Financial Accounting
9th Edition
ISBN: 9781259222139
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 13, Problem 13.2P
To determine
Analyse the given ratios for better investment and explain the reasons.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Please Solve
If given the opportunity, in which of the firms would you invest based on the result of your analysis of both companies and the comparison with the industry? If you would not invest, explain your reasons according to the results obtained.
Company Name:
Year 2018
Chemicals and Allied Products Industry Ratios
…………..
Solvency or Debt Ratios
Merck
J&J
2018
Debt ratio
0.67
0.61
0.47
Debt-to-equity ratio
0.93
0.51
0.38
Interest coverage ratio
12.27
18.91
-9.43
Liquidity Ratios
Current ratio
1.17
1.47
3.47
Quick ratio
0.92
1.16
2.12
Cash ratio
0.40
0.63
2.24
Profitability Ratios
Profit margin
14.64%
18.75%
-93.4%
ROE (Return on equity), after tax
23.03%
25.60%
-248.5
ROA (Return on assets)
7.49%
10.00%
-146.5
Gross margin
68.06%
66.79%
55.3%
Operating margin (Return on sales)
19.62%
24.27%…
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 Diusitech Inc. and make comments on its second-year performance as compared with its
first-year performance.
The following shows Diusitech Inc.'s income statement for the last two years. The company had assets of $4,700 million in the first year and $7,518
million in the second year. Common equity was equal to $2,500 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.
Diusitech Inc. Income Statement For the Year Ending on December 31 (Millions of dollars)
Year 2 Year 1
2,540
2,000
1,610
1,495
127
80
1,737
803
80
723
181
542
Net Sales
Operating costs except depreciation and…
Chapter 13 Solutions
Financial Accounting
Ch. 13 - Who are the primary users of financial statements?Ch. 13 - When considering an investment in stock, investors...Ch. 13 - How does product differentiation differ from cost...Ch. 13 - What are the two general methods for making...Ch. 13 - What are component percentages? Why are they...Ch. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What do profitability ratios focus on? What is an...Ch. 13 - What do turnover ratios focus on? What is an...Ch. 13 - What do liquidity ratios focus on? What is an...Ch. 13 - What do solvency ratios focus on? What is an...
Ch. 13 - What do market ratios focus on? What is an example...Ch. 13 - Prob. 12QCh. 13 - Explain why rapid growth in total sales might not...Ch. 13 - A company has total assets of 500,000 and...Ch. 13 - Prob. 2MCQCh. 13 - Prob. 3MCQCh. 13 - Prob. 4MCQCh. 13 - Prob. 5MCQCh. 13 - Prob. 6MCQCh. 13 - Prob. 7MCQCh. 13 - Prob. 8MCQCh. 13 - Prob. 9MCQCh. 13 - Prob. 10MCQCh. 13 - Prob. 13.1MECh. 13 - Prob. 13.2MECh. 13 - Prob. 13.3MECh. 13 - Computing the Financial Leverage Percentage...Ch. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Prob. 13.6MECh. 13 - Prob. 13.7MECh. 13 - Prob. 13.8MECh. 13 - Prob. 13.9MECh. 13 - Prob. 13.10MECh. 13 - Using Financial Information to Identify Companies...Ch. 13 - Prob. 13.2ECh. 13 - Prob. 13.3ECh. 13 - Prob. 13.4ECh. 13 - Prob. 13.5ECh. 13 - Prob. 13.6ECh. 13 - Prob. 13.7ECh. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Inferring Financial Information from Ratios E13-11...Ch. 13 - Prob. 13.12ECh. 13 - Prob. 13.13ECh. 13 - Prob. 13.1PCh. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Computing Comparative Financial Statements and...Ch. 13 - Analyzing Financial Statements Using Ratios Use...Ch. 13 - Prob. 13.8PCh. 13 - Prob. 13.9PCh. 13 - Prob. 13.1APCh. 13 - Prob. 13.2APCh. 13 - Calculating Profitability, Turnover, Liquidity,...Ch. 13 - Prob. 13.4APCh. 13 - Prob. 13.5APCh. 13 - Prob. 13.6APCh. 13 - Prob. 13.1CPCh. 13 - Prob. 13.2CPCh. 13 - Comparing Companies within an Industry Refer to...Ch. 13 - Prob. 13.4CPCh. 13 - Inferring Information from the DuPont Model Ratios...Ch. 13 - Prob. 13.6CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Comparative Analysis: Under Armour, Inc., versus Columbia Sportswear Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com. Required: Compare the values and trends of these ratios when evaluating Under Armours and Columbias short-term liquidity.arrow_forwardHello! look at the attached images and answer: (a) Calculate ratios for the year ended 31 December 2021 (showing your workings) for Primrose Plc, equivalent to those provided above. i. Return on year-end capital employed ii. Net asset turnover iii. Gross profit margin iv. Net profit margin v. Current ratio vi. Closing inventory holding period vii. Trade receivables’ collection period viii. Trade payables’ payment period ix. Dividend yield x. Dividend cover (b) Analyse the financial performance and position of Primrose Plc for the year ended 31 December 2021 compared to 31 December 2020. (c) Explain the uses and the general limitations of ratio analysis. Thanks a lot!arrow_forwardplease help me with the answer and steps to solve itarrow_forward
- Requirement 1. Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy. a. Acid-test ratio b. Inventory turnover c. Days’ sales in receivables d. Debt ratio e. Earnings per share of common stock f. Price/earnings ratio g. Dividend payoutarrow_forwardBelow are the ratio results for Abcom for the year 2022. Performance Operating margin -18.66% Asset turnover 0.16 Return on Capital Employed -7.64% Working capital Inventory days 88.88 days Debtor days 46.18 days Trade creditor days 68.11 days Liquidity Current ratio 0.30 Acid test 0.25 Solvency Interest cover -2.56 Shareholder's view Return on equity 7.16% Required; Analyse and interpret the meaning of these results.arrow_forwardWhich company is more reliant on equity to fund their assets based on the ratios you have? What are some of the consequences should it anticipate if it relies heavily on equity? Explain using supporting ratios and scenarios.arrow_forward
- see below table of Ratios for a company. Comment on the liquidity, profitability, leverage, asset management and market value. Ratio Analysis 2021 Est. 2020 2019 Industry Average Liquidity Ratios Current Ratio (times) 2.34 3.22 3.68 4.2 Quick Ratio (times) 0.91 1.24 1.79 2.1 Asset Management Ratios Average sales/day 10.96 8.22 7.81 9 Inventory Turnover Ratio (times) 4.43 3.74 5.06 9 Days Sales Outstanding (days) 38.32 45.62 40.34 36 Fixed Assets Turnover Ratio (times) 2.12 2.52 3.27 3 Total Asset Turnover Ratio 1.32 1.37 1.69 1.8 Debt Management Ratios Total Debt to Total Assets (%) 59.09 48.58 47.6 40 Times Interest Earned (times) 7.9 6.81 11 6 Debt to Equity Ratio (%) 1.49 0.98 0.95 1 Profitability…arrow_forwardCalculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Operating margin Value Year 2 Year 1 61.54% Profit margin 44.39% Return on total assets 17.09% Return on common equity 32.13% Basic earning power 22.22% Decision makers and analysts look deeply into profitability ratios to identify trends in a company's profitability. Profitability ratios give insights into both the survivability of a company and the benefits that shareholders receive. Identify which of the following statements are true about profitability ratios. Check all that apply. A higher operating margin than the industry average indicates either lower operating costs, higher product pricing, or both. If a company's operating margin increases but its profit margin decreases, it could mean that the company paid more in interest or taxes. An increase in the return on assets ratio implies an increase in the assets a firm owns. If a…arrow_forwardFinancial Accounting Question Solve Pleasearrow_forward
- Choose the correct letter of answer: Company C financial ratios are as follows: Current ratio: 1.6, Acid-test ratio 1.2, Current Liabilities P2 Million and Inventory turnover ratio 5. What is the sales of the firm? a. 1,000,000.00b. 2,000,000.00c. 3,000,000.00d. 4,000,000.00e. 5,000,000.00arrow_forwardYou have been hired as a financial analyst of a firm and your team is working on an independent assessment of XYZ Inc. Your assistant has provided you with the following data for XYZ Inc. and their industry. R r e d : Ratio 2020 2019 2018 2020- Industry Average Inventory Turnover 62.65 42.42 32.25 53.25 Receivables in days 94 63 50 115 Debt to Equity 0.75 0.85 0.90 0.88 Quick Ratio 1.028 1.03 1.029 1.031 Current Ratio 1.33 1.21 1.15 1.25 Required: a) In annual report of firm CEO wrote, we had higher liquidity largely due to an increase in highly liquid current assets (cash, account receivable and short-term marketable securities). Is the CEO correct? b) what can you say about the firm's collection period and inventory turnover?arrow_forwardFind the following financial ratios for LVMH Moet Hennessy Louis Vuitton SA (use year-end figures rather than average values where appropriate) (Round your answers to 2 decimal places (e.g., 32.16).) : 2015 2016 Short-term solvency ratios: Current ratio Quick ratio Cash ratio Asset utilization ratios: Total asset turnover Inventory turnover Receivables turnover Long-term solvency ratios: Total debt ratio Debt–equity ratio Equity multiplier Times interest earned ratio Profitability ratios: Profit margin % % Return on assets % % Return on equity % %arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License