10. Analyzing ratios One of the most important applications of ratio analysis is to compare a company's performance with that of othem players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A common size analysis requires the representation of financial statement data in terms of a single financial statement item (or base account or value). What is the most commonly used base item for a common size income statement? O Net sales O Total assets O Total liabilities O Stockholders' equity Suppose you are conducting an analysis of the financial performance of Cold Goose Metal Works Inc. over the past three years. The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios. Ratios Calculated Year 1 Year 2 Year 3 Price-to-cash-flow 1.00 1.30 1.46 Inventory turnover 2.00 2.40 2.69 Debt-to-equity 0.30 0.32 0.38 Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply. O A plausible reason why Cold Goose Metal Works Inc.'s price-to-cash-flow ratio has increased is that investors expect higher cash flow per share in the future. O Cold Goose Metal Works Inc.'s ability to meet its debt obligations has worsened since its debt-to- equity ratio increased from 0.30 to 0.38. The company's creditworthiness has improved over these three years as evidenced by the increase in its debt-to-equity ratio over time. O An improvement in the inventory turnover ratio could likely be explained by the new sales-forecasting strategies that led to better inventory management.
10. Analyzing ratios One of the most important applications of ratio analysis is to compare a company's performance with that of othem players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A common size analysis requires the representation of financial statement data in terms of a single financial statement item (or base account or value). What is the most commonly used base item for a common size income statement? O Net sales O Total assets O Total liabilities O Stockholders' equity Suppose you are conducting an analysis of the financial performance of Cold Goose Metal Works Inc. over the past three years. The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios. Ratios Calculated Year 1 Year 2 Year 3 Price-to-cash-flow 1.00 1.30 1.46 Inventory turnover 2.00 2.40 2.69 Debt-to-equity 0.30 0.32 0.38 Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply. O A plausible reason why Cold Goose Metal Works Inc.'s price-to-cash-flow ratio has increased is that investors expect higher cash flow per share in the future. O Cold Goose Metal Works Inc.'s ability to meet its debt obligations has worsened since its debt-to- equity ratio increased from 0.30 to 0.38. The company's creditworthiness has improved over these three years as evidenced by the increase in its debt-to-equity ratio over time. O An improvement in the inventory turnover ratio could likely be explained by the new sales-forecasting strategies that led to better inventory management.
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
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Transcribed Image Text:10. Analyzing ratios
One of the most important applications of ratio analysis is to compare a company's performance with that of othem
players in the industry or to compare its own performance over a period of time. Such analyses are referred to as
a comparative analysis and trend analysis, respectively.
A common size analysis requires the representation of financial statement data in terms of a single financial
statement item (or base account or value).
What is the most commonly used base item for a common size income statement?
O Net sales
O Total assets
O Total liabilities
O Stockholders' equity
Suppose you are conducting an analysis of the financial performance of Cold Goose Metal Works Inc. over the past
three years.
The company did not issue new shares during these three years and has faced some operational difficulties. The
company has thus pilot tested some new forecasting strategies for better operations management. You have
collected the company's relevant financial data, made reasonable assumptions based on the information available,
and calculated the following ratios.
Ratios Calculated
Year 1 Year 2
Year 3
Price-to-cash-flow
1.00
1.30
1.46
Inventory turnover
2.00
2.40
2.69
Debt-to-equity
0.30
0.32
0.38
Based on the preceding information, your calculations, and your assumptions, which of the following statements
can be included in your analysis report? Check all that apply.
O A plausible reason why Cold Goose Metal Works Inc.'s price-to-cash-flow ratio has increased is that
investors expect higher cash flow per share in the future.
O Cold Goose Metal Works Inc.'s ability to meet its debt obligations has worsened since its debt-to-
equity ratio increased from 0.30 to 0.38.
The company's creditworthiness has improved over these three years as evidenced by the increase in
its debt-to-equity ratio over time.
O An improvement in the inventory turnover ratio could likely be explained by the new sales-forecasting
strategies that led to better inventory management.
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