A company has a current ratio of 2.5. What does this indicate about the company's financial health? A) The company is highly liquid and can easily meet its short-term obligations. B) The company is facing liquidity problems and may struggle to pay its bills. C) The company is investing heavily in long-term assets. D) The company is experiencing rapid growth.
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- Which of the following is true? I. If there is no change in gross fixed assets from one year to the next, then net fixed assets would have to have decreased. II. For firms with lower P/E ratios, investors are valuing each dollar of earnings more than for firms with higher P/E ratios. III. A increase in the current ratio indicates an improvement in a firm's long-term solvency condition.A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: Industry Average Ratios Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Cash and equivalents Accounts receivables Inventories Total current assets Gross fixed assets Less depreciation Days sales outstandinga aCalculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) $78 Accounts payable Other current liabilities Net fixed assets Total assets Gross profit Selling expenses EBITDA 2x 15% 5x 10x 9x 25days Taxes (25%) Net income 74 147 $299 216 55 $161 $460 Depreciation expense Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Fixed assets turnover…A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $1 million sinking fund payment on its debt. The most recent industry average ratios and the firm's financial statements are as follows: Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Cash and equivalents Accounts receivables Inventories Total current assets Gross fixed assets Days sales outstandinga aCalculation is based on a 365-day year. Balance Sheet as of December 31, 2021 (millions of dollars) $78 Accounts payable 74 147 $299 Less depreciation Industry Average Ratios Net fixed assets. Total assets 2x 15% 5x 10x 9x 25days Fixed assets turnover Total assets turnover Profit margin Return on total assets Return on common equity Return on invested capital 216 55 $161 $460 Other current liabilities Notes payable Total current liabilities Long-term debt Total…
- David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing. The company uses short-term debt to finance its temporary working capital needs, but it does not use any permanent (long-term) debt. Other solar technology companies have debt, and Mr. Lyons wonders why they use debt and what its effects are on stock prices. To gain some insights into the matter, he poses the following questions to you, his recently hired assistant: e. Suppose the expected free cash flow for Year 1 is 250,000 but it is expected to grow faster than 7% during the next 3 years: FCF2 = 290,000 and FCF3 = 320,000, after which it will grow at a constant rate of 7%. The expected interest expense at Year 1 is 128,000, but it is expected to grow over the next couple of years before the capital structure becomes constant: Interest expense at Year 2 will be 152,000, at Year 3 it will be 192,000 and it will grow at 7% thereafter. What is the estimated horizon unlevered value of operations (i.e., the value at Year 3 immediately after the FCF at Year 3)? What is the current unlevered value of operations? What is the horizon value of the tax shield at Year 3? What is the current value of the tax shield? What is the current total value? The tax rate and unlevered cost of equity remain at 25% and 14%, respectively.You've collected the following information about Groot, Inc.: Profit margin Total asset turnover Total debt ratio Payout ratio = 4.44% = 3.50 = .25 = 29% a. What is the sustainable growth rate for the company? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the ROA? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Sustainable growth rate b. ROA % 15.54 %This is an example prioblem. I need help understanding the math that is being done?
- A firm has been experiencing low profitability in recent years. Perform an analysis of the firm's financial position using the DuPont equation. The firm has no lease payments but has a $1 million sinking fund payment on its debt. The most recent Industry average ratios and the firm's financial statements are as follows: Current ratio Debt-to-capital ratio Times interest earned EBITDA coverage Inventory turnover Days sales outstanding *Calculation is based on a 365-day year. Cash and equivalents Accounts receivables Inventories Total current assets Gross fixed assets Less depreciation Industry Average Ratios Net fixed assets Total assets 2x 15% 5x 10x 9x Balance Sheet as of December 31, 2021 (millions of dollars) $ 78 Accounts payable 74 Other current liabilities Notes payable Taxes (25%) Net Income 25days 147 $299 216 55 $161 $460 Fixed assets turnover Profit margin Total assets turnover Equity multiplier Total assets turnover Profit margin Return on total assets Return on common…Solve this accounting problemA firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? 1. b. Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. 2. d. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. 3. e. Issue new stock and then use some of the proceeds to purchase additional inventory and hold the remainder as cash. 4. a. Use cash to increase inventory holdings. 5. c. Use cash to repurchase some of the company's own stock.
- Below is the most recent financial information for Excellent Books Company. If the firm decides to maintain a constant debt-to-equity ratio, what is the rate of growth that it can maintain? The assumptions for this question are as follows: (1) Profit margin is constant (II) Asset accounts vary directly with sales (III) Dividend payout ratio is constant (IV) The firm can only issue debt to finance growth and no stocks will be issued or repurchased t (V) Average tax rate is constant Revenues COGS Depreciation Income Statement (in thousands) EBIT Interest Taxable Income Taxes (21%) Net Income Dividends (Payout Ratio- 30%) Additions to Retained Earnings Year 2022 1543.00 760.00 40.00 743.00 48.00 695.00 145.95 549.05 164.72 384.34 Year 2022 Current Assets Net Fixed Assets Total Assets 650 1,800 2,450 Balance Sheet (in thousands) Year 2022 Accounts Payable Long term debt Shareholders' Equity Total Lia & Eq 350 790 1,310 2,4501. 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?A firm has been experiencing low profitability in recent years. Performan analysis of the firm’s financial position using the DuPont equation. The firm has no leasepayments but has a $2 million sinking fund payment on its debt. The most recent industryaverage ratios and the firm’s financial statements are as follows: a. Calculate the ratios you think would be useful in this analysis.b. Construct a DuPont equation, and compare the company’s ratios to the industry averageratios.c. Do the balance sheet accounts or the income statement figures seem to be primarilyresponsible for the low profits?d. Which specific accounts seem to be most out of line relative to other firms in the industry?e. If the firm had a pronounced seasonal sales pattern or if it grew rapidly during theyear, how might that affect the validity of your ratio analysis? How might you correctfor such potential problems?
