Week 4 Discussion - MF

1. Why is the study of financial management important? Offer examples of how poor financial management can ruin a company. Provide specific real-life examples to back up your assertions. 2. Pick a decade (from 1920’s to today) and discuss the market performance in that 10 year period. What were some of the major drivers of performance during that decade?

Assuming that the fiscal health of the Health Company is not optimal, explain how Return on Equity (ROE) can help justify paying dividends to shareholders and increasing the company's debts. If Liver Corporation has a lower price/earnings (P/E) ratio than another firm engaged in the same business, what reasons might explain these differences? Describe at least three problems encountered in the analysis of financial indicators. Explain how the DuPont equation can help in analyzing company results.

Please see the attached graph for questions below. What is the difference between the two companies on this ratio? What is a plausible explanation as to why they would differ? Is one company clearly different than the other? Are there economic or end-market influences that explain why the ratios differ? What might they be? Over time, is each company’s overall financial performance improving, declining, or is something strange going on? Do you think evaluating financial statements is a good idea? What do you regard as some of the shortcomings of financial ratio analysis?

Which of the following statements is usually correct? A low receivables turnover is good for the business The lower the total debt-to-equity ratio, the lower the financial risk for a firm The higher the tax rate for a firm, the lower the interest coverage ratio An increase in net profit margin with no change in sales or assets means a poor ROI

1. How is it possible for a firm to be profitable and still go bankrupt? Select one: a. The firm has positive net income but has failed to generate cash from operations. b. Earnings have increased more rapidly than sales. c. Sales have not improved even though credit policies have been eased. d. Net income has been adjusted for inflation.   2. Which ratio or ratios measure the overall efficiency of the firm in managing its investment in assets and in generating return to shareholders? Select one: a. Gross profit margin and net profit margin. b. Return on investment and return on equity. c. Total asset turnover and operating profit margin. d. Return on investment.   3. What is the first step in an analysis of financial statements? Select one: a. Specify the objectives of the analysis. b. Do a common size analysis. c. Check references containing financial information. d. Check the auditor’s report.   4. What information does the auditor’s report contain? Select one: a. The results of…

Which of the following is not a reason a company would be willing to accept new business at a loss?   A.) The company has the expectation that certain customers can influence other potential customers. B.) The company has the expectation that it will make up for it in later years and has the expectation that certain customers can influence other potential customers. C.) The company has the expectation that its estimates will prove incorrect and that the business will result in a profit. D.) The company has the expectation that it will make up for it in later years.

1. Help me selecting the right answer. Thank you

James Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position.  Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Calculate the price/earnings ratio and market/book ratio.  Do these ratios indicate that investors are expected to have a high or low opinion of the company?

Companies often try to keep accounting earnings growing at a relatively steady pace, thereby avoiding large swings in earnings from period to period. They also try to meet earnings targets. To do so, they use a variety of tactics. The simplest way is to control the timing of accounting revenues and costs, which all firms can do to at least some extent. For example, if earnings are looking too low this quarter, then some accounting costs can be deferred until next quarter. This practice is called earnings management. It is common, and it raises a lot of questions. Why do firms do it? Why are firms even allowed to do it under GAAP? Is it ethical? What are the implications for cash flow and shareholder wealth?

You are analyzing a startup company. Of course, it has a negative operating cash flow early on. But as you further analyze the company, what must you consider? Select an answer: Having a negative operating cash flow is fine if it is offset by investing activities. A negative operating cash flow is not a concern if the company has a significant amount of loans. A negative operating cash flow for a startup business is expected in the long-term. Having a negative operating cash flow is not sustainable in the long-term.

What has led to the downturn of the financial industry, and therefore the decrease of finance jobs?

Is it possible for a company to have high profitability but a low ROE? Select an answer: It is possible, considering the three components of the DuPont framework. The DuPont framework suggests that a company with high profitability will always have a low ROE. The DuPont framework suggests that a company with high profitability will always have a high ROE. it is not possible, because ROE is based on a company's profitability in the previous year.

During the great recession, under the Obama administration, business analysts in the financial industry were busy using financial-statement ratios and other mathematical models to do a stress tests, so as to determine if companies were deserving of government bailouts.  The Dupont and Altman's z-score models were widely used during that period of economic stress. Required 1.  Based on the elements in the Dupont Model, discuss how useful is that model in determining how well a company is doing.  Scaffolding Hint:  For example, if results from calculating the "Current Ratio" is greater than or equal to 2.00, it shows that the company is doing well financially. 2.  Research and discuss how useful is the (a) Dupont ratio and (b) Altman's z-score model, based on the elements that make up the ratio (equation).

Using the data in the following table for a number of firms in the same industry, dothe following:•a. Compute the total asset turnover, the net profit margin, the equity multiplier, andthe return on equity for each firm.b. Evaluate each firm’s performance by comparing the firms with one another.Which firm or firms appear to be having problems? What corrective actionwould you suggest the poorer performing firms take? Finally, what additional data would you want to have on hand when conducting youranalyses?Firm (in  million Dollars A B C D Sales $20 $10 $15 $25 Net Income after sales 3 0.5 2.25 3 Total Assets 15 7.5 15 24 Stockholders’ Equity 10 5 14 10