财务管理课后答案第三章

Chapter 3

Discussion Questions

3-1. If we divide users of ratios into short-term lenders, long-term lenders, and

stockholders, in which ratios would each group be most interested, and for what

reasons?

Short-term lenders –liquidity ratios because their concern is with the firm ’s

ability to pay short-term obligations as they come due.

Long-term lenders –leverage ratios because they are concerned with the

relationship of debt to total assets. They also will examine profitability to insure

that interest payments can be made.

Stockholders –profitability ratios, with secondary consideration given to debt

utilization, liquidity, and other ratios. Since stockholders are the ultimate

owners of the firm, they are primarily concerned with profits or the return on

their investment.

3-2.

Explain how the Du Pont system of analysis breaks down return on assets. Also

explain how it breaks down return on stockholders ’ equity.

The Du Pont system of analysis breaks out the return on assets between the

profit margin and asset turnover.

Return on Assets = Profit Margin × Asset Turnover

assets

Total Sales Sales income Net assets Total income Net ⨯=

In this fashion, we can assess the joint impact of profitability and asset turnover

on the overall return on assets. This is a particularly useful analysis because we

can determine the source of strength and weakness for a given firm. For example,

a company in the capital goods industry may have a high profit margin and a

low asset turnover, while a food processing firm may suffer from low profit

margins, but enjoy a rapid turnover of assets.

The modified form of the Du Pont formula shows:

()()

Return on assets investment Return on equity =1Debt/Assets -

This indicates that return on stockholders’ equity may be influenced by return

on assets, the debt-to-assets ratio or a combination of both. Analysts or

investors should be particularly sensitive to a high return on stockholders’

equity that is influenced by large amounts of debt.

3-3. If the accounts receivable turnover ratio is decreasing, what will be happening to the average collection period?

If the accounts receivable turnover ratio is decreasing, accounts receivable will

be on the books for a longer period of time. This means the average collection

period will be increasing.

3-4. What advantage does the fixed charge coverage ratio offer over simply using times interest earned?

The fixed charge coverage ratio measures the firm’s ability to meet all fixed

obligations rather than interest payments alone, on the assumption that failure

to meet any financial obligation will endanger the position of the firm.

3-5. Is there any validity in rule-of-thumb ratios for all corporations, for example, a current ratio of 2 to 1 or debt to assets of 50 percent?

No rule-of-thumb ratio is valid for all corporations. There is simply too much

difference between industries or time periods in which ratios are computed.

Nevertheless, rules-of-thumb ratios do offer some initial insight into the

operations of the firm, and when used with caution by the analyst can provide

information.

3-6. Why is trend analysis helpful in analyzing ratios?

Trend analysis allows us to compare the present with the past and evaluate our

progress through time. A profit margin of 5 percent may be particularly

impressive if it has been running only 3 percent in the last ten years. Trend

analysis must also be compared to industry patterns of change.

3-7. Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of

inflation on the following ratios, and explain the direction of the impact based

on your assumptions.

a.Return on investment.

b.Inventory turnover.

c.Fixed asset turnover.

d.Debt-to-assets ratio.