Essay about Finance

992 Words Feb 23rd, 2013 4 Pages

Part 1 Overview

Comparing ROE and ROA Both ROA and ROE measure profitability. Which one is more useful for comparing two companies? Why? 9. Ratio Analysis Consider the ratio EBITD/Assets. What does this ratio tell us? Why might it be mote useful than ROA in comparing two companies? 10. Return on Investment A ratio that is becoming more widely used is return on investment. Return on investment is calculated as net income divided by long-term liabilities plus equity. What do you think return on investment is intended to measure? What is the relationship between return on investment and return on assets? Use the following information to answer the next five questions: A small business called The Grandmother Calendar Company began
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15. Cash Flow What are some actions a small company like The Grandmother Calendar Company can take (besides expansion of capacity) if it finds itself in a situation in which growth in sales outstrips production?


Questions and Problems


BASIC (Questions 1-10)



Du Pont Identity If Roten, Inc., has an equity multiplier of 1.35, total asset turnover of 2.15, and a profit margin of 5.8 percent, what is its ROE? Equity Multiplier and Return on Equity Thomsen Company has a debt-equity ratio of .90. Return on assets is 10.1 percent, and total equity is $645,000. What is the equity multiplier? Return on equity? Net income? Using the Du Pont Identity Y3K, Inc., has sales of $3,100, total assets of 51,580, and a debt-equity ratio of 1.20. If its return on equity is 16 percent, what is its net income? EFN The most recent financial statements for Martin, Inc., are shown here: Income Statement
Sales Costs Taxable income Taxes (34%) Net income $25,800 16.500 $ 9,300 3,162 $ 6,138 Assets

Balance Sheet
$113,000 Debt Equity $ 20,500 92,500





Chapter 3 Financial Statements Analysis and Financial Models


Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,841.40 was paid, and Martin wishes to maintain a constant payout ratio. Next year's sales are projected to be $30,960. What external financing is needed? Sales and Growth The most recent

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