80.2K

Verified Solution

Link Copied!

home / study / business / accounting / accounting questions and answers / Looking At Ways To Analyze Financial Statement. The Financial Statements For The Two Companies ... Your question has expired and been refunded. We were unable to find a Chegg Expert to answer your question. . Question: Looking at ways to analyze financial statement. The financial statements for the two companies 1-... looking at ways to analyze financial statement. The financial statements for the two companies 1-The first question is asking what kind of assumptions can impact earnings. Think about any estimates included in the financial statements. One I think about is contingent liabilities or loan loss reserves. Any amount that requires some judgement. 2-The second question asks you to compute the P/E ration and PSR based on the financial statements included in Required Resources. Once you have these two amounts, I want you to compare the two companies using these measures. One of the more closely watched ratios by investors is the price/earnings (P/E) ratio. By dividing price per share by earnings per share, analysts get insight into the value the market attaches to a company's earnings. More specifically, a high P/E ratio (in comparison to companies in the same industry) may suggest the stock is overpriced. Also, there is some evidence that companies with low P/E ratios are underpriced and tend to outperform the market. However, the ratio can be misleading. P/E ratios are sometimes misleading because the E (earnings) is subject to a number of assumptions and estimates that could result in overstated earnings and a lower P/E. Some analysts conduct revenue analysis to evaluate the quality of an earnings number. Revenues are less subject to management estimates and all earnings must begin with revenues. These analysts also compute the price-to-sales ratio to assess whether a company is performing well compared to similar companies. If a company has a price-to-sales ratio significantly higher than its competitors, investors may be betting on a stock that has yet to prove itself. (a) Identify some of the estimates or assumptions that could result in overstated earnings. (b) Compute the P/E ratio and the PSR for Tootsie Roll and Hershey for 2014. (c) Use these data to compare the quality of each company's earnings

Answer & Explanation Solved by verified expert

See Answer