32 Review Questions
Chapter 3 Review Questions
1. Is past performance considered a good indicator of future performance?
2. The Pony Parts Tack Shop had inventory turnover of 12.8, 12.2, and 9.9 over the last three years, respectively. What can you learn about how well the Pony Parts management team is managing their inventory using this information?
3. The Pony Parts Tack Shop had total asset turnover of 1.8., 2.1, and 2.4 over the last three years, respectively. What can you learn about how well the Pony Parts management team is managing their total assets using this information?
4. Big Box Store Inc. had days’ sales in inventory of 30, 32, and 34 for the last three years. Small Box Store Inc. had days’ sales in inventory of 40, 38, and 36 for the last three years. What can you infer about the inventory management for the two companies based on this information? Which company is performing better?
5. Jackson’s Beef Jerky Shop has a current ratio of 2.35. What does that mean? Is 2.35 a good or bad current ratio?
6. Jackson’s Beef Jerky Shop has a quick ratio of 1.9. What does that mean? Is 1.9 a good or bad quick ratio?
7. Jackson’s Beef Jerky Shop has a cash ratio of 1.75. What does that mean? Is 1.75 a good or bad cash ratio?
8. You have some funds that you would like to invest. Do some internet research to find two publicly traded companies in the same industry and compare their earnings per share. Would the earnings per share reported by each company influence your decision in selecting which company to invest in?
9. Company A has a market value per share of 19.55 and book value per share of 12.79. If you were an investor, what would you conclude about the current value of Company A stock?
10. Company B has a price/earnings ratio of 21.2. The current industry average price/earnings ratio is 20.75. What might an investor conclude about investing in Company B?
11. What are the key elements of the DuPont formula, and how do these components function to help analysts assess an organization?
Attribution:
This chapter is from “Principles of Finance” https://openstax.org/books/principles-finance/pages/1-why-it-matters by Dahlquist and Knight. This book is licensed under the CC-BY 4.0 license. 2022 OpenStax.
