Ratio Analysis Ratio analysis is a study of several key metrics of a company based on the data presented in its' financial statements with an objective to evaluate the financial health of a company. It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability. The key metrics mentioned above include the following: Equity Ratio − It is a measure of the total equity component out of the total capital employed by an entity that comprises of both debt and equity Return on Total Assets − A measure of the return earned by the shareholders on the total assets employed. It is an indicator of profitability in relation to the assets. Dividend Yield Ratio − It is a measure of the total dividend earned by the equity shareholder in relation to the shares held. Book Value per Share − It is a measure of the actual book value or cost of the equity shares. It seeks to measure the actual price that the share is worth and the difference between market price and actual book value. Days' sales in inventory − A measure of the total outstanding collections for credit sales in terms of inventory. It is calculated to understand how many days the company holds inventory before selling it Accounts receivable turnover − A measure of the relation between the turnover and accounts receivable measured in number of times. Debt Equity Ratio − A Measure of the total debt used to leverage the business in relation to the percentage of equity. Times Interest earned Ratio − A measure of the total income and the total interest payments made by the business. It seeks to measure how much of the earnings can finance interest costs and at what multiple. The higher the ratio, the better. Gross Margin Ratio − A measure of the gross margin earned from the turnover for the reporting period. Acid Test Ratio − Also known as quick ratio, it seeks to measure the liquidity position of the business. To Match: Ratios to the building block of financial statements it best relates to.

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Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 17, Problem 1E

To determine

Introduction:

Ratio Analysis

Ratio analysis is a study of several key metrics of a company based on the data presented in its' financial statements with an objective to evaluate the financial health of a company.

It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

Equity Ratio − It is a measure of the total equity component out of the total capital employed by an entity that comprises of both debt and equity

Return on Total Assets − A measure of the return earned by the shareholders on the total assets employed. It is an indicator of profitability in relation to the assets.

Dividend Yield Ratio − It is a measure of the total dividend earned by the equity shareholder in relation to the shares held.

Book Value per Share − It is a measure of the actual book value or cost of the equity shares. It seeks to measure the actual price that the share is worth and the difference between market price and actual book value.

Days' sales in inventory − A measure of the total outstanding collections for credit sales in terms of inventory. It is calculated to understand how many days the company holds inventory before selling it

Accounts receivable turnover − A measure of the relation between the turnover and accounts receivable measured in number of times.

Debt Equity Ratio − A Measure of the total debt used to leverage the business in relation to the percentage of equity.

Times Interest earned Ratio − A measure of the total income and the total interest payments made by the business. It seeks to measure how much of the earnings can finance interest costs and at what multiple. The higher the ratio, the better.

Gross Margin Ratio − A measure of the gross margin earned from the turnover for the reporting period.

Acid Test Ratio − Also known as quick ratio, it seeks to measure the liquidity position of the business.

To Match:

Ratios to the building block of financial statements it best relates to.

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KIARA LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: ASSETS Property, plant and equipment (cost) Accumulated depreciation Long-term investments Inventory Accounts receivable Company tax paid in advance Bank EQUITY AND LIABILITIES 2024 2023 R R 2 490 000 1 620 000 (630 000) 660 000 1 050 000 1 230 000 30 000 (480 000) 450 000 1 290 000 900 000 0 750 000 660 000 5 580 000 4 440 000 Ordinary share capital 2 700 000 2 000 000 Retained income 1 500 000 1 158 000 Long-term loan from Kip Bank (15%) 900 000 1 000 000 Accounts payable 480 000 228 000 Company tax payable 0 54 000 5 580 000 4 440 000 ADDITIONAL INFORMATION All purchases and sales are on credit. Interim dividends paid during the year amounted to R150 750. Credit terms of 3/10 net 60 days are granted by creditors.

Accounting Question

REQUIRED Study the information given below and answer the following questions. Where discount factors are required use only the four decimals present value tables that appear after the formula sheet or in the module guide. Ignore taxes. 5.1 Calculate the Accounting Rate of Return on average investment of the second alternative (expressed to two decimal places). 5.2 Determine which of the two investment opportunities the company should choose by calculating the Net Present Value of each alternative. Your answer must include the calculation of the present values and NPV. 5.3 Calculate the Internal Rate of Return of the first alterative (expressed to two decimal places). Your answer must include two net present value calculations (using consecutive rates/percentages) and interpolation. INFORMATION The management of Bentall Incorporated is considering two investment opportunities: (5 marks) (9 marks) (6 marks) The first alternative involves the purchase of a new machine for R900 000 which…

Answer 2

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 17, Problem 1E

To determine

Introduction:

Ratio Analysis

Ratio analysis is a study of several key metrics of a company based on the data presented in its' financial statements with an objective to evaluate the financial health of a company.

It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

Equity Ratio − It is a measure of the total equity component out of the total capital employed by an entity that comprises of both debt and equity

Return on Total Assets − A measure of the return earned by the shareholders on the total assets employed. It is an indicator of profitability in relation to the assets.

Dividend Yield Ratio − It is a measure of the total dividend earned by the equity shareholder in relation to the shares held.

Book Value per Share − It is a measure of the actual book value or cost of the equity shares. It seeks to measure the actual price that the share is worth and the difference between market price and actual book value.

Days' sales in inventory − A measure of the total outstanding collections for credit sales in terms of inventory. It is calculated to understand how many days the company holds inventory before selling it

Accounts receivable turnover − A measure of the relation between the turnover and accounts receivable measured in number of times.

Debt Equity Ratio − A Measure of the total debt used to leverage the business in relation to the percentage of equity.

Times Interest earned Ratio − A measure of the total income and the total interest payments made by the business. It seeks to measure how much of the earnings can finance interest costs and at what multiple. The higher the ratio, the better.

Gross Margin Ratio − A measure of the gross margin earned from the turnover for the reporting period.

Acid Test Ratio − Also known as quick ratio, it seeks to measure the liquidity position of the business.

To Match:

Ratios to the building block of financial statements it best relates to.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 3

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 17, Problem 1E

To determine

Introduction:

Ratio Analysis

Ratio analysis is a study of several key metrics of a company based on the data presented in its' financial statements with an objective to evaluate the financial health of a company.

It is essential for investors, stakeholders, government bodies etc. to evaluate the key metrics of an entity in order to ensure that the company fulfills the going concern principle and displays financial stability.

The key metrics mentioned above include the following:

Equity Ratio − It is a measure of the total equity component out of the total capital employed by an entity that comprises of both debt and equity

Return on Total Assets − A measure of the return earned by the shareholders on the total assets employed. It is an indicator of profitability in relation to the assets.

Dividend Yield Ratio − It is a measure of the total dividend earned by the equity shareholder in relation to the shares held.

Book Value per Share − It is a measure of the actual book value or cost of the equity shares. It seeks to measure the actual price that the share is worth and the difference between market price and actual book value.

Days' sales in inventory − A measure of the total outstanding collections for credit sales in terms of inventory. It is calculated to understand how many days the company holds inventory before selling it

Accounts receivable turnover − A measure of the relation between the turnover and accounts receivable measured in number of times.

Debt Equity Ratio − A Measure of the total debt used to leverage the business in relation to the percentage of equity.

Times Interest earned Ratio − A measure of the total income and the total interest payments made by the business. It seeks to measure how much of the earnings can finance interest costs and at what multiple. The higher the ratio, the better.

Gross Margin Ratio − A measure of the gross margin earned from the turnover for the reporting period.

Acid Test Ratio − Also known as quick ratio, it seeks to measure the liquidity position of the business.

To Match:

Ratios to the building block of financial statements it best relates to.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 17, Problem 1E

To determine