1. Explain why financial ratios are more meaningful for financial analysis than individual entries?
Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.
2 What is meant by the term "liquidity" as applied to an organization's financial health, and what are two ways it is measured?© BrainMass Inc. brainmass.com October 24, 2018, 7:41 pm ad1c9bdddf
A ratio is nothing more than a simple division of two numbers. Often numbers by themselves do not convey anything until they are related. It needs a contextual reference.
Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm ...
This discusses the concepts related to Financial ratios and liquidity
Need help on the problems in the attached document.
Label each answer... be specific as possible.....if you'd like you may use bullet items to respond to the questions...
1. Corporate Finance Organization: In a large corporation, what are the two distinct groups that report to the chief financial officer? Which group is the focus of corporate finance?
2. Agency Problems: Who owns a corporation? Describe the process whereby the owners control the firm's management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
3. International Firm Goal: Would our goal of maximizing the value of the stock be different if we were thinking about financial management in a foreign country? Why or why not?
4. Calculating Liquidity Ratios: SDJ, Inc., has net working capital of $1,570, current liabilities of $4,380, and inventory of $1,875. What is the current ratio? What is the quick ratio?
5. Calculating the Average Collection Period: Pujols Lumber Yard has a current accounts receivable balance of $387,615. Credit sales for the year just ended were $2,945,600. What is the receivables turnover? The days' sales in receivables? How long did it take on average for credit customers to pay off their accounts during the past year?
6. Calculating Leverage Ratios: Star Lakes, Inc., has a total debt ratio of .29. What is its debt-equity ratio? What is its equity multiplier?
7. Du Pont Identity: If Roten Rooters, Inc., has an equity multiplier of 1.35, total asset turnover of 1.30, and a profit margin of 8.5 percent, what is its ROE?
8. Calculating Financial Ratios: Based on the balance sheets given for Just Dew It, calculate the following financial ratios for each year:
a. Current ratio
b. Quick ratio
c. Cash ratio
d. NWC to total assets ratio
e. Debt-equity ratio and equity multiplier
f. Total debt ratio and long-term debt ratio