Discussion Questions Chapter 8

Discussion Questions Chapter 8 - books far below its...

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Discussion Questions – Chapter 8 1. No, it is a cumulative chronicle of all transactions that have affected the corporation since its inception. 2. The purpose of the statement of cash flows is to emphasize the critical nature of cash flow to the operations of the firm. 3. No 4. The liquidity ratios are likely to be of greatest interest to the banker or trade creditor, while the bondholder will be more interested in the debt-utilization ratios. 5. I don’t know. 6. In the heavy capital goods industry, emphasis is on a high profit margin with a low asset turnover, while in the food-processing industry, the profit margin is low, and the key to satisfactory returns on total assets is a rapid turnover of assets. 7. The age of assets influence the interpretation of the values because older equipment may be carried on the
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Unformatted text preview: books far below its replacement value. 8. If a firms return on equity is substantially higher than the firms return on assets, the analyst will know that the firms assets are financed by debt. 9. These ratios can be related in the fact that a faster turnover creates a more rapid movement of cash through the company and improves liquidity. 10. Yes, because utility companies have stable sales and earnings whereas auto and airlines do not. 11. Because fixed-charge coverage is more conservative than interest earned. 12. A high payout ratio tells the analyst that the stockholder is receiving a large part of the earnings and that the company is not retaining much income for investment in new plant and equipment. 13. I dont know....
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