PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 28, Problem 6PS
Summary Introduction
To discuss: The correct definitions.
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Using the statements provided
Calculate the following liquidity ratios:
Current ratio
Quick ratio
Calculate the following asset management ratios:
Average collection period
Inventory turnover
Fixed asset turnover
Total asset turnover
Calculate the following financial leverage ratios
Debt to equity ratio
Long-term debt to equity
Calculate the following profitability ratios:
Gross profit margin
Net profit margin
Return on assets
Return on stockholders’ equity
For example: you should present it like the text, or as:Gross margin = 1,933 divided by 8,689 = 22.2%
A competitor of ACME has for the same time period reported the following three ratios:
Current ratio 1.52Long-term debt to equity .25 or 25%Net profit margin .08 or 8%
Given these three ratios only which company is performing better on each ratio? Also overall who would you say has the best financial performance and position. Support your answer.
Methodology:• Based on the above information the consulting group will conduct ratio analysis for the following ratios:o Current ratio o Receivable’s turnover o Times’s interest earned o Profit margin o Days in inventory o Return on assets o Cash current debt coverage ratio • As a next step the group will compare the ratios calculated above with industry benchmarks. The benchmarks are indicated within brackets besides each ratio.o Current ratio (3 to 1) o Receivable’s turnover (13 times) o Times’s interest earned (9 times) o Profit margin (12%) o Days in inventory (50 days) o Return on assets (12%) o Cash current debt coverage ratio (2 times
Select the Income Statements and Balance
Sheets of Aramco Saudi from the calculate
the following financial ratios:
a. Long-term debt ratios
b. Total debt ratio
c. Times interest earned
d. Cash coverage ration
e. current ratio
f. Quick ratio
g. Operating profit margin
h. Inventory Turnover
i. Days in inventory
j. Average collection period
k. Return on equity
I. Return on assets
m. Payout rations
Chapter 28 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 28 - Prob. 1PSCh. 28 - Performance measures Keller Cosmetics maintains an...Ch. 28 - Performance measures Table 28.8 gives abbreviated...Ch. 28 - Performance measures Describe some alternative...Ch. 28 - Financial ratios Look again at Table 28.8, which...Ch. 28 - Prob. 6PSCh. 28 - Financial ratios True or false? a. A companys...Ch. 28 - Financial ratios Sara Togas sells all its output...Ch. 28 - Financial ratios As you can see, someone has...Ch. 28 - Prob. 10PS
Ch. 28 - Prob. 11PSCh. 28 - Prob. 12PSCh. 28 - Prob. 13PSCh. 28 - Prob. 14PSCh. 28 - Prob. 15PSCh. 28 - Prob. 16PSCh. 28 - Prob. 17PSCh. 28 - Prob. 18PSCh. 28 - Prob. 19PSCh. 28 - Prob. 20PSCh. 28 - Prob. 21PSCh. 28 - Prob. 22PSCh. 28 - Prob. 23PSCh. 28 - Prob. 25PSCh. 28 - Prob. 26PSCh. 28 - Prob. 27PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Define each of the following terms:a. Liquid assetb. Liquidity ratios: current ratio; quick (acid test) ratioc. Asset management ratios: inventory turnover ratio; days sales outstanding (DSO);fixed assets turnover ratio; total assets turnover ratiod. Debt management ratios: total debt to total capital; times-interest-earned (TIE) ratioe. Profitability ratios: operating margin; profit margin; return on total assets (ROA);return on common equity (ROE); return on invested capital (ROIC); basic earning power (BEP) ratiof. Market value ratios: price/earnings (P/E) ratio; market/book (M/B) ratio; enterprise value/EBITDA ratio g. DuPont equation; benchmarking; trend analysish. “Window dressing” techniquesarrow_forwardPresent formulas and examples of the following financial ratios (Financial ratios)a. gross marginb. profit margin on salesc. return on equity (ROE)arrow_forwardHow to Compute the following ratios i. Gross Profit % ii. Operating profit % iii. Net Profit % iv. Current Ratio v. Acid Test Ratio vi. Cash Ratio vii. Cash Operating Cycle in days viii. Average Debt collection Period in days ix. Average Creditor Payment Period in days x. Average Stock Holding Period in days xi. Total liabilities to Total Equity Ratio xii. Interest Cover Ratio xiii. Return on Total Assets xiv. Return on Equityarrow_forward
- Define each of the following terms: a. Liquid asset b. Liquidity ratios: current ratio; quick ratio c. Asset management ratios: inventory turnover ratio d. Debt management ratios: total debt to total capital; times-interest-earned (TIE) ratio e. Profitability ratios: profit margin; return on total assets (ROA); return on common equity (ROE); return on invested capital (ROIC); basic earning power (BEP) ratio f. Market value ratios: price/earnings (P/E) ratio; market/book (M/B) ratio; enterprise value/EBITDA ratioarrow_forward1- Calulate the following liquidity ratio: a. Current Ratio b. Quick Ratio 2-Calulate the following asset management ratios a. Average collection period b. Inventory Turnover c. Fixed-asset turnover d. Total asset turnover 3. Calculate the following financial leverage management ratios: a. debt ratio b. Debt-to-equity ratio c. Times interest earned ratio d. Fixed-charge coverage ratio 4. Calculate the following profitablity leverage management ratios a. Gross profit margin b. Net profit margin c. Return on investment d. Return on Stockholders' equity 5. Calculate the following market-based ratios: a. Price-to-earnings ratio b. Market price-to-book value ratioarrow_forwardRatio Industry Ratios GnG Ratios 1. Current Ratio 5.3 2. Acid Test Ratio 5.1 3. Gross Profit Ratio 30% 4. Net Income Margin 7.5% 5. Receivable Turnover Ratio 9 6. Return on Asset Ratio 12% 7. Debt to Asset Ratio 1:4 Interpretation and verbal analysis compared to industry ratios: 1. Liquidity 2. Profitability 3. Solvency Computations:arrow_forward
- Definitional problems: Listed are 11 terms that relate to ratio analysis:1. Book value per share2.Inventoryturnover3. Debt-to-equity ratio4. Average collection period5. Average sales period6. Return on common equity7. Earnings per share8. Price/earnings ratio9. Return on total assets10. Current ratio11. Accounts-receivable turnoverChoose the financial ratio or term from the list that most appropriately completes each of the following statements:1. The__________ tends to have an effect on the market price per share asreflected in the price/earnings ratio.2. The__________ indicates whether a stock is relatively cheap or relativelyexpensive in relation to current earnings. 3. The________ measures the amount that would be distributed to holders of common stock if all assets were sold at their balance-sheet carrying amount and if all creditors were paid off.4. The_____________ is a rough measure of how many times a company'saccounts…arrow_forwardUsing the information from 27A prepare the following ratios: gross profit margin profit margin return on assets earnings per share current ratio acid test ratio debt ratio Indicate what each is used for (ie: measuring efficiency, solvency etc)arrow_forwarda. Compute the following ratios: i. Accounts Receivable Turnover ratio;ii. Accounts Payable Turnover ratio;iii. Average Collection Period;iv. Average Payable Period;v. Quick Ratio;vi. Gross Profit Margin.vii. Net Profit Marginviii. Debt ratiob b. Explain briefly what is factoring?arrow_forward
- Which of the following ratios is most useful in evaluating solvency? a. Receivables turnover ratio. b. Inventory turnover ratio. c. Debt to equity ratio. d. Current ratio.arrow_forwardFinancial Ratios Analysis for Current and Prior Year Current ratio (liquidity ratio) Debt to assets ratio (solvency ratio) Profit margin ratio (profitability ratio)arrow_forwardWhich statement is correct? O A. current ratio 1.00 D. gross margin > net marginarrow_forward
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