Define assets. How are assets ranked?
Directions: Read pages 1-50 in the Desai textbook and answer the following. ( I will. send you)
1.Define assets. How are assets ranked? (p. 15).
2.Briefly define the following assets: a) cash and marketable securities; b) accounts receivable; c) inventories; d) PP&E; and e) other current assets. (pp. 15-18)
3.Review Table 1-1 on page 13.
Indicate the letters of the companies that have over 50% of their assets as cash / marketable securities (note: cash, stocks, bonds, mutual funds are liquid).
Indicate the letter of the company that has over 80% of the assets as accounts receivable.
Indicate the letters of the companies that have at least 17% of their assets as inventories (note: inventories represent risk).
Indicate the letters of the companies that have over 0% of their assets as inventories (note: these are service industries).
Indicate the letters of the companies that have at least 60% of their assets as plant and equipment (note: PP&E is illiquid).
4.Define shareholders’ equity (pp. 18-19) What is an equivalent term to shareholders’ equity? (p. 14 and pp. 18-19)
5.Define liabilities. How are liabilities ranked? (p. 19)
6.Briefly define the following liabilities: a) accounts payable; b) notes payable; c) accrued items; d) long-term debt; e) common stock, and f) preferred stock. (pp. 20-21)
7.Review Table 1-1 on page 13.
Indicate the letter of the company that has 50% of the liabilities as notes payable.
Indicate the letter of the company that has 15% of the liabilities as preferred stock (note: preferred stock represents risk).
Indicate the letters of the company that have 40% or more of the liabilities as shareholders’ equity (i.e., net worth / common stock / owner’s equity).
8.What are the four questions that ratios address? (p. 22)
9.Generally speaking, what do liquidity ratios measure? Define and distinguish between current ratio and quick ratio (pp. 22 – 24). Then, review Table 1-1 on page 13 and indicate the letters of the companies that have a quick ratio (i.e., cash, marketable securities, and accounts receivable / liabilities) of 2 or higher.
10.Define the following efficiency ratios: inventory turnover (p. 30) and days inventory (p. 31). Then, review Table 1-1 on page 13 and indicate the letters of the companies that have an inventory turnover of over 14, remembering that high inventory turnover is good! Note that NA means there is no inventory, pertaining to service-oriented companies.
11.While there are many measures of profitability, we are going to focus on three that are very commonly used, which are profit margin (net profit/revenue), return on equity (net profit/shareholders’ equity) and EBITDA Margin (EBITDA/revenue).
Review Table 1-1 on page 13 and indicate the letters of the two companies with the highest profit margin (net profit/revenue).
What does ROE measure (p. 25)?
What are the three major components that make up ROE (pp. 39-40)?
Review Table 1-1 on page 13 and indicate the letters of the two companies with the highest ROE (net profit/shareholders’ equity).
What does EBITDA stand for (pp. 25-26)?
Review Table 1-1 on page 13 and indicate the letters of the two companies with the highest EBITDA Margin (EBITDA/revenue).
Requirements: follow direction
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