Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 5, Problem 6QE
A firm had the following values for the four debt ratios discussed in the chapter:
Liabilities to Assets Ratio: less than 1.0
Liabilities to Shareholders’ Equity Ratio: equal to 1.0
Long-Term Debt to Long-Term Capital Ratio: less than 1.0
Long-Term Debt to Shareholders’ Equity Ratio: less than 1.0
- a. Indicate whether each of the following independent transactions increases, decreases, or has no effect on each of the four debt ratios.
- (1) The firm issued long-term debt for cash.
- (2) The firm issued short-term debt and used the cash proceeds to redeem long-term debt (treat as a unified transaction).
- (3) The firm redeemed short-term debt with cash.
- (4) The firm issued long-term debt and used the cash proceeds to repurchase shares of its common stock (treat as a unified transaction).
- b. The text states that analysts need not compute all four debt ratios each year because the debt ratios are highly correlated. Does your analysis in Requirement a support this statement? Explain.
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Which of the following ratios is(are) useful in assessing a company's ability to meet current maturing or short-term obligations?
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a.
Yes
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b.
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O c.
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d.
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Assume the following relationships for the Caulder Corp.:
Sales/Total assets
Return on assets (ROA)
Return on equity (ROE)
Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round
intermediate calculations. Round your answers to two decimal places.
Profit margin:
Debt-to-capital ratio:
%
%
1.9x
8.0%
13.0%
Which of the following statement is correct?
Select one:
O a. Return on assets is the ratio of net income after interest expense to total assets
O b. All options are correct statement
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o d. Increase in the debt ratio indicate more reliance on debt as a source of financing
Chapter 5 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 5 - Prob. 1QECh. 5 - Prob. 2QECh. 5 - A firm has experienced an increasing current ratio...Ch. 5 - A firm has experienced a decrease in its current...Ch. 5 - Prob. 5QECh. 5 - A firm had the following values for the four debt...Ch. 5 - Prob. 7QECh. 5 - Prob. 8QECh. 5 - Prob. 9QECh. 5 - Prob. 10QE
Ch. 5 - Market equity beta measures the covariability of a...Ch. 5 - Altmans bankruptcy risk model utilizes the values...Ch. 5 - Calculating and Interpreting Risk Ratios. Refer to...Ch. 5 - Refer to the financial state-ment data for...Ch. 5 - Refer to the profitability ratios of Coca-Cola in...Ch. 5 - Delta Air Lines, Inc., is one of the largest...Ch. 5 - Prob. 17PCCh. 5 - Prob. 18PCCh. 5 - Prob. 19PCCh. 5 - Prob. 20PCCh. 5 - Prob. 21PCCh. 5 - Prob. 22PCCh. 5 - Compute the values of each of the ratios in...
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