What would an analyst examine to assess a company’s ability to fulfill its long-term obligations?
Solvency ratios
When developing forecasts, what should analysts most likely use?
The results of financial analysts, analysts of other information, and judgment
Brown Corporation wants to decrease its collection period from 19 days to 15 days. What change in the average accounts receivable balance must occur?
+$0.41 million
What conclusion might an analyst draw from Apex Manufacturing’s increasing debt-to-equity ratio from FY3 to FY5?
The company is becoming increasingly less solvent.
What is the least likely conclusion an analyst would make about Spherion PLC based on its efficiency and liquidity data?
Management of receivables has contributed to improved liquidity
What best explains an increase in receivables turnover?
Accumulation of uncollectible accounts due to an error in the credit scoring system.
What would a creditor consider positive news regarding financial ratios?
A decrease in the debt-to-total assets ratio.
What would decrease ROA assuming no changes in other variables?
An increase in average assets.
What might explain a decrease in a company’s inventory turnover?
Operational difficulties from a new inventory management system.
Which ratio measures a company’s ability to meet short-term obligations?
Current ratio
What conclusion can be drawn from the ROE and total asset turnover data from FY13 to FY15?
Net profit margin has decreased, but financial leverage has increased.
What can be concluded about Company A and Company B’s ability to pay obligations?
Company A is more liquid, but Company B is more solvent.
What is the term for comparing a company’s financial results to peer companies?
Cross-sectional analysis
What might an analyst conclude from the ROE decomposition of Company A and Company B?
Company A’s ROE remains similar to Company B’s mainly due to increased financial leverage.
What does the decline in Apex Manufacturing’s equity indicate?
The company may be incurring losses, paying dividends greater than income, and/or repurchasing shares.
What does the P/E ratio measure?
The ‘multiple’ that the stock market places on a company’s EPS.
