Describe the “five-question approach” to using financial ratios.

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 4, Problem 3RQ

Describe the “five-question approach” to using financial ratios.

Expert Solution & Answer

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

An annuity provides payments at the end of each two-year period for twenty years. It pays $1,000 at the end of the first period and increases the payment by $1,000 in each subsequent period, so that at the end of the tenth period it pays $10,000. Given a 2% nominal annual interest rate compounded semiannually, determine in which of the following ranges is the present value of this annuity. please use tvm if neededI

A. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $200,000 for 20 years? Assume that the annuity will earn 10 percent per year.B. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $1 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of the current year.C. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $1 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of five years. I need help solving question C on a financial calculator.

John wants to buy a property for $105,000 and wants an 80 percent loan for $84,000. A lenderindicates that a fully amortizing loan can be obtained for 30 years (360 months) at 6 percentinterest; however, a loan fee of $3,500 will also be necessary for John to obtain the loan.a. How much will the lender actually disburse?b. What is the APR for the borrower, assuming that the mortgage is paid off after 30 years (fullterm)?c. If John pays off the loan after five years, what is the effective interest rate? Why is it differ-ent from the effective interest rate in (b)?d. Assume the lender also imposes a prepayment penalty of 2 percent of the outstanding loanbalance if the loan is repaid within eight years of closing. If John repays the loan after fiveyears with the prepayment penalty, what is the effective interest rate?

Answer 2

Textbook Question

Chapter 4, Problem 3RQ

Describe the “five-question approach” to using financial ratios.

Expert Solution & Answer

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 4, Problem 3RQ

Describe the “five-question approach” to using financial ratios.

Expert Solution & Answer

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 4, Problem 3RQ

Describe the “five-question approach” to using financial ratios.

Expert Solution & Answer

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Answer 8

Expert Solution & Answer

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To discuss: “Five question approach” using financial ratios.

Answer 12

Explanation of Solution

How liquid is the firm? : This is to determine whether the company is able to repay creditors in a timely manner and compare current assets with current liabilities as well as the nature of the current assets.
How is the firm financing its assets? : To answer this question, the debt ratio is determined and the time interest earned is also measured.
Are managers providing good returns on capital to shareholders? : To determine this, return on equity analysis is calculated and compared to competitors.
Are managers generating adequate operating profits from its assets? : The company’s profitability, operating income and turnover ratios of the company are measured to determine the location of the assets.
Are managers creating shareholder’s value: The value is generated by the managers is determined by the added economic value or the market value ratios (price/earnings and price/book ratios) are analysed.

Answer 13

Ch. 4 - Describe the five-question approach to using...Ch. 4 - What are the limitations of industry average...Ch. 4 - What is the difference between a firms gross...Ch. 4 - Prob. 9RQ Ch. 4 - Prob. 11RQ Ch. 4 - Prob. 1SP Ch. 4 - (Evaluating profitability) The Malia Corporation...Ch. 4 - (Evaluating profitability) Last year, Stevens,...Ch. 4 - (Price/ book) Chang, Inc.s balance sheet shows a...Ch. 4 - Prob. 5SP

Describe the “five-question approach” to using financial ratios.

Videos

Explanation of Solution

Want to see more full solutions like this?

Chapter 4 Solutions