2. Part of Owens evaluation will consist of comparing the firms ratios to the industry as shown...
Question:
2. Part of Owen’s evaluation will consist of comparing the firm’s ratios to the industry as shown in Exhibit C3.3 of the text. Discuss the limitations of such a comparative financial analysis. In view of these limitations, why are such industry comparisons so frequently made? (Note: Sales are forecast to be $8.25 million in 2014). Type a three- to four-sentence response below.
3. Owen thinks that the profitability of the firm has been hurt by Tessa’s reluctance to use much interest-bearing debt. Is this a reasonable position? Explain. Type a three- to four-sentence response below.
4. The case mentions that Tessa rarely takes trade discounts, which are typically 1½/10, net 30. Does this seem like a wise financial move? Explain. Type a three- to four-sentence response below.
5. Is the estimate of $35 to $40 for Owen’s shares a fair evaluation? Explain. Type a three- to four-sentence response below.