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Financial Statement Analysis

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1. When computing the debt ratio, do you think the result would be more useful to financial statement users if the numerator included all liabilities as shown on the balance sheet, all liabilities as shown on the balance sheet plus any contingencies, or only long-term liabilities? Why

2. In assessing the ability of a company to repay the principal on its long-term debt, one of the primary ratios analyzed is the debt ratio. In this situation, would the analyst also be concerned with profitability? Why or why not?

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1. When computing the debt ratio, do you think the result would be more useful to financial statement users if the numerator included all liabilities as shown on the balance sheet, all liabilities as shown on the balance sheet plus any contingencies, or only long-term liabilities? Why

Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company the greater the financial risk of bankruptcy. (Investopedia, 2009) Debt ratio indicates the financial solvency of the organization. Higher debt ratio ...

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MBA Financial Statement Analysis

I need to find the following information for Cissco and their competitors and do the questions below:

Net operating profit (NOPAT) margin and net operating asset (NOA) turnover for several selected companies for 2005 follow:
Company NOA Turnover NOPAT Margin
Albertsons, Inc 3.59 2.20%
Alcoa, Inc 1.51 5.93%
Caterpillar, Inc 1.99 6.96%
Home Depot, Inc 2.72 6.64%
McDonalds Corporation 0.89 12.61%
SBC Communications, Inc 0.79 10.62%
Southwest Airlines 0.74 5.08%
Target Corporation 2.23 4.54%

1. Graph the NOPAT margin and NOA turnover for each of these companies. Do you see a pattern revealed that is similar to that shown in the text? Explain. (Note that the graph in the text is based on averages for selected industries. The graph for this problem uses fewer companies and, thus, will not be as smooth.)
2. Consider the trade-off between profit margin and asset turnover. How can we evaluate companies on this margin and turnover trade-off? Explain.
3. Do the RNOAs appear adequate to attract capital? Explain. If not, are there unique industry issues that exist in 2005 that might explain a temporary downturn in RNOA?

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