7.12: Chapters 5 - 7- Review Questions
- Page ID
- 88556
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- Calculate as many financial ratios as you can using the company from the last problem set. Average your data where advised.
- For each ratio, provide some written commentary and analysis.
- See how many ratios from each of our six categories you know already by rote memory.
- Liquidity
- Solvency
- Profitability
- Turnover
- Return
- Market Ratios
- How are the Liquidity and Solvency ratio categories different from one another?
- Why do we use 360 in calculating the Average Collection Period (ACP)? Under what rationale may 365 days be advised?
- In the ACP, why are Credit Sales, in most cases, larger than Accounts Receivable?
- Why do we use EBIT, and not Net Income, in calculating the Return-on-Assets?
- Why don’t we utilize the accountant’s net worth figure as a metric for company value?
- How do Price/Earnings and Price-to-Book ratios illustrate a company’s value?
- Define “Longitudinal” and “Cross-sectional.” How can you use these concepts in your company analysis?
- What is the end-goal of Ratio Analysis?
- How is it that a strong company, e.g., Walmart, operates with negative Working Capital? What is your view?
- What benefits does the Aging Schedule provide?
- What is the relationship between a Debt-to-Total Assets ratio and a company’s Times Interest Earned ratio?
- What industries tend to have great amounts of Debt relative to Assets? How do they manage to accomplish this without increasing their default risk?
- What benefit might there be to using the Debt-to-Assets rather than the more popular Debt-to-Equity ratio?
- Is a low TIE Ratio always a bad thing? Under what circumstances might a company tolerate a low ratio?
- Have you figured out yet whether ratios provide answers?
- What two key pieces of information does the DuPont Model focus on?
- In what technical, ratio-ways, are “Growth” and “Value” stocks different from one another?
- What is meant by “signaling”?
- What is meant by a “Liquidity Premium”?
- Provide some reasons why two companies, which are identical in all respects, might have radically different Turnover ratios?
- List and discuss some limitations of financial ratios?
- After all this, can you “handle the truth”?