Chapter 3
retun on equity is a measure of ____
profitability
return on assets is a measure of _____
profitability
the profit margin is equal to net income divided by
sales
____ financial statements provide for comparison of firms that differ in size
standardized
common size balance sheet expresses accounts as a percentage of
total assets
current ratio
cash accounts payable
The cash coverage ratio adds ____ to operating earnings (EBIT) for a better of measure of how much cash is available to meet interest obligations
depreciation
_____ _____ are the prime source of information about a firm's financial health
financial statements
alpha co has interest expense of 1.2 illion, total assets of 84 million, sales of 76 million, long term debt of 16.4 million, and net income of 12.1 million. how will interest expense be recorded in the common size income statement
interest/sales 1.2/76=1.58
Time trend analysis is an example of
management by exception
Whenever ____ information is available, it should be used instead of accounting data
market
The price-earnings ratio is a ___ ratio
market value
How is the market to book ratio measured?
market value per share/book value per share
based on the DuPoint identity, an increase in sales, all else held equal, _____ roe
may not change may increase or decrease
return on equity
net income/total equity
One of the most important things of financial statement is
performance evaluation
total debt ratio
(total assets-total equity)/(total assets)
Financial ratios
-are developed from a firm's financial information -are used for comparison purposes
Common size statements are best used for comparing
-competitors -firms of different sizes -year to year for your firm
common size statements are best used for comparing
-competitors -year to year for your firm -firms of different sizes
The inventory turnover ratios for proctor and gamble over the past three years are 5.09, 5.72 and 5.92 times respectively. explaining the upward trend in the inventory turnover ratio requires
-further investigation -examination of whether the increase is due to declining inventory or increasing sales
based on the sustainable growth rate, which of the following factors affects a firms ability to sustain growth
-profit margin -financial policy -dividend policy
traditional financial ratio categories
-profitability ratios -financial leverage ratios -turnover ratios
a firm has an operating profit of 600 and sales of 1,000. Interest expense is 250 and taxes are 120. what is the times interest earned ratio.
EBIT/Interest 600/250=2.40
Vera's has earning per share of 3 and dividends per share of 1.20. the stock sells for 30 a share. what is the PE ratio?
PE=price per share/earnings per share 30/3=10