and notes payable, short term - $64,000 accr
The debt to equity ratio measures: a. The proportion of total assets financed by equity b. The amount of income available for payment of interest c. The proportion of total assets financed by debt d. The proportion of creditor to stockholders' claims
Calculate the current ratio using the following information: Cash $5,000 Accounts Receivable 1,100 Prepaid Rent 1,000 Land 40,000 Equipment 4,000 Accumulated Depreciation 1,200 Accounts Payable 3,000 Salaries Payable 900 Notes Payable--long term 9,000 A.
The acid-test ratio differs from the current ratio in that: A. Liabilities are divided by current assets. B. Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio. C. The acid-test ratio measures profitability and the
The building blocks of financial statement analysis include: A. Liquidity and efficiency. B. Solvency. C. Profitability. D. Market prospects. E. All of these.
A company had net sales of $21,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected equals?
Expected Dividend Yield As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model.
Assuming a company has a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio?
Bank A has leverage ratio of 10, and bank B has a leverage ratio of 12. Which bank is riskier?
At a concert venue, concert attendance, snack bar income, operating expenses, and profit are all functions of the ticket price x. Concert attendance is given by n(x)=750-25x Snack bar income is given by s(x)=7500-250x Snack bar operating expenses are
1. What is gross profit margin and what is net profit margin? 2. What are in the between the two? 3. Give a few examples to explain the items between these margins, and show how to analyze these items for improvement directions.
1. Define and discuss the purpose of financial analysis concerning liquidity. 2. Cite and explain one of its primary ratios.
Melody invested $7,500 into two accounts. One account paid 5% interest and the other paid 7.5% interest. She earned 6% interest on the total investment. How much money did she put in each account?
Assume that two companies in the same industry have equal earnings. 1. Why might these companies have different price-earnings ratios? 2. If a company has a price earnings ratio of 20 and reports earnings per share for the current year of $4, at what pr
Misteree Books manufactures both paperback and hardback books. The information for two of the divisions follows: Printing Division Binding Division Average operating assets $ 500,000 $ 650,000 Contribution margin $ 230,000 $ 350,000 Operating income $ 12
Westminster Co. reports the following data: Sales 962,500 Variable costs 467,500 Contribution margin 495,000 Fixed costs 165,000 Income from operations 330,000 Determine Westminster Co.'s operating leverage.
Four years ago, Wade Corporation granted incentive stock options to purchase 28,000 of its common shares at $7 each. The options are exercisable beginning this year. The market price of common shares averaged $10 per share during the year. There was no ch
Swifty Corporation had 604000 shares of common stock outstanding on January 1, issued 910000 shares on July 1, and had income applicable to common stock of $2931000 for the year ending December 31, 2018. Earnings per share of common stock for 2018 would b
Beemer's sales are $400,000, variable costs are 75% of sales, and operating income is $50,000. What is the operating leverage?
Which of the following is measured by the DuPont Framework? A. The return that a business generates during a period on equity invested in the business by the owners of the business. B. The return or profit received as a result of investing funds. C. Th
The Peach Pit, a restaurant, has Net Income of $25,000, Sales of $55,000, Assets of $115,000, and no debt. What is their ROE? (a) 21.7% (b) 4.29% (c) 2.17% (d) 42.9%
You have just reviewed the financial statements of Penelope's Candy Store (PCS). You have determined that PCS has a Profit Margin of 19%. How do you explain this to owner Penelope Hassey? (a) For every $19 in sales, $100 ended up in Net Income. (b) For ev
Which of the following companies is most likely to have a negative Cash Conversion Cycle? (a) A discount retailer (b) A farmer who grows corn and sells to a distributor (c) A manufacturer who makes high-quality steam evaporators for nuclear power plants (
Common stock is considered as a variable income security, because earnings from stocks depend on the dividends that the company pays and the potential appreciation of the price of the stock itself. Company stock information (such as dividends, price chang
At January 1, 2017, Ecru Corporation had 300,000 common shares outstanding (no preferred shares have been authorized or issued). On March 1, the corporation issued 45,000 new shares to raise additional capital. On July 1, the corporation declared and issu
Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 8% (issued at face amount) Preferred 5% stock, $10 par Common stock, $20 par Income tax is estimated at 40% of income. Determine the earnings per share of comm
A company reports the following: Net sales $2,250,000 Average total assets $1,500,000 Determine the ratio of net sales to assets.
Suppose the following information was taken from the 2017 financial statements of FedEx Corporation, a major global transportation/delivery company. (in millions) 2017 2016 Accounts receivable (gross) $ 3,674 $ 4,552 Accounts receivable (net) $3,268 $4,
A company reports the following income statement and balance sheet information for the current year: Net income $125,000 Interest expense 25,000 Average total assets 2,000,000 Determine the rate earned on total assets.
If a company issues new common shares but its net income does not increase, return on common equity will increase. Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios gi
If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability.
Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Gadget Twin
Wildhorse Co. reports the following information (in millions) during a recent year: net sales, $12,800.0; net earnings, $355.0; total assets, ending, $5,165.0; and total assets, beginning, $4,220.0. Calculate the: 1) return on assets 2) asset turnover 3
It is important to use ratios in analyzing a company's performance. Are ratios enough for gauging the operational performance of a company?
What are some of the benefits of equities and debt?
Are shares all the same, i.e. carry the same rights?
Transfer pricing The materials used by the MultiaThe materials used by the Multinomah Division of Isbister Company are currently purchased from outside suppliers at $90 per unit. These same materials are produced by the Pembroke Division. The Pembroke Div
The following financial information about Cole's colas, Inc. is available: 2012 Total average assets $250,000 Total average equity 190,000 Sales 55,000 Net income 6,000 Prepare a DuPont analysis for Cole's Colas and interpret each component at the analys
A company reports the following: Net income $225,000 Preferred dividends 9,000 Average stockholders' equity 2,008,929 Average common stockholders' equity 1,173,913 Determine (a) the the return on stockholders' equity and (b) the the return on common stock
Magna Lighting Inc. produces and sells lighting fixtures. An entry light has a total cost of $125 per unit, of which $80 is product cost and $45 is selling and administrative expenses. In addition, the total cost of $125 is made up of $90 variable cost an
Product T is produced for $5.90 per pound. Product T can be sold without additional processing for $7.10 per pound, or processed further into Product U at an additional cost of $0.74 per pound. Product U can be sold for $8.00 per pound. Calculate a diffe
Which of the following is not a characteristic evaluated in ratio analysis? a. liquidity b. marketability c. solvency d. profitability
Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $500,000; sales of $960,000; and income of $110,400. What is the investment center profit margin?
Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $490,000; sales of $990,000; and income of $113,000. What is the investment turnover?
Alpha Corp., was organized on January 2, 2018. During the first year of operation, Alpha issued 100,000 shares of $1 par value common stock at a price of $50 cash per share. On December 31, 2018, Alpha reported Net Income of $250,000 and paid $50,000 cash
Pelak Company had sales of $4,887,000, expenses of $4,607,000, and average operating assets of $3,690,000. Required: 1. Compute the operating income. 2. Compute the margin (as a percent) and turnover ratio. 3. Compute the ROI as a percent.
Bristo Corporation has sales of 2,375 units at $40 per unit. Variable expenses are 20% of the selling price. If total fixed expenses are $66,000, the degree of operating leverage is?
Pelak Company had sales of $4,945,000, expenses of $4,607,000, and average operating assets of $3,000,000. Required: 1. Compute the operating income. 2. Compute the margin (as a percent) and turnover ratio. 3. Compute the ROI as a percent.
Accounts payable $ 40,000 Accounts receivable 65,000 Accrued liabilities 7,000 Cash 30,000 Intangible assets 40,000 Inventory 72,000 Long-term investments 110,000 Long-term liabilities 75,000 Marketable securities 36,000 Notes payable (short-term) 30,000
The following information is available for Antics Company: Annual Data 2013 2012 Interest expense $108,000 $102,000 Income tax expense 223,500 205,000 Net income 516,500 415,000 Capital expenditures 320,000 400,000 Cash provided by operating activities 4
Company had the following account balances at the end of the current accounting period: Beginning inventory $73,000 Net purchases 58,250 Net sales revenue 87,500 The normal gross profit for the company is $45%. What was the company's estimated cost of go
A company reports the following: Cost of goods sold $388,725 Average inventory 51,830 Determine (a) the inventory turnover and (b) the number of days' sales in inventory. Assume 365 days a year.
The following items are reported on a company's balance sheet: Cash $405,900 Marketable securities 317,100 Accounts receivable (net) 364,200 Inventory 181,200 Accounts payable 453,000 Determine (a) the current ratio and (b) the quick ratio.