BFN 110 Lecture Notes - Lecture 22: Tunxis Community College, Asset Turnover, Financial Statement

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coralimpala133

6 Jan 2021

School

Tunxis Community College

Department

Business – Finance

Course

BFN 110

Professor

garside

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Document Summary

Reveals the relationship between profitability ratios and asset utilization ratios and debt utilization. Decompose return on asset (roa) into 2 factors: Decompose return on equity (roe) into three factors: Comparing a company"s ratios to the industry average or industry leader may not be appropriate. Over the course of the business cycle, because of sales and profit fluctuations, yearly ratio analysis may not present an accurate picture. Comparing the same company"s ratios on a year-to-year basic is trend analysis and may reveal whether ratios are improving or worsening over the length of a longer time cycle. Historical-based accounting in an environment of changing prices may distort financial results: Immediate effect of price changes (inflation/disinflation) on revenues versus delayed impact on asset values. Accrual-based accounting allows certain leeway in matching the revenues and expenses. Cost of goods sold (lifo vs. fifo) Financial ratios cover 4 areas of management; profitability, asset utilization, liquidity and debt utilization.

Related Questions

Question 1

Ratios are grouped into 4 categories: Profitability, asset utilization, performance and debt utilization.

True

False

8 points

Question 2

The calculation for profit margin is: net income divided by [______].

8 points

Question 3

Calculation of profit margin, return on assets (investments) and return on equity are "profitability ratios."

True False

8 points

Question 4

The calculation for return on equity is: Net Income duvided by [ _____ ]. (please put answer in all lower case, no caps).

8 points

Question 5

Return on total assets as described through the 2 components of profit margin and asset turnover is part of the Du Pont system of analysis.

True False

8 points

Question 6

When evaluating the Times Interest and Fixed Charge ratios a higher number indicates a weaker ability of the firm to meet its obligations.

True False

8 points

Question 7

Ratios are used to weigh and evaluate the operating performance of the firm by comparing the firm's results against:

a. Similar firms in our industry;

b. Our own past performance;

c. Government forecasts;

d. Published industry data.

	1.	All of these
	2.	a. Similar firms in our industry; b. Our own past performance; d. Published industry data.
	3.	a. Similar firms in our industry; b. Our own past performance; c. Government forecasts;
	4.	None of these

8 points

Question 8

Trend analysis is unnecessary because ratio analysis presents an accurate picture of the firm even though the business cycle, sales and profitability may expand and contract.

True False

8 points

Question 9

LIFO and FIFO are 2 common methods of inventory valuation.

True False

8 points

Question 10

When sales are recognized, issues of inflation and deflation, presence of extraordinary gains and losses are some of the factors that may distort the numbers reported.

True False

BFN 110 Lecture Notes - Lecture 22: Tunxis Community College, Asset Turnover, Financial Statement

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