Q8) The following ratio analysis limitation is best described: Many large firms operate in different industries, and it is difficult to find a meaningful set of industry-average ratios. Group of answer choices a) Many different divisions. b) Inflation. c) Different accounting practices. d) Window dressing.

Q8) The following ratio analysis limitation is best described: Many large firms operate in different industries, and it is difficult to find a meaningful set of industry-average ratios. Group of answer choices a) Many different divisions. b) Inflation. c) Different accounting practices. d) Window dressing.

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

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Which of the following does ratio analysis in an industry set-up help compare? (Note: More than one option(s) may be correct.) ans1:A company's performance between different time period ans2:A company's performance to another ans3:A company to industry standard ans4:None of the above
10. Kingsford Ltd operates in an emerging market with a fast-growing economy where prices increase frequently. Which of the following statements are false when using historical cost accounting compared to current value accounting in this type of market? (i) Capital employed which is calculated using historical costs is understated compared to current value capital employed (ii) Historical cost profits are overstated in comparison to current value profits (iii) Capital employed which is calculated using historical costs is overstated compared to current value capital employed (iv) Historical cost profits are understated in comparison to current value profits A. (i) and (ii) B. (i) and (iv) C. (ii) and (iii) D. (iii) and (iv) 11. How often should goodwill acquired in a business combination be tested for impairment? A. Every year B. Whenever there are external indications of impairment c. Whenever there are internal indications of impairment D. Never 13. Which of the following would not…
Sargassum Caribbean Incorporated Balance Sheet as at December 31, 2020 Assets Liabilities Current Assets: Current Liabilities: Cash Accounts Payable 600,000 300,000 200,000 400,000 Notes Payable 900,000 1,500,000 Total Current Liabilities Accounts Receivable Inventory Total Current Assets 900,000 Fixed Assets: Long-Term Liabilities: Property, Plant & Equipment Less: Accumulated Depreciation 1,200,000 Long-Term Debt 1,000,000 Total Long Term Liabilities 200,000 300,000 300,000 Net Fixed Assets Owners' Equity: Common Stock ($1 Par) Capital Surplus Retained Earnings Total Owners' Equity 100,000 300,000 100,000 500,000 1,700,000 Total Liabilities & Owners' Equity Total Assets 1,700,000 Sargassum Caribbean Incorporated Income Statement for Year Ending December 31, 2020 Sales Less: Cost of Goods Sold Less: Administrative Expenses Less Depreciation Earnings Before Interest and 2,500,000 800,000 100,000 104,000 1,496,000 Тахes Less: Interest Expense Taxable Income 20.000 1,476,000 663,000…
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.
which of the following is considered a signal of success for a manufacturing company? A) A low quick ratio B) A high inventory turnover ratio C) A high current ratio D) Low quality costs
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?
True or false: the new revenue recognition standard is aimed at a few industries and will not affect most companies
Which of the following may reduce the effectiveness of ratio analysis? a. Highly diversified companies may have activities that obscure trends that may appear more clearly in single function companies. b. Management may use window dressing at the end of the year to improve apparent performance. c. Companies in the same industry may use different accounting practices which may indicate differing levels of performance that don't really exist. d. Book values may not be comparable from company to company because of the age of the asset, inflation, etc. e. All of these can reduce the effectiveness of ratio analysis.
Financial analysis and forecasting are based on assumptions and estimates. Comparing the income of two companies may include different company assumptions in reporting their financial information. Therefore, their income may be different even though they have the same products in equal volume. Discuss the various financial/accounting assumptions that could explain the difference in income for two companies’ income with the same products and equal volume.
How can you debate the benefits and pitfalls of ratio analysis as a stand-alone analysis of a company’s strengths and weaknesses?
Ratio analysis is an important component of evaluating company performance. It can provide great insights into how a company matches up against itself over time and against other players within the industry. However, like many tools and techniques, ratio analysis has a few limitations and weaknesses. Which of the following statements represent a weakness or limitation of ratio analysis? Check all that apply. Different firms may use different accounting practices. A firm may operate in multiple industries. A firm's financial statements show only one period of financial data.
Which is not a potential problem of utilizing ratio analysis? A. trends and industry averages are historical in nature. B. financial data may be distorted due to price-level changes. C. firms within an industry may not use similar accounting methods. D. all of the above E. answer not given

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