Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
Topic Video
Question
Transcribed Image Text:**Financial Ratio Computation Guide**
Use the following financial statements to compute:
1. **Quick Ratio**
- Assesses a company's ability to meet its short-term obligations with its most liquid assets.
2. **Inventory Turnover**
- Measures how efficiently a company manages its inventory by comparing the cost of goods sold to average inventory.
3. **Total Debt to Total Capital Ratio**
- Evaluates the financial leverage of a company by comparing its total debt to its total capital.
4. **Return on Equity (ROE)**
- Indicates how well a company uses investments to generate earnings growth.
5. **Price to Earnings (P/E) Ratio**
- Estimates the valuation of a company by comparing its current share price to its per-share earnings.
Transcribed Image Text:**Balance Sheet and Income Statement Explanation**
*Balance Sheet for 2019*
**Assets**
- **Cash and Equivalents**: $50.00
- **Accounts Receivable**: $200.00
- **Inventories**: $300.00
- **Total Current Assets**: $550.00
- **Net Property, Plant & Equipment (PP&E)**: $700.00
- **Total Assets**: $1,250.00
**Liabilities and Equity**
- **Accounts Payable**: $50.00
- **Notes Payable**: $100.00
- **Accruals**: $100.00
- **Total Current Liabilities**: $250.00
- **Long-term Bonds**: $400.00
- **Total Liabilities**: $650.00
- **Common Stock**: $200.00
- **Retained Earnings**: $400.00
- **Total Common Equity**: $600.00
- **Total Liabilities and Equity**: $1,250.00
*Income Statement for 2019*
- **Net Sales**: $550.00
- **Costs of Goods Sold Except Depreciation**: $250.00
- **Depreciation**: $10.00
- **Other Operating Expenses**: $60.00
- **Earnings Before Interest and Taxes (EBIT)**: $230.00
- **Less Interest**: $11.50
- **Pre-tax Earnings**: $218.50
- **Taxes (25%)**: $54.63
- **Net Income Available to Common Stockholders**: $163.88
*Additional Information*
- **Common Dividends**: $5.0
- **Addition to Retained Earnings**: $158.9
- **Number of Common Shares**: 10
- **Common Stock Price per Share**: $30.00
- **Lease Payments**: $5
- **Bonds' Required Sinking Fund Payments**: $40
- **Tax Rate**: 25%
- **Days**: 365
This document outlines the financial position and performance of a company for the year 2019, detailing its assets, liabilities, and net income. The balance sheet provides a snapshot of the company's
Expert Solution
Step 1
We use financial ratios to determine and assess the financial health and financial position of a company.
Different types if ratios are used for this purpose like liquidity ratios, profitability ratios, leverage ratios etc.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
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.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education