2. How do entities determine their fiscal period? Give an example. 3. How would
ID: 1169592 • Letter: 2
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2. How do entities determine their fiscal period? Give an example. 3. How would you define a highly leveraged company? What ratio would you use to determine this? 4. Tell me one thing you learned from the guest lecture, and how do you think it may be useful for you in your professional or personal life. 2. How do entities determine their fiscal period? Give an example. 3. How would you define a highly leveraged company? What ratio would you use to determine this? 4. Tell me one thing you learned from the guest lecture, and how do you think it may be useful for you in your professional or personal life. 2. How do entities determine their fiscal period? Give an example. 3. How would you define a highly leveraged company? What ratio would you use to determine this? 4. Tell me one thing you learned from the guest lecture, and how do you think it may be useful for you in your professional or personal life.Explanation / Answer
2.
A company's fiscal year is its financial year. Fiscal year is stated as of the last day of the year; December 31, for example. Most companies use either the end of the calendar year (December 31) or the end of a quarter (March 31, June 30, or September 30) as their fiscal year end date.
Having a fiscal year for your business is necessary for tax purposes.
In the same way as for personal taxes, a business reports on its total net income as of the end of the fiscal year, as a basis for tax calculation. The fiscal year is also the time when the company takes stock internally, determines inventory, and reports annual earnings to shareholders.
3. We can use several leverage ratios to analyse a firms' capital structure. Some of them are Debt to Equity ratio, Interest Coverage Ratio, etc.
Debt ratio = Total Liabilities / Total Assets
Debt-to-equity ratio = Total Liabilities / Stockholders’ Equity
Interest Coverage Ratio = Operating Income / Interest Expense
Depending on the firm and the sector/industry in which the firm operates, we will be able to judge whether a firm is highly leveraged or not.Because reliance on debt varies by industry, analysts usually compare debt ratios to those of direct competitors. Comparing the capital structure of a mining equipment company to that of a software developer, for instance, can result in a distorted view of their financial health.
Ratios can also be used to track trends within a particular company. If, for example, interest expenses consistently grow at a faster pace than operating income, it could be a sign of trouble ahead.
In isolation, each of these ratios provide a somewhat limited view of the company’s financial strength. But when used together, a more complete picture emerges – one that helps weed out healthy corporations from those that are dangerously in debt.
There is no 1 single ratio to say a company is highly leveraged. We have to take the ratios above and compare them for the firm with other companies operating in the same industry.
4. I am not sure of which guest lecture you are speaking about.
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