Exam 18: Ratio Analysis, financial Analysis and Beyond

If a business entity sets the price of its services higher than competitors,it is likely that

You have gathered data about three possible investments.The data are as follows The earnings and operating cash flows can be estimated to be as follows: Firm A Firm B Firm C Earnings Cash flow Earnings Cash flow Earnings Cash flow

A scoring model is

Euphoria Corp.operates in a world where there are no taxes of any kind.Euphoria Corporation's balance sheet on 31 December X1 shows shareholders' equity at 5,000 CU,long-term debt at 5,000 CU (interest on these loans is 5%)and accounts payable at 5,000 CU.The income statement for X1 shows that for sales of 15,000 CU the gross margin was 8,000 CU.The COGS includes 2,500 CU of depreciation expenses.Selling General and Administrative expenses amount to 5,500 CU which include,among other items,a 500 CU personnel training expenses for new technologies of production,500 CU spent on developing a new logo and its launch and total depreciation expenses of 1,500 CU.In addition Euphoria spent 1,000 CU on R&D in X1.The market expectation regarding return on long-term capital in the risk class where Euphoria operates is considered to be 15%.Intellectual investments are considered to benefit the firm for 4 years.What is the EVA of Euphoria for X1?

Firm A and firm B are in the same risk class.Firm A has return on sales of 3% and an asset turnover of 4.Firm B generates 2 CU of profit per 100 CU of sales revenue and requires 25 CU of assets in order to support 100 CU of sales.In order for firm B to be seen as generating a better return on assets than firm A:

Which of the following situations represents an effective use of assets

The asset turnover ratio (ATR)for Jovial Inc.has evolved as follows over the past three years: ATR(Y-3)= 200% ATR(Y-2)= 190% ATR(Y-1)= 180%

Segment reporting consists in:

In order to calculate diluted earnings per share,the net profit attributable to ordinary shareholders and the weighted average number of shares outstanding should be adjusted for the effects of all dilutive potential ordinary shares.

Residual income is:

Firm A on 1 January X1 has 5,000 shares outstanding (valued at 14.5 CU per share on the market)and holds 600 shares in treasury stock.On 1 July,it issues 1,000 new shares that are fully subscribed and fully paid for in cash at 15 CU per share.On 1 October,managers exercise their stock options and the firm sells them the 600 shares it held in treasury at a price of 12 CU per share as agreed when the options were granted.The current market value of a share on 1 October is 16 CU per share.What is the time weighted average number of share for the year X1.On 31 December X1,the share is still valued by the market at 16 CU per share.

If you multiply sales profit margin by asset turnover,you obtain:

Firms A and B have the same number of shares outstanding.Relative to firm A,firm B is less capital intensive,has a lower debt to asset ratio and pays a larger proportion of its earnings as dividends.On the basis of these facts,would you say that:

Profit margin is defined as the ratio of earnings to

Two manufacturing business entities (A and B)were created at the same time this year and started operating on the very same day.They operate on two absolutely identical but separate worlds,but are not in competition with one another.They are absolutely identical in terms of their market success,their productive technology,equipment and infrastructure.They have the same headcount comprising the same categories of skills and competence.Both must pay cash for all their purchases. The first year's income statements for each firm are as follows: Which of the following statements is entirely true:

Economic Value Added (EVA)is defined as follows

If a business entity shows a high asset turnover ratio,it means that

All things being otherwise equal,when a business entity is created,choosing a significantly higher financial leverage ratio (than the rule of the three thirds would command)will generally lead to (compared to a lower leverage ratio):

Firm A on 1 January X1 has 6,000 shares outstanding and holds 100 shares in treasury stock.On 1 January X1 shares trade at 13 CU per share.On 1 July,it acquires,at 13.5 CU per share,an additional 600 of its own shares in anticipation of service of managers' stock options.On October 1,managers exercise their stock options and the firm sells them the full 700 shares it held in treasury at a price of 14 CU per share as agreed when the options were granted.The market value of a share on October 1 is 16 CU per share.For X1,earnings after tax (attributable to ordinary equity holders)were 18,330 CU.The basic earnings per share for X1 amounts to:

The so-called 'DuPont formula' defines capital employed as: