Financial Accounting
9th Edition
ISBN: 9781259222139
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
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Chapter 13, Problem 5MCQ
To determine
Identify the ratio which is least likely affects the investors’ decision from the given options.
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a. Advise the investor as to why or why not to invest in each of the companies using the following three investment ratios to assist your recommendation.
Earnings per share
Price Earnings ratio
Gearing ratio Show all formula and workings
A measure of profitability analysis is
a.
times interest earned.
b.
cash flow per share.
c.
quick ratio.
d.
dividend payout ratio.
would d be the right answer for this question?
Discuss the major methods of a company valuation. In doing so, explain each method and compare their advantages and disadvantages with the other methods you choose to discuss
Discuss the above based on the following:
Explain the market capitalization.
Explain the book value.
Explain (expected) future earnings.
Provide a narrative on other methods (minimum of two).
Compare market capitalization, book value, and future earnings methods (and your other chosen methods) with each other to include their advantages and disadvantages.
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
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- The P/E ratio is most useful in .... : Comparing the premium that the market places on the total dollar value of earnings among competitors. Comparing the premium that the market places on the total dollar value of earnings per share among competitors. Comparing the return on earnings among competitors. Forecasting the future earnings of a company.arrow_forwardYou have been asked to present to a group of investors, and you can only present two financial ratios to help persuade them to invest. The ratios of choice is Profit Margin and Return on equity. • Explain the ratios you chose. Why did you choose those ratios, and how will it help you convince the investors to invest? • There are limitations to ratio analysis. What is missing from the ratios you chose?arrow_forwardWhich of the following is needed to calculate a firm’s WACC? A. the cost of carrying inventory B. the amount of capital necessary to make the investment C. the cost of preferred stock D. the probability distribution of expected returns E. both b and carrow_forward
- Calculate the projected 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?arrow_forwardSuppose you a stock analyst are performing a ratio analysis and comparing a discount merchdiser with a high end merchandiser. Suppose further that both companies have identical ROE. IF You apply the dupont equation to both firms, would you expect the three components to be the same for both companies? If not, explain what balance balance sheet and income statements might lead to the differences in the Dupont equation components.arrow_forwardSuppose you, a stock analyst, are performing a ratio analysis and comparing a discount merchandiser with a high-end merchandiser. Suppose further that both companies have identical ROEs. If you apply the DuPont equation to both firms, would you expect the three components to be the same for both companies? If not, explain what balance sheet and income statement items might lead to the differences in the DuPont equation components.arrow_forward
- The ratio that measures how much an investor is willing to pay for a dollar of earnings is known as a _____________ ratio. A. asset management B. market value C. profitabilityarrow_forwardYou believe that both financing and investing decisions contain fresh information of firm’s value perceived by the investors. Thus, stock price reacts positively or negatively to it. List three decisions each for financing and investing made by firmsarrow_forward1. The more optimistic investors are about a company’s future profits, the ________ the ratio of the company’s market value to book value.greaterlowerno effect onarrow_forward
- Ratio analysis is an important tool used by financial analysts in determining the future value of a company's stock. 1. Explain which ratios you think are most useful in determining the future viqbility kf a company. 2 What are the importance of benchmarks and red flags that are obvious indicators of future problems?arrow_forwardWhich of the following statements regarding the current ratio is true? a.The current ratio is more useful than working capital in making comparisons across companies. b.The current ratio is not useful in making comparisons with industry averages. c.Working capital is more useful than the current ratio in making comparisons across companies. d.All of these statements are true.arrow_forwardWhich of the following does NOT directly affect a company's cost of equity? Select one: a. Return on assets b. Expected market return c. Risk-free rate of return d. The company's betaarrow_forward
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