Chapter Questions
What is a ratio? How do ratios help to alleviate the problem of size differences among firms?
What does each of the following categories of ratios attempt to measure? (a) liquidity, (b) long-term borrowing capacity; (c) profitability. Name a group of users who might be interested in each category.
Brown Company earned 5.5\% on sales in 2009. What further information would be needed to evaluate this result?
Differentiate between absolute and percentage changes. Which is generally a better measure of change? Why?
Differentiate between horizontal and vertical analy. sis. Using sales as a component for each type, give an example that explains the difference.
What is trend analysis? Can it be used for ratios? For absolute figures?
Suppose you are comparing two firms within an industry. One is large and the other is small. Will relative or absolute numbers be of more value in each case? What kinds of statistics can help evaluate relative size?
Are managers the only users of financial reports? Discuss.
Briefly describe how each of these groups might use financial reports: managers, investors, and creditors.
Refer to Exhibits 5-3,5-4, and 5-5 to answer the following questions:a. For each of the firms illustrated, what is the single largest asset category? Does this seem typical of this type of firm?b. Which of the three firms has the largest amount in current assets in relation to the amount in current liabilities? Does this seem logical? Explain.
Differentiate between the types of inventory typically held by a retailing firm and a manufacturing firm.
Sometimes manufacturing firms have only raw materials and finished goods listed on their balance sheets. This is true of Avon Products, a manufacturer of cosmetics, and it might be true of food canners also. Explain the absence of work in process.
Using these results for a given ratio, compute the median, upper quartile, and lower quartile. $14 \%, 13.5 \%$, $13 \%, 11.8 \%, 10.5 \%, 9.5 \%, 9.3 \%, 9 \%, 7 \%$
You want profile information on the president of a company. Which reference book should be consulted?
Answer the following concerning the Almanac of Business and Industrial Financial Ratios:a. This service presents statistics for how many size categories of firms?b. Indicate some of the industries covered by this service.
Using The Department of Commerce Financial Report discussion in the text, answer the following:a. Could we determine the percentage of total sales income after income taxes that a particular firm had in relation to the total industry sales? Explain.b. Could we determine the percentage of total assets that a particular firm had in relation to the total industry? Explain.
a. What is the SIC number? How can it aid in the search of a company, industry, or product?b. What is the NAICS number? How can it aid in the search of a company, industry, or product?
You want to know if there have been any reported deaths of officers of a company you are researching. What library source will aid you in your search?
You want to compare the progress of a given company with a composite of that company's industry group for selected income statement and balance sheet items. Which library source will aid you?
You are considering buying the stock of a large publicly traded company. You need an opinion of timeliness of the industry and the
You want to know the trading activity (volume of its stock sold) for a company. Which service provides this information?
Indicate some sources that contain a dividend record of payments.
What source includes comprehensive statistics on many industries?
You would like to determine the principal business affiliations of the president of a company you are analyzing. Which reference service may have this information?
Indicate some sources that contain an appraisal of the outlook for particular industries.
What source contains a comprehensive reference for products and services, company profiles, and a catalog file?