FINANCIAL MANAGEMENT: THEORY AND PRACTIC
16th Edition
ISBN: 9780357691977
Author: Brigham
Publisher: CENGAGE L
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Chapter 3, Problem 6MC
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?
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Market value ratios try to answer what question for potential investors? Do financial statements contain all of the necessary information to answer this question? Explain in terms of the P/E (price earnings) ratio.
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.
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Chapter 3 Solutions
FINANCIAL MANAGEMENT: THEORY AND PRACTIC
Ch. 3 - Define each of the following terms:
Liquidity...Ch. 3 - Financial ratio analysis is conducted by managers,...Ch. 3 - Over the past year, M. D. Ryngaert Co. has...Ch. 3 - Profit margins and turnover ratios vary from one...Ch. 3 - How might (a) seasonal factors and (b) different...Ch. 3 - Why is it sometimes misleading to compare a...Ch. 3 - Greene Sisters has a DSO of 20 days. The company’s...Ch. 3 - Vigo Vacations has $200 million in total assets,...Ch. 3 - Winston Watchs stock price is 75 per share....Ch. 3 - Reno Revolvers has an EPS of $1.50, a free cash...
Ch. 3 - Needham Pharmaceuticals has a profit margin of 3%...Ch. 3 - Gardial Son has an ROA of 12%, a 5% profit...Ch. 3 - Ace Industries has current assets equal to 3...Ch. 3 - Assume you are given the following relationships...Ch. 3 - Prob. 9PCh. 3 - The Morrit Corporation has $600,000 of debt...Ch. 3 - Complete the balance sheet and sales information...Ch. 3 - The Kretovich Company had a quick ratio of 1.4, a...Ch. 3 - Data for Lozano Chip Company and its industry...Ch. 3 - The Jimenez Corporation’s forecasted 2020...Ch. 3 - Why are ratios useful? What three groups use ratio...Ch. 3 - Calculate the projected profit margin, operating...Ch. 3 - Calculate the projected inventory turnover, days...Ch. 3 - Prob. 4MCCh. 3 - Calculate the projected debt ratio, debt-to-equity...Ch. 3 - Calculate the projected price/earnings ratio and...Ch. 3 - Prob. 7MCCh. 3 - Use the extended DuPont equation to provide a...Ch. 3 - What are some potential problems and limitations...Ch. 3 - What are some qualitative factors that analysts...
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- Which of the following is NOT a measure of a company's profitability? a) Return on Investment (ROI) b) Earnings Before Interest and Taxes (EBIT) c) Gross Profit Margin d) Debt -to-Equity Ratioarrow_forwardDescribe and justify why you would use the following ratios as an analyst to evaluate the performance of a company. Profitability Ratios Liquidity Ratios Gearing Ratios Investment Ratiosarrow_forwardThe 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_forward
- To evaluate a company’s performance, investors need a benchmark to which they can compare its financial ratios. What are some of the problems associated with these comparisons?arrow_forwardWhat are the importance of the following financial ratios? Price to earnings ratio. Earnings per share. Return on equity ratio.arrow_forwardWhich of the following ratios would NOT be considered to be a measure of a business economic performance? A.Return on assets B.Inventory days C.Return on equity D.Sales growtharrow_forward
- Which of the following typically is true for profitability ratios? a. Growth stocks have lower price to earnings ratios.b. Companies in more competitive industries have higher profit margins.c. The gross profit ratio declines as competition increases.d. When a company has debt, its return on equity will be lower than its return on assets.arrow_forwardWhich financial ratios would you recommend to evaluate a company's solvency? Once these ratios are computed, what do you recommend comparing them to?arrow_forwardWhat are the limitations to using financial ratio analysis [such as profitability ratios, liquidity ratios, gearing ratios, and investment ratios] computed from the financial statements of a company. What other alternatives could have been used to decide on the performance and investment-worthiness of a company.arrow_forward
- The PE ratio is a very common method used by investors to get a quick calculation on the market’s perception of a company. Evaluate the formula used to calculate the PE ratio focusing on the limitations of this method of valuation?arrow_forwardWhen you are interpreting financial ratios, it is useful to compare a company's ratios to some form of standard. Group of answer choices True Falsearrow_forwardProfitability ratios include the profit margin on sales, the return on total assets, and the return on common equity. Select one: True Falsarrow_forward
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Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License