Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 5, Problem 10P
The Sterling Tire Company’s income statement for 20X1 is as follows:
Given this income statement, compute the following:
a. Degree of operating leverage.
b. Degree of financial leverage.
c. Degree of combined leverage.
d. Break-even point in units.
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Students have asked these similar questions
1- 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 ratio
Compute the percentage change of Earnings Per Share
Compute the Combined Leverage of the expected unit
Compute the Operating Leverage of the expected units.
Compute the Financial Leverage of the expected units.
Compute the cOMBINED Leverage of the expected units.
A ratio that measures a company’s profitability is thea. leverage ratio.b. gross margin percentage.c. current ratio.d. times-interest-earned ratio.
Chapter 5 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 5 - Discuss the various uses for break-even analysis....Ch. 5 - What factors would cause a difference in the use...Ch. 5 - Explain how the break-even point and operating...Ch. 5 - Prob. 4DQCh. 5 - What does risk taking have to do with the use of...Ch. 5 - Discuss the limitations of financial leverage....Ch. 5 - Prob. 7DQCh. 5 - Explain how combined leverage brings together...Ch. 5 - Explain why operating leverage decreases as a...Ch. 5 - Prob. 10DQ
Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Draw two break-even graphs-one for a conservative...Ch. 5 - Prob. 5PCh. 5 - Shawn Pen & Pencil Sets Inc. has fixed costs of ....Ch. 5 - Calloway Cab Company determines its break-even...Ch. 5 - Prob. 8PCh. 5 - Boise Timber Co. computes its break-even point...Ch. 5 - The Sterling Tire Company’s income statement for...Ch. 5 - Prob. 11PCh. 5 - Healthy Foods Inc. sells 50-pound bags of grapes...Ch. 5 - United Snack Company sells 50-pound bags of...Ch. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Lenow’s Drug Stores and Hall’s Pharmaceuticals...Ch. 5 - The capital structure for Cain Supplies is...Ch. 5 - Sterling Optical and Royal Optical both make glass...Ch. 5 - Prob. 19PCh. 5 - Sinclair Manufacturing and Boswell Brothers Inc....Ch. 5 - DeSoto Tools Inc. is planning to expand...Ch. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Mr. Gold is in the widget business. He currently...Ch. 5 - Delsing Canning Company is considering an...Ch. 5 - Prob. 2WECh. 5 - Now click on "Financials." Look at the Income...Ch. 5 - Prob. 4WECh. 5 - Prob. 5WE
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- Using these formulas: 1-Breakeven Point Formula: FC Q = P – vc 2-Degree of Operating Leverage (DOL): Percentage change in EBIT Percentage change in sales DOL 3-The formula for calculating the degree of operating leverage at a base sales level, Q, is the following: QX (P- vc) QX (P– vc) – FC Q: the sales level. P: sale price. vc: variable operating costs per unit. DOL(Q) = %3D FC: fixed operating costs. 4-The Degree Of Financial Leverage (DFL): Percentage change in EPS Percentage change in EBIT DFL EBIT DFL at base level EBIT - EBIT - I- (PD x 5-degree of total leverage (DTL) Percentage change in EPS Percentage change in sales DTL = QX (P- vc) PD Q x (P – vc) – FC –-1-) DTL at Q units =arrow_forwardCalculate the amount of owner's equity (in $) and the two leverage ratios for the given company. (Round ratios to the nearest hundredth.) *Chart Attached*arrow_forwardUsing 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.arrow_forward
- A firm's degree of combined leverage (DCL) is equal to its degree of operating leverage.___leverage (DFL) Oa Plus Ob. Minus Oc Divided by Od Multiplied byarrow_forwardDuPont system of analysis Use the following financial information for AT&T and Verizon to conduct a DuPont system of analysis for each company. Sales Earnings available for common stockholders Total assets Stockholders' equity a. Which company has the higher net profit margin? Higher asset turnover? b. Which company has the higher ROA? The higher ROE? c. Which company has the higher financial leverage multiplier? a. Net profit margin (Round to three decimal places.) AT&T Net profit margin AT&T $164,000 13,333 403,921 201,934 Verizon Verizon $126,280 13,608 244,280 24,232arrow_forwardRequired: (a) You are required to calculate the following ratios:(i) Gross profit margin(ii) Operating profit margin(iii) Expenses to sales(iv) Return on Capital Employed(v) Asset turnover(vi) Non-current asset turnover(vii) Current Ratio(viii) Quick Ratio(ix) Inventory days(x) Receivables days(xi) Payable days(xii) Interest cover (b) In light of your calculations comment on the performance of the company over thelast two years.arrow_forward
- Which of the following ratios is used to measure the profit earned on each dollar invested in a firm?a. return on sales ratio c. current ratiob. return on equity d. asset turnover ratioarrow_forwardThe Marine Division of Pacific Corp. has average invested assets of $120,000,000. Sales revenue of $50,210,000 results in an operating income of $9,964,000. The hurdle rate is 8%. a. Calculate the return on investment. (Round your answer to 2 decimal places.) Raun mant b. Calculate the profit margin. (Round your answer to 2 decimal places.) c. Calculate the investment turnover. (Round your answer to 4 decimal places.) Next >arrow_forwardRefer to the income statements in requirement 1 above. For both current operations and the proposed new operations, compute (a) the degree of operating leverage, (b) the break-even point in dollars, and (c) the margin of safety in both dollar and percentage terms.arrow_forward
- Using 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_forwardBased on the income statement given calculate and explain the :profitability ratioa. Gross profit ratio = gross profit/net salesb. Operating margin ratio =operating income/net salesc. Asset Turnover ratio = net sales / total assetsd. Return on equity ratio = net sales/ shareholders equity Leverage ratioa. interest coverage ratio =operating income / interest expensesarrow_forwardReturn on equity (ROE) using the traditional DuPont formula equals to A. (net profit margin) (interest component) (solvency ratio) B. (net profit margin) (interest component) (liquidity ratio) C. (net profit margin) (total asset turnover) (quick ratio) D. (net profit margin) (total asset turnover) (solvency ratio)arrow_forward
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Financial leverage explained; Author: The Finance story teller;https://www.youtube.com/watch?v=GESzfA9odgE;License: Standard YouTube License, CC-BY