Analysis of Financial Statements

What is the primary purpose of using financial ratios to evaluate financial statements?

Which category of financial ratios gives an idea of a firm's ability to pay off debts that are maturing within a year?

Allied Food Products has current assets of $1,000 million and current liabilities of $310 million. What is its current ratio?

What does a high current ratio generally indicate about a firm's liquidity position, and what potential issue might it also suggest?

Allied Food Products has current assets of $1,000 million, inventories of $615 million, and current liabilities of $310 million. What is its quick (acid-test) ratio?

Which category of financial ratios measures how effectively a firm is managing its assets?

Allied Food Products has sales of $3,000 million and inventories of $615 million. What is its inventory turnover ratio?

Allied Food Products has accounts receivable of $375 million and annual sales of $3,000 million. Using a 365-day year, what is its Days Sales Outstanding (DSO)?

How does inflation potentially distort the interpretation of the fixed assets turnover ratio when comparing an old firm with a new firm?

Allied Food Products has sales of $3,000 million and total assets of $2,000 million. What is its total assets turnover ratio?

How does the use of debt, also known as financial leverage, affect a firm's Return on Equity (ROE)?

Allied Food Products has total debt of $860 million and total capital of $1,800 million (debt of $860 million plus equity of $940 million). What is its total debt to total capital ratio?

Allied Food Products has earnings before interest and taxes (EBIT) of $283.8 million and interest charges of $88 million. What is its times-interest-earned (TIE) ratio?

Which group of ratios combines the effects of liquidity, asset management, and debt management on operating results?

Allied Food Products has an operating income (EBIT) of $283.8 million and sales of $3,000 million. What is its operating margin?

Allied Food Products has net income of $117.5 million and sales of $3,000 million. What is its profit margin?

Allied Food Products has net income of $117.5 million and total assets of $2,000 million. What is its return on total assets (ROA)?

Allied Food Products has net income of $117.5 million and total common equity of $940 million. What is its return on common equity (ROE)?

The return on invested capital (ROIC) measures the total return a company has provided for all of its investors. How is it calculated?

What is the primary benefit of using the Basic Earning Power (BEP) ratio for comparison between firms?

Which category of financial ratios relates a company's stock price to its earnings and book value per share?

Allied Food Products' stock sells for $23.06 per share and its earnings per share (EPS) is $2.35. What is its Price/Earnings (P/E) ratio?

What does a low P/E ratio for a company, relative to its industry, generally suggest to investors?

Allied Food Products has a market price per share of $23.06 and a book value per share of $18.80. What is its Market/Book (M/B) ratio?

What is the primary function of the DuPont equation in financial analysis?

According to the DuPont equation, if Allied Food Products has a profit margin of 3.92 percent, a total assets turnover of 1.5 times, and an equity multiplier of 2.13 times, what is its ROE?

What is the primary purpose of benchmarking in ratio analysis?

What is trend analysis in the context of financial ratios?

Which of the following is identified as a potential limitation or problem in using ratio analysis?

Why is it important to look beyond the numbers and consider qualitative factors when performing financial analysis?

What is the relationship between a company's Return on Equity (ROE) and the other financial ratios?

Which of the following describes a potential misuse of Return on Equity (ROE) as a performance measure?

A firm has an inventory turnover ratio of 5x. Assuming a 365-day year, approximately how many days does its inventory stay on the premises?

Which ratio measures how effectively a firm uses its plant and equipment to generate sales?

If a company's total assets turnover ratio is below the industry average, but its fixed assets turnover ratio is in line with the industry average, where does the problem likely lie?

A firm has annual sales of $100 million, inventory of $20 million, and accounts receivable of $30 million. What is its inventory turnover ratio?

A firm has annual sales of $100 million, inventory of $20 million, and accounts receivable of $30 million. Using a 365-day year, what is its Days Sales Outstanding (DSO)?

What does the equity multiplier, a component of the DuPont equation, measure?

A firm has a Return on Assets (ROA) of 10 percent and an equity multiplier of 2.0. What is its Return on Equity (ROE)?

Why is it often difficult to develop a meaningful set of industry averages for a highly diversified firm?

In the context of financial analysis, which of the following is an example of a qualitative factor an analyst should consider?

If two firms have identical operations and assets but one uses more debt, which profitability ratio will most directly be lower for the high-debt firm?

Why might an analyst use the Enterprise Value/EBITDA ratio instead of the P/E ratio for valuation?

What does a Market/Book (M/B) ratio of 0.85 signify?

A company has an ROA of 5 percent, a profit margin of 2 percent, and an ROE of 15 percent. What is its total assets turnover?

A firm has a current ratio of 2.0 and current liabilities of $500 million. What is the total of its current assets?

A firm has a current ratio of 2.0, current assets of $1,000 million, and a quick ratio of 1.6. How much inventory does it have?

If a company is having financial difficulty, what two actions does it typically take that would cause its current ratio to fall?

Why must an analyst be cautious when relying on Return on Equity (ROE) alone as a measure of performance?

What does a company's debt ratio indicate?