Question

Financial Analysis Questions:

The industry is automotive

1. If your price to book, price to sales, price to cash flow ratios are below the industry average what does each tell? also, bad or good?

2. If your beta is above industry average and competitors, what does it tell? also, bad or good?

3. if your current ratios, acid test ratio, and interest coverage ratio are below the industry average, what does it tell? also, bad or good?

4. If your debt to equity and long term debt to equity is below the industry average is it bad or good and what does it tell?

Answer 1

If price to book is below the industry average considered bad, it means the stock is undervalued and it can also indicate that the company is not functioning well.

If price to sales is below the industry average considered good and it tells that the investment is good and the firm is paying less and earn more.

If price to cash flow ratio is below the industry average considered good and it tells that the value of stock price are high.

2. If beta above the industry average considered bad and it indicates the stock volatility and supposed to be riskier and company should have diversify the portfolio.

3. If current ratio below industry average is bad and it indicates the higher risk of default and do not have capital to meet short term obligations.

If acid test ratio below industry average is bad and it does not have enough liquid asssets to pay their current liabilities.

If interest coverage ratio is below industry average considered bad and it tells that the debt expenses are increased and its ability to meet the debt expenses may be questionable.

4 If debt to equity is below the industry average indicates that the company is not taking advantage of increased profit.

Long term debt equity is below the industry average indicates lower level of leverage.