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MAN4752 FSU Comp XM – Questions & Answers
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MAN4752 FSU Comp XM – Questions & Answers
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MAN4752 FSU Comp XM – Questions & AnswersAsset Turnover ✔️Ans - Sales / Total Assets
Asset Turnover implies: ✔️Ans - How efficient a company's assets are
in generating revenue (sales)
How can you best use the Asset Turnover ratio? ✔️Ans - - Use to help
determine a company's pricing strategy
- Typically, companies w/ low margins have higher AT and vice versa
- Determine how savvy management is in using assets & generating
revenue compared to other's in the industry
Limitations of Asset Turnover ✔️Ans - - Does not examine the
company's profitability
- Does not pinpoint where within the operations is the problem
- Does not reveal which set of assets are setting idle and which are effective
Return on Sales (ROS) ✔️Ans - Net Profit / Sales
ROS can be used to: ✔️Ans - - Examine profit margins
- High ratio generally means more profit is made per $1
- Unbiased to size of revenue
How is ROS best used? ✔️Ans - - Help determine strategy
- Companies with low margins are cost leaders
- Companies with high margins are differentiators
- Help figure how efficient the company is compared to others
, Limitations of ROS ✔️Ans - Doesn't help management pinpoint which
strategic initiatives to pursue
- Reduce costs, lower/raise prices
Leverage ✔️Ans - Assets / Equity
Leverage examines: ✔️Ans - - How the balance sheet is structured
- The use of debt on the balance sheet
- Debt is used to buy assets
A company will only borrow money if:
(Leverage) ✔️Ans - The return on assets exceed the interest of debt
Accounting Equation ✔️Ans - Assets = Liabilities + Equity
- Stakeholders have a stake in assets and leverage shows the split
Why is it good to know a company's leverage? ✔️Ans - Leverage is
helpful b/c it helps you examine a company's internal operations and
philosophies towards debt
Leverage limitations: ✔️Ans - Does not guarantee success
Return on Assets (ROA) ✔️Ans - Net Profit / Total Assets
ROA can be used: ✔️Ans - - As an indicator of how profitable a
company's resources are (compared to others in the same industry)
- Greater ROA, better the management team
ROA is a product of: ✔️Ans - Asset Turnover & Return on Sales
ROA is helpful in: ✔️Ans - Determining a company's gain using
leverage
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