Analysis of Financial Statements.
Help me study for my Accounting class. I’m stuck and don’t understand.
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Self-Test Questions
- What insights does the Statement of Cash Flows provide regarding financial analysis?
- Why are financial ratios used? List the five major categories of ratios presented in the chapter.
- Identify and write out the equations for six profitability ratios. What do each of these ratios specifically measure?
- Why is the basic earnings power ratio (BEP) useful?
- Why does the use of debt lower ROA?
- Identify and write out the equations for four ratios that are used to measure how effectively a firm is managing its assets. What do each of these ratios specifically measure?
- What problem might arise when comparing different firms’ fixed assets turnover ratios?
- Identify and write out the equations for two ratios that are used to analyze a firm’s liquidity position. What do each of these ratios specifically measure?
- What are the characteristics of a liquid asset? Which current asset is typically the least liquid? Why?
- How does the use of financial leverage affect current stockholders’ control position?
- Identify and write out the equations for seven ratios that are used to measure the extent to which a firm uses financial leverage. What do each of these ratios specifically measure?
- Identify and write out the equations for four market value ratios. What do each of these ratios specifically measure?
- If one firm’s P/E ratio is lower than that of another, what are some factors that might explain the difference?
- Explain why book values often deviate from market values.
- What is a trend analysis, and what important information does it provide?
- What is common size analysis and percentage change analysis?
- What is comparative analysis and benchmarking?
- List at least three potential problems with ratio analysis.
- Different groups conduct financial ratio analysis. These groups could include managers, equity investors, long-term and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Book: Financial Management: Theory and Practice
16th Edition
Analysis of Financial Statements
