Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
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Chapter 3, Problem 6Q
Summary Introduction
To determine: The reason why seldom cheating to differentiate a firm’s financial proportions with those of other companies that work in the corresponding industry.
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Which is not a potential problem of utilizing ratio analysis?
A. trends and industry averages are historical in nature.
B. financial data may be distorted due to price-level changes.
C. firms within an industry may not use similar accounting methods.
D. all of the above
E. answer not given
Explain the Limitations of Financial Ratios in Business Decisions?
What is the basic purpose for examining trends in a company’s financial ratios and other data? What other kinds of comparisons might an analyst make?
Chapter 3 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
Ch. 3 - Prob. 1QCh. 3 - Prob. 2QCh. 3 - Over the past year, M. D. Ryngaert Co. has...Ch. 3 - Prob. 4QCh. 3 - Prob. 5QCh. 3 - Prob. 6QCh. 3 - Prob. 1PCh. 3 - Prob. 2PCh. 3 - Prob. 3PCh. 3 - Prob. 4P
Ch. 3 - Prob. 5PCh. 3 - Prob. 6PCh. 3 - Ace Industries has current assets equal to 3...Ch. 3 - Prob. 8PCh. 3 - Prob. 9PCh. 3 - Prob. 10PCh. 3 - Complete the balance sheet and sales information...Ch. 3 - The Kretovich Company had a quick ratio of 1.4, a...Ch. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 1MCCh. 3 - Prob. 2MCCh. 3 - Prob. 3MCCh. 3 - Prob. 4MCCh. 3 - Prob. 5MCCh. 3 - Prob. 6MCCh. 3 - Prob. 7MCCh. 3 - Prob. 8MCCh. 3 - Prob. 9MCCh. 3 - Prob. 10MC
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- Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?arrow_forwardWhat is the value of common-sizing analysis? Why would a company do such an analysis on another company’s financial statements?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
- When 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_forwardTo 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_forwardWhich of the following is NOT a type of ratio analysis used by managers to interpret the numbers in financial statements? O liquidity O operating O activity O profitabilityarrow_forward
- What is earnings quality? What are the possible topics or areas that the reported earnings may not best represent the earnings reality or the future operating potential of a company?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_forwardWhich 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_forward
- Why would managers misrepresent the financial results oftheir companies?arrow_forwardWhich is wrong about the use of financial statement analysis? a. Seasonality factors may contribute to a sort of distortion on the financial ratio’s trends. b. Activity ratios, such as profit margin and return on asset, tells how efficient the company uses its resources and assets c. Horizontal analysis of financial statements is conducted by analyzing inter-period financial statements d. The Liquidity of the company can be determined using acid-test ratio and current ratioarrow_forwardHow might the different ages of firms distort comparisons of their fixed assets turnover ratios?arrow_forward
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