Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 10, Problem 6QE
To determine
Elaborate the manner in which the firms’ financial flexibility will change as the firm progresses through stages of the life cycle.
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Identify all items that cannot be assessed using the balance sheet?
1. Cash flow generating power of economic resources.
2. The efficiency with which a company manages its resources.
3. Risk of the firm based on relative size of claims to resources.
4. Liquidity: Ability to pay current/short-term liabilities with current assets.
5. Cash inflows/outflows during a period and ability to generate cash.
6. Long-term solvency: Ability to pay all liabilities with assets.
7. The profitability of a company over a long-term period of time.
8. Fair market value a company's net assets.
O 1, 3, 7, 8
O 1, 3, 4, 6
O 2, 5, 7, 8
O 1, 2, 5, 7
how can businesses effectively manage their liquidity and profitability through understanding concepts such as current liabilities, operating cycle, and cash conversion cycle in the context of short-term decision-making?
The following are goals‘andobjectives in working-capitalmanagement. Which is the LEASTACCURATE?
a. Payables management includes the analysis of the business's use of trade payables and short-term non-trade payables but not long-term non-trade payables.b. Availability of money marketable securities support the cash management function by providing a return on excess cash.c. Receivable management involves setting the credit term but not the implementation of how receivables are collected.d. Inventory management allows the entity to determine the best level of this asset while balancing the risk of over- and under- stocking.
Chapter 10 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 10 - Prob. 1QECh. 10 - The chapter encourages analysts to develop...Ch. 10 - Prob. 3QECh. 10 - Suppose you are analyzing a firm that is...Ch. 10 - Use the following hypothetical data for Walgreens...Ch. 10 - Prob. 6QECh. 10 - Prob. 7QECh. 10 - Prob. 8QECh. 10 - The Home Depot is a leading specialty retailer of...Ch. 10 - Prob. 10PC
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- What insight does the calculation of free cash flow provide about the companys cash flow position?arrow_forwardexplain how Value drivers are related to financial statement analysis and explain their behavior over time. Can a company reply on net income as a valid measure of cash needed to pay fixed charges? Explain you answer Explain why companies do not include principle payment requirement when calculating earnings to fixed charges ratio.arrow_forwardWhen a firm sells its accounts receivable to raiseshort-term cash, it is engaging in a strategycalleda. factoring.b. financial planning.c. equity financingd. debt financing.e. draftingarrow_forward
- Which of the following would increase cash flow for a firm? a. A purchase of fixed assets b. Cash sales c. Purchase of markatable securities d. Credit salesarrow_forwardWhat are some of the benefits and limitations of using the cash flow statement for financial analysis? How can investors and analysts use the information presented on the cash flow statement to make decisions about a company?arrow_forwardThe components of the operating cycle Proper management of a firm’s working capital is vital and challenging due to the______(pick either uncertainty or certainty.)and________(Pick either synchronized timing or unsynchronized timing.) between a firm’s cash inflows and outflows. Consider this data for Galaxy Wholesalers Incorporated and use it to complete the table: Selected Financial Data for Galaxy Wholesalers Incorporated Average cash $32,813 Average accounts payable $440,000 Average accounts receivable $787,500 Average inventories $393,750 Average cash sales $2,625,000 Average credit sales $7,875,000 Average cost of goods sold $4,725,000 Average number of days per year 365 days Inventory conversion period 30.42 days Payables deferral period ____.____days Receivables conversion period ____.____days Cash conversion cycle ____.____daysarrow_forward
- Explain how each of the following factors would probably affect a firm’starget cash balance if all other factors were held constant.a. The firm institutes a new billing procedure that better synchronizes itscash inflows and outflows.b. The firm develops a new sales forecasting technique that improves itsforecasts.arrow_forwardplease answer below in detailarrow_forwardWhen we compute the EV/EBITDA multiple, i.e. the ratio of Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization, we estimate the enterprise value of a firm by adding the values of debt and equity and netting out cash. Could you provide a reason for netting out cash? O a. Cash can be used to pay down debt. O b. Cash is easy to value. O c. None of the given answers is correct. The income from cash is not part of EBITDA. Cash is liquid. O d. O e.arrow_forward
- Select all that is true about the role of financial managers and the types of financial decisions they make. Select one or more: a. Capital structure describes the mix of short-term liabilities a firm uses to finance its short-term assets. b. The optimal financial management strategy of a financial manager is to reduce the overall risk level of the firm. c. The duties of the financial manager includes determining the capital structure and which projects the firm should undertake. Od. Size and timing of cash flows is unimportant in a capital budgeting decision. e. Capital Budgeting function involves planning and determining the firm's short term investments. Of. Determining the appropriate level of inventory is a working capital management function. ZA do W X Larrow_forwardIndicate whether the following are true or false. Financial statement analysis is used by insiders and outsiders to identify strengths and weaknesses. Time series analysis compares one firm to another. If you want to determine the gross profit earned on each dollar of sales, use the operating profit margin ratio. The earnings per share ratio is used to predict the amount of cash dividends. Discounted cash flow values an asset based on the future value of cash flows associated with that assetarrow_forwardFinancial Markets are dynamic places in creating and facilitating liquidity for businesses and entrepreneurs. In this scenario: a- Identify and explain the five most important "sources of information" about capital and money markets. b- Critically evaluate, why efficient distribution of financial information is so important to market participants.arrow_forward
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