6.) Hold all other factors constant and indicate whether each of the following situations generally signals...

6.) Hold all other factors constant and indicate whether each of the following situations generally signals good or bad news about a company: a) Increase in earnings per share b) Increase in price/earnings ratio c) Increase in current ratio d) Decrease in inventory turnover e) Increase in debt ratio f) Decrease in times interest earned coverage ratio

Solutions

Expert Solution

A) Increase in earning per shares: This means there is increase in profit becasue if there is increase in profit than only incease in earning per shares- So this is good for company

B) Increase in Price / EArning Ratio = PE ratio will indicates that an investor is how much want to pay against earning of $ 1 in comapny. So increase in price / Earning ratio is good for company

C) Current RAtio: This ratio will indicate the current assets available against the current liabilitiy so increase in current ratio is good for commpany

d) Decrease in inventory turnover will indicate the how many times an inventory will rotate in company so decrease in inventory turover ratio means decrease in rollover of the inventory and so this is not good for company.

e) Increase in Debt Ratio : Debt Ratio will be indicates ratio of Debt against Total Assets so heigher debt means heigher debt and it will be not good for company. So Increase in debt ratio is not good for company.

f) Decrease in times interest earned coverage ratio: Interest earned coverage ratio interest before interest or taxes divide by interest expenses so this will show the interest coverage. So heigher interest coverage will be good for company and decrese in time interest earned coverage ratio.

ekkarill92 answered 10 months ago

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