75.
Proceeds from a company’s sale of stock to the public are included in
76.
Which of the financial statements recognizes only transactions in which cash changes
hands?
77.
Suppose that Chicken Express, Inc. has a
ROA
of 7% and pays a 6% coupon on its debt.
Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm
that is 100% equity-financed, Chicken Express’s net profit will be ________ and its
ROE
will
be ________.
78.
The P/E ratio that is based on a firm’s financial statements and reported in the newspaper
stock listings is different from the P/E ratio derived from the dividend discount model
(DDM) because
79.
The dollar value of a firm’s return in excess of its opportunity costs is called its
80.
Economic value added (EVA) is also known as
81.
Which of the following are issues when dealing with the financial statements of
international firms?
I) Many countries allow firms to set aside larger contingency reserves than the amounts
allowed for U.S. firms.
II) Many firms outside the U.S. use accelerated depreciation methods for reporting
purposes, whereas most U.S. firms use straight-line depreciation for reporting purposes.
III) Intangibles such as goodwill may be amortized over different periods or may be
expensed rather than capitalized.
IV) There is no way to reconcile the financial statements of non-U.S. firms to GAAP.
82.
To create a common size income statement ____________ all items on the income
statement by ____________.
83.
To create a common size balance sheet ____________ all items on the balance sheet by
____________.
84.
Common size financial statements make it easier to compare firms
85.
Common size income statements make it easier to compare firms
19–158
86.
Common size balance sheets make it easier to compare firms
Short Answer Questions
87.
Publicly traded firms must prepare audited financial statements according to generally
accepted accounting principles (GAAP). How do comparability problems arise?
88.
In an increasingly globalized investment environment, comparability problems become
even greater. Discuss some of the problems for the investor who wishes to have an
internationally diversified portfolio.
89.
Many different debt, or financial leverage, ratios are reported. Explain the relationship
between total assets/equity and debt/equity.
90.
Discuss the differences between economic earnings and accounting earnings. Which is
preferred in financial analysis? Which is most widely used, and why?
91.
The DuPont system decomposes ROE into the following components:
Enter the formula that corresponds to the description of each ratio into the second column
of the table. The third column gives a value for each ratio. Use the fourth column to
describe the meaning of the ratio’s value.
