Kevin is an employee in the finance department at Easy Trader Co. and is performing some financial analysis on the company'scurrent year's performance. Before he can begin looking at a variety of nonfinancial factors, including customer conversion rates andinternal promotion scores, he will need to evaluate some financial performance measures. Which of the following provides the mostaccurate rationale for evaluating economic value added?◇ Evaluating profitability using a consistent measure like earnings without interest○ Understanding the cash implications of a company's primary operating activities◇ Evaluating after-tax income earned beyond the company's cost of capital on its invested capitalO Evaluating income earned beyond the minimum required investment

"The most precise justification for assessing economic value added (EVA) is presented in option C,…

Answered: Kevin is an employee in the finance…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter4: Preparing And Using Financial Statements

Section: Chapter Questions

Problem 19DQ

See similar textbooks

Similar questions

Your Task… Using your assigned financial statements calculate the required ratios below Indicate if the change from year to year is favorable or unfavorable. All values should be accurate to at least two decimal places. The expectation is to submit a professional report free of grammar and spelling errors and easy to read. Think of this as a menu you would be handing to a customer. All calculations are to be represented. Analysis of Profitability Gross Profit Ratio Operating Profit Ratio Net Profit Ratio Sales to Total Assets Ratio Return on Total Assets Return on Equity Earnings Per Share
TRUE OR FALSE: Read each sentence carefully and determine whether the statement True or False. Write your answers in the space provided before the number. 1. Financial statement analysis uses computational and analytical techniques to evaluate the company's risks, performance, financial health, and future prospects with the objective of making economic decisions. 2. Return on asset is an operational efficiency ratio. 3. Profitability ratios measure the ability of the company's assets to generate sales. 4. Gross profit margin provides an indication of the company's average pricing policy 5. Given equal gross profit margin, the company with the lower operating income margin has higher operating expenses as a percentage of sales and has leaner operations. Written Works Below are the comparative Statement of Comprehensive Income & Statement of Financial Position of Ellane Company & Lanie Company: Statement of Comprehensive Income Ellane Company 2013 Melanie Company 2014 2013 2014 Net Sales…
1. Compute for the profitability ratios of both Elen and Melanie. Which of the two companies do you believe is more profitable? 2. Compute for the operational efficiency ratios of both Elen and Melanie. Which of the two companies do you believe is more efficient? 3. Compute for the financial health ratios of both Elen and Melanie. Which of the two companies do you believe is more financially healthy?
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
a. What do the accounting policies say in the annual report (footnotes) regarding the cost of revenue? What are the drivers to the cost of revenue and the trends? b. Are there any trends in sales and marketing expenses or research and development? Are these amounts reasonable for the type of business? c. Compare general and administrative expenses to similar companies. Are they reasonable? d. What is the ratio of net interest income (expense) to income from operations? Is this a safe ratio for the company? Why or why not?
Which of the following items is consistent with earnings being informative about current performance and informing the analyst that the level of current earnings is sustainable? A The firm recognizes an unexpected gain. B The firm recognizes a fair value gain on a financial asset as a result of a favorable move in interest rates. The firm recognizes additional expenses this period due to pre-opening costs associated with new stores. The firm experiences a large jump in sales and earnings as a result of successful research and development of new products.
We have all heard of Return on Investment or (ROI). Please research anddescribe five other business metrics that you may use in your analysis withyour business plan.Also, please describe how these ratios are calculated for example...Quick Ratio or Acid Test, Cash + Accounts Receivable ÷ Current Liabilities.
EBITDA is one indicator of a firm's financial performance and is used as aproxy for the earning potential of a firm.1) Explain why EBITDA can be used to analyze and compare profitability amongfirms in different industries and even in different countries. 2) Explain what is the EV multiple. And then explain why it is analogous to thepayback period in finance or managerial accounting
The quality of earnings concept indicates thata. stockholders want the corporation to earn enough income to be able to pay its debts.b. net income is the best measure of the results of operations.c. continuing operations and one-time transactions are of equal importance.d. income from continuing operations is a more relevant predictor of future performancethan income from one-time transactions
Here you will find some income statements and balance sheets for Sears Holdings (SHLD) and Taget Corp (TGT). Assume that you are a financial manager at Sear and want to compare your firm’s situation with that of Target. Calculate represenatative ratios for liquidity, asset management efficiency, financial leverage (capital structure), and profitability for both Sears and Target. How would you summarize the financial performance of Sears compared to target (its benchmark firm)? Include Sears and Targets current ratio, acid-test ratio, average collection period, accounts receivable turnover, inventory turnover, debt ratio, timed interest earned, total asset turnover, fixed asset turnover, gross profit margin, operating profit margin, net profit margin, operating return on assets, and return on equity.
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?
Please see below. Do you agree with this opinion? Why or why not? Please include an explanation. All of the financial ratios are important to determine a company's stability and to gage how well the company is doing or not. With that being said, if I were a financial user and wanted to know if I should invest in a company or not the profitability ratio would be the most important to me. There are many different profitability ratios such as earnings per share, price earnings, gross profit rate, asset turnover etc. Each of these can be used to determine a company's income or lack of income and can be used to gage its ability to obtain its debt, which can help a financial user make the choice of whether to invest or not.

SEE MORE QUESTIONS

Recommended textbooks for you

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Entrepreneurial Finance

Finance

ISBN:

9781337635653

Author:

Leach

Publisher:

Cengage

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS