Which of the following statements about financial statement analysis is most correct? a. The current ratio is the best available measure of liquidity.
b. Du Pont analysis is based on the fact that return on equity (ROE) can be expressed as the sum of four other ratios.
c. It is relatively easy to interpret a ratio in the absence of comparative data.
d. There are no limitations to financial statement analysis, so analysts can always be confident of their conclusions.
e. None of the above statements is correct.
Answers
Answer:
The answer is e) None of the above statements is correct.
Explanation:
The current ratio, which measures the coverage of current assets against current liabilities, though used widely faces the limitation that it does not adequately reflect how well a company pays-off its short term debt. In simple terms, a high current ratio indicating how well a company pays short term debt is not forcefully appreciated in a given economic condition. as it is affected by elements such as time for collectinig bills. This is why to move in line with the going-concern principle, the acid test ratio is the best available measure of liquidity.
Du pont analysis is a form of financial ratio tools that comprises of 3 other financial ratios to provide better comprehension of the Return on Equity of a company. That is Net Profit Margin, Asset Turnover and Totat assets to Total equity ratios.
Interpretation of financial ratios requires the use of data so as to provide a comparison and determine the changes in the financial position of a company.
There are existing limitations to financial statement analysis such as the effect of inflation, the fact that data used for comparison is based on past information and it becomes to hard to predict the future. Considering these, analysts should rather be careful when communicating financial information.
Final answer:
The correct answer is 'b' - Du Pont's analysis is based on a relationship between ROE and three other ratios, not four. The statement 'a' isn't entirely true as the current ratio ignores the type and quality of current assets. Statements 'c' and 'd' are incorrect as analyzing a ratio without comparative data is misleading and limitations exist in financial statement analysis.
Explanation:
The correct statement about financial statement analysis is option 'b. Du Pont's analysis is based on the fact that return on equity (ROE) can be expressed as the product of three other ratios: the net profit margin, the total assets turnover, and the financial leverage ratio, not four. It's crucial to note that, while the current ratio can provide insight into a company's liquidity, it's not universally 'the best' measure because it fails to account for the nature and quality of current assets. Statements 'c' and 'd' are also incorrect; interpreting ratio data without comparative data lacks context and can be misleading, and financial statement analysis does have limitations such as not considering non-financial factors or possible manipulation of financial statements.
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Related Questions
Describe the main differences for revenue spending between ""for profit"" companies and ""not for profit"" companies. Describe how the main financial documents of Goodwill are similar to those companies that are ""for profit"". Describe how the main financial documents of Goodwill are difference to those companies that are ""for profit"".
Companies that achieve Value Innovation a. pursue differentiation and low cost simultaneously b. pursue differentiation or low cost c. pursue differentiation or low price d. None of the above
"The Federal Reserve raises the reserve requirement from 7 percent to 8 percent. Consequently banks must set aside more money and consequently have less money to lend. The result is that the banks will raise the interest rate they charge to their customers. These conditions make it harder and more expensive for people and businesses to borrow money. Because they can’t borrow as much, they can’t spend as much. If people aren’t spending as much, prices don’t go up. With this action, the Fed has lessened the likelihood of ________."
Find the account balance at the end of the second period for $3,000.00 invested at 9% compounded quarterly.
Answers
Answer:
True
Explanation:
Given a certain production level, cost minimization is equal to product maximization. Cost minimization refers to the production level where average total cost per unit is lowest. On the other hand, production maximization refers to maximizing product output given certain restraints, e.g. amount of raw materials, number of labor hours, etc. Product maximization basically refers to the efficiency of production.
If someone can achieve product maximization and cost minimization, they should be maximizing profit.
1. Calculate the standard cost for a pound of Sheffield's double chocolate almond supreme cookies. (Round answer to 2 decimal places, e.g. 3.51.)
Answers
The Standard cost for a pound of Sheffield's double chocolate almond supreme cookies in the above case is $15.10.
What is the standard cost?
A standard cost is defined as an anticipated cost that a company commonly launches at the starting of a fiscal year for amounts used and prices paid.
It is an anticipated amount of money to pay off for materials costs or labor rates. The standardquantity is the anticipated exercise amount of materials or labor.
Computation of standard cost:
According to the given information,
Standard direct materials costs = $0.80 per pound of cookie mix.
Per pound of milk chocolate = $4, and
Per pound of almonds = $19.
Total ounces:
Then, Standard Material Cost:
Now, 1 minute of direct labor is required in the mixing department and 5 minutes of direct labor in the baking department. Then the standard direct labor cost is:
Variable overhead is applied at a rate = $37.00 per direct labor hour
Now, find the value of Standard Variable overhead cost:
Now, Standard Fixed overhead cost:
Therefore, Standard cost for a pound:
Therefore, Standard cost for a pound is $15.10.
To learn more about the standard cost, refer to:
Answer:
The Standard cost for a pound of Sheffield's double chocolate almond supreme cookies is $15.10
Explanation:
The standard direct materials costs are $0.80 per pound of cookie mix, $4 per pound of milk chocolate, and $19 per pound of almonds.
Total ounces = 10 + 5 + 1 = 16
Standard Material Cost = ( × 0.80) + (
× 4) + (
× 19)
Standard Material Cost = $ 2.9375
Each pound of cookies requires 1 minute of direct labor in the mixing department and 5 minutes of direct labor in the baking department.
Standard Direct Labor Cost = × 12.70 +
× 27
Standard Direct Labor Cost = $2.4617
Variable overhead is applied at a rate of $37.00 per direct labor hour
Standard Variable overhead cost = 6/60 × 37
Standard Variable overhead cost = $ 3.70
Standard Fixed overhead cost = 6/60 × 60
Standard Fixed overhead cost = $ 6
Standard cost for a pound = $2.9375 + $2.4617 + $3.70 + $6
Standard cost for a pound = $15.10
Answers
Answer: Please refer to Explanation
Explanation:
Foreign Direct Investment refers to the establishment of a company in a country by a foreign company or the acquisition of a company by a foreign company. The main thing to note is that the foreign company is involved DIRECTLY in the running of the newly established or acquired company.
Foreign Portfolio Investment however, is investing in another country by means of purchasing shares, bonds or other financial instruments from that country.
Therefore we can then classify the above accordingly,
Buying bonds issued by a foreign government. FOREIGN PORTFOLIO INVESTMENT.
Opening up a factory in a foreign country. FOREIGN DIRECT INVESTMENT.
An individual investor is more likely to engage in foreign direct investment than a corporation. FALSE.
Foreign Direct Investment would simply be too expensive for the average individual to engage in. It is way more likely to be a Corperation.
Answers
Answer:
$31.68
Explanation:
The computation of the stock price is shown below:
= Dividend for year 1 ÷ (1 + required return)^number of years + Dividend for year 2 ÷ (1 + required return)^ number of years + Dividend for year 3 ÷ (1 + required return)^ number of years + Dividend for year 4 ÷ (1 + required return)^ number of years
= $5.30 ÷ (1 + 9.8%) + $9.40 ÷ (1 + 9.8%)^2 + $12.25 ÷ (1 + 9.8%)^3 + $14.25 ÷ (1 + 9.8%)^4
= 4.82695810564663 + 7.79692170895252 + 9.25399090557962 + 9.80404969365523
= 31.681920413834
= $31.68
Answers
Answer:
10.75%
Explanation:
The computation of the effective annual interest rate is shown below:
= Interest ÷ total net amount available
where,
Total net amount available would be
= Loan amount - Loan amount × interest rate - loan amount × compensating percentage
= $25,000,000 - $25,000,000 × 8.25% - $25,000,000 × 15%
= $25,000,000 - $2062,500 - $3,750,000
= $19,187,500
And, the interest would be $2,062,500
Now put these values to the above formula
So, the rate would equal to
= $2,062,500 ÷ $19,187,500
= 10.75%
Answers
Answer:
* Profit from buying the call with strike price of $50 after six months if:
- The stock price is $40: -$9
- The stock price is $50: -$9
- The stock price is $60: $1
* Profit from buying the put with strike price of $50 after six months if:
- The stock price is $40: $9
- The stock price is $50: -$1
- The stock price is $60: -$1
Explanation:
It is useful to recall that the call's buyer has the right but not the obligation to buy an underlying asset at strike price at expiration date; while the put's buyer has the right but not the obligation to sell an underlying asset at strike price at expiration date.
Explanation for each circumstances:
*Profit from buying the call with strike price of $50 after six months if:
- The stock price is $40: Do not exercise the call option as investor can buy from the market at $40 instead at the strike price of $50. Thus, investor will recognize a loss of $9 from buying the option.
- The stock price is $50: Market price is equal to strike price, investor will recognize a loss of $9 from buying the option.
- The stock price is $60: $1. Investor buy at strike price $50, sell in the market for $60 to get profit of $10, minus option price of $9, net gain is $1.
* Profit from buying the put with strike price of $50 after six months if:
- The stock price is $40: Investor buy from market at $40, sell through put option at $50, recognized the profit of $10. Net gain will be determined by further deducting of option price $1, to come at $9.
- The stock price is $50: Market price is equal to strike price, investor will recognize a loss of $1 from buying the option.
- The stock price is $60: Investor ignore the option as it can sell at market price of $60 instead of strike price $50. Net loss is option price $1.