Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Textbook Question
Chapter 5, Problem 6QE
A firm had the following values for the four debt ratios discussed in the chapter:
Liabilities to Assets Ratio: less than 1.0
Liabilities to Shareholders’ Equity Ratio: equal to 1.0
Long-Term Debt to Long-Term Capital Ratio: less than 1.0
Long-Term Debt to Shareholders’ Equity Ratio: less than 1.0
- a. Indicate whether each of the following independent transactions increases, decreases, or has no effect on each of the four debt ratios.
- (1) The firm issued long-term debt for cash.
- (2) The firm issued short-term debt and used the cash proceeds to redeem long-term debt (treat as a unified transaction).
- (3) The firm redeemed short-term debt with cash.
- (4) The firm issued long-term debt and used the cash proceeds to repurchase shares of its common stock (treat as a unified transaction).
- b. The text states that analysts need not compute all four debt ratios each year because the debt ratios are highly correlated. Does your analysis in Requirement a support this statement? Explain.
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Which of the following ratios is(are) useful in assessing a company's ability to meet current maturing or short-term obligations?
Acid-Test Ratio
Debt to Total Assets Ratio
a.
Yes
No
b.
Acid-Test Ratio
Debt to Total Assets Ratio
No
No
O c.
Acid-Test Ratio
Debt to Total Assets Ratio
Y es
No
d.
Acid-Test Ratio
Debt to Total Assets Ratio
Yes
Yes
The Debt to Equity ratio calculation measures
Group of answer choices
c. How much debt the company has for every dollar of Equity
b. The amount of Assets that are financed by debt
None of the above
a. The ability of the company to pay its’ current obligations
IV. Conclusion:
Based on your findings on ratio analysis and interpretation, what conclusion can you make?
Chapter 5 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 5 - Prob. 1QECh. 5 - Prob. 2QECh. 5 - A firm has experienced an increasing current ratio...Ch. 5 - A firm has experienced a decrease in its current...Ch. 5 - Prob. 5QECh. 5 - A firm had the following values for the four debt...Ch. 5 - Prob. 7QECh. 5 - Prob. 8QECh. 5 - Prob. 9QECh. 5 - Prob. 10QE
Ch. 5 - Market equity beta measures the covariability of a...Ch. 5 - Altmans bankruptcy risk model utilizes the values...Ch. 5 - Calculating and Interpreting Risk Ratios. Refer to...Ch. 5 - Refer to the financial state-ment data for...Ch. 5 - Refer to the profitability ratios of Coca-Cola in...Ch. 5 - Delta Air Lines, Inc., is one of the largest...Ch. 5 - Prob. 17PCCh. 5 - Prob. 18PCCh. 5 - Prob. 19PCCh. 5 - Prob. 20PCCh. 5 - Prob. 21PCCh. 5 - Prob. 22PCCh. 5 - Compute the values of each of the ratios in...
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- Which of the following statement is correct? Select one: O a. Return on assets is the ratio of net income after interest expense to total assets O b. All options are correct statement C. Average collection period is the average number of times it takes for the company's customers to pay their bills o d. Increase in the debt ratio indicate more reliance on debt as a source of financingarrow_forwardDefine each of the following terms:a. Liquid assetb. Liquidity ratios: current ratio; quick (acid test) ratioc. Asset management ratios: inventory turnover ratio; days sales outstanding (DSO);fixed assets turnover ratio; total assets turnover ratiod. Debt management ratios: total debt to total capital; times-interest-earned (TIE) ratioe. Profitability ratios: operating margin; profit margin; return on total assets (ROA);return on common equity (ROE); return on invested capital (ROIC); basic earning power (BEP) ratiof. Market value ratios: price/earnings (P/E) ratio; market/book (M/B) ratio; enterprise value/EBITDA ratio g. DuPont equation; benchmarking; trend analysish. “Window dressing” techniquesarrow_forwardWhat are two ratios indicating how well the company manages its debt ?.arrow_forward
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Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License