Exam 8: Financial Analysis

firm wants to strengthen its financial position Which of the following actions would increase its current ratio?

problem with ratio analysis is that relationships can be manipulated For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.

Nikko Corp.'s total common equity at the end of last year was $305,000 and its net income after taxes was $60,000 What was its ROE?

Profitability ratios show the combined effects of liquidity, asset management, and debt management on operating results.

Lindley Corp.'s stock price at the end of last year was $33.50, and its book value per share was $25.00 What was its market/book ratio?

a firm finances with only debt and common equity, and if its equity multiplier is 3.0, then its debt ratio must be 0.667.

Suppose a firm wants to maintain a specific TIE ratio It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio.

investor is considering starting a new business The company would require $475,000 of assets, and it would be financed entirely with common stock The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5% How much net income must be expected to warrant starting the business?

is the firm's P/E ratio?

is the firm's inventory turnover ratio?

is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Lincoln Industries' current ratio is 0.5 Considered alone, which of the following actions would increase the company's current ratio?

year Urbana Corphad $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5% The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000 Assets, sales, and the debt ratio would not be affected By how much would the cost reduction improve the ROE?

LeCompte Corphas $312,900 of assets, and it uses only common equity capital (zero debt) Its sales for the last year were $620,000, and its net income after taxes was $24,655 Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15% What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?

year Vaughn Corphad sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000 The firm's total-debt-to-total-assets ratio was 42.5% Based on the Du Pont equation, what was Vaughn's ROE?

though Firm A's current ratio exceeds that of Firm B, Firm B's quick ratio might exceed that of A However, if A's quick ratio exceeds B's, then we can be certain that A's current ratio is also larger than that of B.

Which of the following statements is CORRECT?

Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30 What was its P/E ratio?

Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 215,000 shares outstanding, and its debt ratio was 46% How much debt was outstanding?

Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8 What was the firm's ROE?