Solvency and Profitability Ratios — Flashcards

Question

What does gross profit margin reveal about a company's economics?

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Answer

Pricing power after direct production costs.

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Question

What business reality is indicated when cash-based interest coverage falls sharply?

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Answer

Less operating cash is available to service interest.

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Question

How is cash-based interest coverage calculated in cash flow analysis?

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Answer

$(e x t C F O + e x t I n t er es tp ai d + e x t T a x es p ai d) / e x t I n t er es tp ai d$

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Question

Why can a higher debt-to-equity ratio worry analysts even if sales are growing?

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Answer

Growth is being financed with more creditor claims.

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