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D076 Unit 4 already graded A+ 2024/2025
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D076 Unit 4 already graded A+ 2024/2025
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D076 Unit 4Which method of ratio analysis looks at a firm's performance over time? - ANSTrend analysis
You are a financial analyst of an investment bank, and you are doing research on equity. You
are looking at a book publisher's financial ratios in comparison to its competitors and the
industry average. What is this an example of? - ANSCross-sectional analysis
Which type of ratio are suppliers interested in? - ANSLiquidity ratios
What is the ratio that tells you on average how long it takes for a firm to collect accounts
receivable? - ANSAverage collection period
What does a debt ratio of 40% indicate? - ANSIt indicates that 40% of assets are financed by
debt.
What is operating margin useful for? - ANSComparing the profitability of firms with different
capital structures
What does an average collection period of 70 tell you? - ANSOn average, a firm takes 70 days
to collect accounts receivable.
What does high inventory turnover relative to the industry and competitors indicate? - ANSThe
firm does not hold enough inventory and is making its customers wait longer to receive their
purchased goods.
What is the difference between return on assets (ROA) and return on equity (ROE)? - ANSROE
considers the capital structure of a company, while ROA does not.
MiniCo recently spun off of BigCo. Both companies have the same leverage and asset turnover
ratios, but MiniCo is underperforming on its return on equity to shareholders. If MiniCo would
like to improve its return on equity, which action would help? - ANSReduce costs to improve its
overall profitability.
Why are ratios useful for analyzing and comparing company performance between firms of
different sizes? - ANSThey provide standardization.
You are the financial manager of a firm. The firm is small and is struggling to collect cash from
accounts receivable. Also, due to the nature of industry, inventories are illiquid. To make sure
that the firm has enough cash holdings for short-term obligations, you decide to create a new
ratio of cash to short-term obligations. What is this scenario an example of? - ANSFlexibility
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