WHEN COMPARING THE 2 MOST RECENT 10K STATEMENTS OF A COMPANY AND THELEVERAGE DECREASED FROM 2.09 TO 2.07 - WHAT DOES IT SAY ABOUT THE FINANCIALHEALTH OF A COMPANY

Leverage in finance is the use of borrowed funds or debt to raise the possible rate of return on…

Answered: WHEN COMPARING THE 2 MOST RECENT 10k…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Your company has a ROE of 18.5 which is very good for your industry. The company has an equity multiplier of 2.3 and a total asset turnover of 1.2. Both of these are higher than the industry average. What does this tell you about your company?
Based on this analysis how would I assess the financial stability and operational efficiency of this company? Ratio and Ratio Formula (in thousands) 2015 2014 2013 Current Industry Average Liquidity Current Ratio =Current Asset / Current Liability 9,900/6,300 1.57 1.61 1.62 1.63 Acid Test Ratio or Quick Ratio = (Cash + Marketable securities + Accounts receivable)/Current liabilities (400+300+3,200)/6,300 0.62 0.64 0.63 0.68 Solvency Times Interest Earned =Earnings before interest & taxes/interest expense, gross (7,060+900)/900 8.84 8.55 8.5 8.45 Profitability Profit margin on sales = net income/sales 7,060/30,500 14% 13.20% 12.10% 13.00% Productivity Asset turnover = sales/avg total assets 30,500/6,000+5,400)/2) 1.85 1.84 1.83 1.84 Inventory turnover = COGS/avg inv 17,600/ (6,000+5,400)/2) 3.09 3.17 3.21 3.18
5. Profitability ratios Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Petroxy Oil Co. and make comments on its second-year performance as compared with its first-year performance. The following shows Petroxy Oil Co.'s income statement for the last two years. The company had assets of $9,400 million in the first year and $15,037 million in the second year. Common equity was equal to $5,000 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Petroxy Oil Co. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 5,080 4,000 1,855 1,723 254 160 Net Sales Operating costs except depreciation and amortization Depreciation…
A company has been in business for a number of years. Merkel has the following financial ratios: return on equity (ROE) = 85%Net profit margin= 19%total asset turnover= 4.9earnings quality= 0.5debt-to-equity ratio= 4.2 question: Prepare an analysis of this company. Discuss and interpret the financial ratios above. what at the strengths AND weaknesses of the company? are there any troubling signs?
1. The person in charge of the finances of the company MGT, S.A. wants to know the company's situation concerning the industrial sector to which it belongs. For this, it has the following information regarding the industry: General liquidity ratio is 1.55; the acid test is 1.20, and the ratio between the available and the current liabilities is 0.95. The debt ratio stands at 1.25. The margin on sales is 21%. The investment rotation is 1.45 times. Economic profitability is around 23%, and financial profitability is 29% The data referred to the company (in thousands of €) are the following: Assets Liability and Net Equity Non-current asset (net) 170 Equity 125 Stocks of finished products 45 Reservations 25 Clients 65 External Resources 105 Banks 70 Loans 65 Supplier 30 Total Assets 350 Total Net Equity 350 In addition, it is known that: Sales are € 250,000 and its direct cost of € 105,000. Amortization of…
Compute the following profitability ratios of the company for the most recent two years, show all values in the computations: 1.Asset Turnover 2.Profit margin ratio(Net Income/Net Sales) 3.Return on total assets (Net Income/Average Total Assets) 4.Return on stockholders’ equity 5.Basic Earnings per share (EPS) Based on the results above, what conclusions can you make about the company’s overall profitability and efficient use of assets?
3. A company's profit margin is 15.5%, its asset turnover 0.72, and its financial leverage is 3.25. Determine the company's return on shareholders' equity.a. 42.5%b. 36.3%c. 51.7%d. 28.4%

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WHEN COMPARING THE 2 MOST RECENT 10k STATEMENTS OF A COMPANY AND THE LEVERAGE DECREASED FROM 2.09 TO 2.07 - WHAT DOES IT SAY ABOUT THE FINANCIAL HEALTH OF A COMPANY