Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Textbook Question
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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Students have asked these similar questions
The price/earnings ratio is commonly used by investors to
OA. evaluate their ability to earn a return on their investment
OB. determine the market value of the company
OC. determine the market price per share of stock of a company
OD. determine if the company has a low amount of debt
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.
Chapter 3 Solutions
Financial Management: Theory & Practice
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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- Based on these calculations, which company appears to be more risky and which company appears to be more profitable? How can you tell? (Keep in mind that the current ratio and debt to equity ratio are "risk ratios" and the gross profit ratio and return on equity ratio are "profitability ratios").arrow_forwardHelp mearrow_forwardCalculate the following profitablity leverage management ratios a. Gross profit margin b. Net profit margin c. Return on investment d. Return on Stockholders' equity Calculate the following market-based ratios: a. Price-to-earnings ratio b. Market price-to-book value ratioarrow_forward
- 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_forwardHow can the Stock price be a good indicator of your company's financial health and may also reflect the market's attitude?arrow_forwardWhat are the importance of the following financial ratios? Price to earnings ratio. Earnings per share. Return on equity ratio.arrow_forward
- 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.arrow_forward. Explain the factors used in the formula, how the ratio assists the investor in evaluating a company’s performance, and whether it assesses liquidity, solvency, or profitability.arrow_forwardWhich 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_forward
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