Question 1

Profitability Ratios Sue's Crops, Inc.'s 2011 income statement listed net sales = $100,000, EBIT = $20,000, net income available to common stockholders = $8,000, and common stock dividends = $2,000. The 2011 year-end balance sheet listed total assets = $400,000, and common stockholders equity = $300,000 with 3,000 shares outstanding. Calculate the profit margin, basic earnings power ratio, ROA, ROE, and dividend payout ratio.

Accepted Answer

The answer of Profitability Ratios Sue's Crops, Inc.'s 2011 income...

Question 2

All of the following are users of financial ratios except ___________.

Accepted Answer

Auditors do not typically use financial ratios. Their role is to provide an independent evaluation of a company's financial statements and internal controls. Managers, investors, and analysts, on the other hand, all use financial ratios to analyze a company's financial performance and make informed decisions.

Question 3

Ratio Analysis Use the following information to complete the balance sheet below.
Current ratio = 1.5
Current liabilities = $80 million
Profit margin = 12%
Credit sales = 200 million
Return on equity = 15%
Debt ratio = 60%

Accepted Answer

The answer of Ratio Analysis Use the following information to...

Question 4

An investor wanting large returns will be interested in companies that have ____.

Accepted Answer

Companies with high ROEs indicate that they are able to generate profits from shareholder investments, which can result in higher returns for the investor. High current ratios and times interest earned ratios may indicate financial stability, but they do not necessarily correlate with high returns for investors. High ROAs may also be indicative of a profitable company, but it does not take into account how much the company is investing in its assets.

Question 5

A strong liquidity position means that ______________.

Accepted Answer

A strong liquidity position means that the firm is able to meet its short-term obligations, which refers to its ability to pay off debts or bills that are due within a year or less. This means the company has enough cash and/or assets that can be easily converted into cash to cover its current liabilities. It is not related to the amount of debt used in the capital structure, the amount of dividends paid out, or whether the creditors are paid on time.

Question 6

What is the trade-off between using too much financial leverage and not using enough leverage? Who is likely to complain the most in each case?

Accepted Answer

The answer of What is the trade-off between using too...

Question 7

Market Value Ratios You are considering an investment in Taylor's Hot Rods, Corp. During the last year the firm's income statement listed addition to retained earnings = $2.5 million and common stock dividends = $1.2 million. Taylor's year-end balance sheet shows common stockholders' equity = $10 million with 2 million shares of common stock outstanding. The common stock's market price per share = $45.00. What is Taylor's Hot Rods' book value per share and earnings per share? Calculate the market-to-book ratio and PE ratio.

Accepted Answer

The answer of Market Value Ratios You are considering an...

Question 8

Which one of the following is unlikely to have a high capital intensity ratio?

Accepted Answer

A law firm does not require significant capital investment in equipment or infrastructure compared to the other industries listed. A railroad, automobile manufacturer, and shipbuilder all require significant capital investment in equipment, facilities, and infrastructure to operate successfully.

Question 9

Describe the difference between the internal growth rate and the sustainable growth rate.

Accepted Answer

The answer of Describe the difference between the internal growth...

Question 10

Profitability Ratios In 2011, Colin's Guitars, Inc. announced an ROA of 10.01%, ROE of 17.35%, and profit margin of 5.89%. The firm had total assets of $2 million at year-end 2011. Calculate the 2008 values of net income available to common stockholders', common stockholders' equity, and net sales for Colin's Guitars, Inc.

Accepted Answer

The answer of Profitability Ratios In 2011, Colin's Guitars, Inc....

Question 11

Ratio Analysis Use the following information to complete the balance sheet below.
Current ratio = 3
Current liabilities = 5 million
Credit sales = 25 million
Average collection period = 30
Inventory turns = 8
Total asset turns = .75
Debt ratio = 45%

Accepted Answer