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 8MCQ
To determine
Explain the company that has least likely to experience problems in paying its current liabilities
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Use the financial ratios of company A and company B to answer the questions below.
Company A Company B
Yr t+1 Year t Yr t+1 Year t
Current ratio 0.55 0.59 0.56 0.55
Accounts receivable turnover 6.22 6.25 5.06 4.87
Debt to total assets 40.5% 40% 67.8% 65.9%
Times interest earned 8.80 30.6 5.97 6.33
Free cash flows (in millions) ($3,819) $3,173 $168 $550
Return on stockholders’equity 7.7% 7.7% 26.6% 23.3%
Return on assets 4.3% 4.3% 8.9% 7.9%
Profit margin…
For each ratio listed, identify whether the change in ratio value from the prior year to the current year is favorable or unfavorable.
Methodology:• Based on the above information the consulting group will conduct ratio analysis for the following ratios:o Current ratio o Receivable’s turnover o Times’s interest earned o Profit margin o Days in inventory o Return on assets o Cash current debt coverage ratio • As a next step the group will compare the ratios calculated above with industry benchmarks. The benchmarks are indicated within brackets besides each ratio.o Current ratio (3 to 1) o Receivable’s turnover (13 times) o Times’s interest earned (9 times) o Profit margin (12%) o Days in inventory (50 days) o Return on assets (12%) o Cash current debt coverage ratio (2 times
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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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
- Please halp me. Thankyou.arrow_forwardHow should the company respond to the ongoing situation to mitigate risk of failing the working capital given the following financial ratio? 1. Liquidity ratio : current ratio: 2.61xquick ratio: 2.56cash ratio: 0.85 2. Accounts receivable turnover: 4.08Ave collection period: 89.46 days 3. Inventory turnover: 38.76ave age of inventory: 9.42 4. Average payable turnover: 1.04ave payment period: 350.96 Note: Their working capital is 22,887,683 Current asset (37,127,683) - current liabilities (14,260,065) = 22,887,683arrow_forwardFor each ratio listed, identify whether the change in ratio value from the prior year to the current year is usually regarded as favorable or unfavorable.arrow_forward
- What company is better in the short term investmentarrow_forwardFor each ratio listed, identify whether the change in ratio value from the Prior Year to the Current Year is usually regarded as favorable or unfavorable. Ratio 1. Profit margin 2. Debt ratio 3. Gross margin 4. Acid-test ratio 5. Accounts receivable turnover 6. Basic earnings per share 7. Inventory turnover 8. Dividend yield Current Year Prior Year Change 9% 8% 47 % 42 % 34 % 46 % 1.00 1.15 5.5 6.7 $ 1.25 $ 1.10 3.6 3.4 2.0 % 1.2 %arrow_forwardWhat is the inaccuracy under the RR column?arrow_forward
- Kindly explain the comparision of ratios as per the attached question - the points of comparision and the impact of each factorarrow_forwardSM3arrow_forwardWhat do these ratios tells us about Target. What impact does this analysis have on your perceptions of Target, both as a customer and as an investor or potential investor.arrow_forward
- How to solve questionarrow_forwardGive a comment on the financial health and performance of the company (as benchmarked with competitors) using the following liquidity ratios: current ratio recievable turnover inventory turnover quick ratioarrow_forward1. If current assets amounted to P600,000 and current liabilities amounted to P200,000, what is the current ratio of the entity? *a. P800,000b. P400,000c. 3d. 1/3 3. If net sales is P200,000 and the average accounts receivable is P50,000, what is the accounts receivable turnover ratio? *a. 4b. 1/4c. P150,000d. P250,000 5. If total assets amounted to P800,000 and total liabilities amounted to P200,000, what is the debt to equity ratio? *a. 4b. 0.3333c. 0.25d. 3arrow_forward
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