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

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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.

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Duncan Company is a large manufacturer and distributor of cake supplies. It is based in United Kingdon (Headquarters) It sends supplies to firms throughout the United States and the Caribbean . It markets its supplies through periodic mass mailings of catalogues to those firms. Its clients can make orders over the phone and Duncan ships the supplies upon demand.The main competition for Duncan’s comes from one U.S. firm and one Canadian firm. Another British firm has a small share of the U.S. market but is at a disadvantage because of its distance. The British firm’s marketing and transportation costs in the U.S. marketare relatively high.a) Duncan Company plans to penetrate either the Canadian market or two other Caribbean Countries (Jamaica and Haiti). What factors deserve to be considered in deciding which market is more feasible? I NEED PROPER REFERENCES IN THE ANSWER AND A VERY DETAILED AND RESEARCH ANSWER.

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.

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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.

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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.

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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

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

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