Question 1

The higher the value of the times interest earned ratio, the higher the proportion of the firm's interest earnings compared to its contractual interest payments.

Accepted Answer

A) True 
 B)False  False

Question 2

The net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest and taxes, have been deducted.

Accepted Answer

A) True 
 B)False  False

Question 3

The ___________measures the percentage of profit earned on each sales dollar before interest and taxes.

Accepted Answer

A)  gross profit margin 
B)  operating profit margin 
C)  net profit margin 
D)  earnings available to common shareholders 
A)  gross profit margin 
B)  operating profit margin 
C)  net profit margin 
D)  earnings available to common shareholders B

Question 4

Balance Sheet 
Cole Eagan Enterprises 
December 31, 2002
$\begin{array}{llll}
\text { Cash } & \$ 4,500 & \text { Accounts Payable } & \$ 10,000 \
\text { Accounts Receivable } && \text { Notes Payable } \
\text { Inventories } && \text { Accruals }&1,000 \
\text { Total Current Assets } && \text { Total Current Liab. } \
\text { Net Fixed Assets } && \text { Long-Term Debt } \
\text { Total Assets } && \text { Stockholders' Equity } \
&& \text { Total Liab. \& S.E. }
\end{array}$

Information (2002 values)
1. Sales totaled $ \$ 110,000 $
2. The gross profit margin was 25 percent.
3. Inventory turnover was 3.0 .
4. There are 360 days in the year.
5. The average collection period was 65 days
6. The current ratio was 2.40 .
7. The total asset turnover was 1.13.
8. The debt ratio was 53.8 percent
-Net fixed assets for CEE in 2002 were________

Accepted Answer

A)  $45,484 
B)  $69,341 
C)  $48,975 
D)  $54,511 
A)  $45,484 
B)  $69,341 
C)  $48,975 
D)  $54,511

Question 5

A firm with a substandard return on total assets can improve its return on equity, all else remainingthe same, by

Accepted Answer

A)  decreasing its debt ratio. 
B)  increasing its total asset turnover. 
C)  increasing its debt ratio. 
D)  decreasing its total asset turnover. 
A)  decreasing its debt ratio. 
B)  increasing its total asset turnover. 
C)  increasing its debt ratio. 
D)  decreasing its total asset turnover.

Question 6

Balance Sheet 
Cole Eagan Enterprises 
December 31, 2002
$\begin{array}{llll}
\text { Cash } & \$ 4,500 & \text { Accounts Payable } & \$ 10,000 \
\text { Accounts Receivable } && \text { Notes Payable } \
\text { Inventories } && \text { Accruals }&1,000 \
\text { Total Current Assets } && \text { Total Current Liab. } \
\text { Net Fixed Assets } && \text { Long-Term Debt } \
\text { Total Assets } && \text { Stockholders' Equity } \
&& \text { Total Liab. \& S.E. }
\end{array}$

Information (2002 values)
1. Sales totaled $ \$ 110,000 $
2. The gross profit margin was 25 percent.
3. Inventory turnover was 3.0 .
4. There are 360 days in the year.
5. The average collection period was 65 days
6. The current ratio was 2.40 .
7. The total asset turnover was 1.13.
8. The debt ratio was 53.8 percent
-Inventories for CEE in 2002 were__________

Accepted Answer

A)  $27,500 
B)  $36,667 
C)  $32,448 
D)  $ 9,167 
A)  $27,500 
B)  $36,667 
C)  $32,448 
D)  $ 9,167

Question 7

Cross-sectional ratio analysis is used to

Accepted Answer

A)  isolate the causes of problems. 
B)  correct expected problems in operations. 
C)  provide conclusive evidence of the existence of a problem. 
D)  reflect the symptoms of a possible problem. 
A)  isolate the causes of problems. 
B)  correct expected problems in operations. 
C)  provide conclusive evidence of the existence of a problem. 
D)  reflect the symptoms of a possible problem.

Question 8

The three summary ratios basic to the DuPont system of analysis are

Accepted Answer

A)  net profit margin, total asset turnover, and return on equity. 
B)  net profit margin, total asset turnover, and equity multiplier. 
C)  net profit margin, financial leverage multiplier, and return on equity. 
D)  net profit margin, total asset turnover, and return on investment. 
A)  net profit margin, total asset turnover, and return on equity. 
B)  net profit margin, total asset turnover, and equity multiplier. 
C)  net profit margin, financial leverage multiplier, and return on equity. 
D)  net profit margin, total asset turnover, and return on investment.

Question 9

In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

Accepted Answer

A) True 
 B)False

Question 10

The ___________measures the return on owners' (both preferred and common stockholders) investment in the firm.

Accepted Answer

A)  net profit margin 
B)  return on equity 
C)  return on total assets 
D)  price/earnings ratio 
A)  net profit margin 
B)  return on equity 
C)  return on total assets 
D)  price/earnings ratio

Question 11

Without adjustment, inflation may tend to cause_________ firms to appear more efficient andprofitable than _________ firms, all else being the same.

Accepted Answer

A)  newer; older 
B)  older; newer 
C)  large; smaller 
D)  smaller; larger 
A)  newer; older 
B)  older; newer 
C)  large; smaller 
D)  smaller; larger

Question 12

In ratio analysis, a comparison to a standard industry ratio is made to isolate__________ deviations from the norm.

Accepted Answer

A)  standard 
B)  negative 
C)  positive 
D)  any 
A)  standard 
B)  negative 
C)  positive 
D)  any

Question 13

The DuPont system merges the income statement and balance sheet into two summary measures ofprofitability:

Accepted Answer

A)  return on total assets and return on equity. 
B)  net profit margin and return on equity. 
C)  net profit margin and price/earning ratio. 
D)  net profit margin and return on total assets. 
A)  return on total assets and return on equity. 
B)  net profit margin and return on equity. 
C)  net profit margin and price/earning ratio. 
D)  net profit margin and return on total assets.

Question 14

The following groups of ratios provide the information critical to the short-run operation of the firm:

Accepted Answer

A)  liquidity, activity, and common stock. 
B)  liquidity, activity, and debt. 
C)  liquidity, activity, and profitability. 
D)  activity, debt, and profitability. 
A)  liquidity, activity, and common stock. 
B)  liquidity, activity, and debt. 
C)  liquidity, activity, and profitability. 
D)  activity, debt, and profitability.

Question 15

Balance Sheet 
Cole Eagan Enterprises 
December 31, 2002
$\begin{array}{llll}
\text { Cash } & \$ 4,500 & \text { Accounts Payable } & \$ 10,000 \
\text { Accounts Receivable } && \text { Notes Payable } \
\text { Inventories } && \text { Accruals }&1,000 \
\text { Total Current Assets } && \text { Total Current Liab. } \
\text { Net Fixed Assets } && \text { Long-Term Debt } \
\text { Total Assets } && \text { Stockholders' Equity } \
&& \text { Total Liab. \& S.E. }
\end{array}$

Information (2002 values)
1. Sales totaled $ \$ 110,000 $
2. The gross profit margin was 25 percent.
3. Inventory turnover was 3.0 .
4. There are 360 days in the year.
5. The average collection period was 65 days
6. The current ratio was 2.40 .
7. The total asset turnover was 1.13.
8. The debt ratio was 53.8 percent
-Accounts receivable for CEE in 2002 was__________

Accepted Answer

A)  $19,861 
B)  $14,056 
C)  $14,895 
D)  $18,333 
A)  $19,861 
B)  $14,056 
C)  $14,895 
D)  $18,333

Question 16

The inflationary effects typically have greater impact, the larger the differences in the age of the assets of the firms being compared. Without adjustment, inflation tends to cause older firms (older assets) to appear more efficient and profitable than newer firms (newer assets).

Accepted Answer

A) True 
 B)False

Question 17

As the financial leverage multiplier increases this may result in

Accepted Answer

A)  an increase in the net profit margin and return on investment, due to the increase in interest expense as debt increases. 
B)  a decrease in the net profit margin and return on investment, due to the increase in interest expense as debt increases. 
C)  a decrease in the net profit margin and return on investment, due to the decrease in interest expense as debt decreases. 
D)  an increase in the net profit margin and return on investment, due to the decrease in interest expense as debt decreases. 
A)  an increase in the net profit margin and return on investment, due to the increase in interest expense as debt increases. 
B)  a decrease in the net profit margin and return on investment, due to the increase in interest expense as debt increases. 
C)  a decrease in the net profit margin and return on investment, due to the decrease in interest expense as debt decreases. 
D)  an increase in the net profit margin and return on investment, due to the decrease in interest expense as debt decreases.

Question 18

Ratio analysis merely directs the analyst to potential areas of concern; it does not provideconclusive evidence as to the existence of a problem.

Accepted Answer

A) True 
 B)False

Question 19

A firm with a substandard net profit margin can improve its return on total assets by

Accepted Answer

A)  increasing its debt ratio. 
B)  increasing its total asset turnover. 
C)  decreasing its total asset turnover. 
D)  decreasing its fixed asset turnover. 
A)  increasing its debt ratio. 
B)  increasing its total asset turnover. 
C)  decreasing its total asset turnover. 
D)  decreasing its fixed asset turnover.

Question 20

A firm with a total asset turnover lower than industry standard may have

Accepted Answer

A)  excessive cost of goods sold. 
B)  insufficient fixed assets. 
C)  excessive debt. 
D)  insufficient sales. 
A)  excessive cost of goods sold. 
B)  insufficient fixed assets. 
C)  excessive debt. 
D)  insufficient sales.

The higher the value of the times interest earned ratio, the higher the proportion of the firm's interest earnings compared to its contractual interest payments.

The net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest and taxes, have been deducted.

The ___________measures the percentage of profit earned on each sales dollar before interest and taxes.

A firm with a substandard return on total assets can improve its return on equity, all else remainingthe same, by

Cross-sectional ratio analysis is used to

The three summary ratios basic to the DuPont system of analysis are

In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

The ___________measures the return on owners' (both preferred and common stockholders) investment in the firm.

Without adjustment, inflation may tend to cause_ firms to appear more efficient andprofitable than _ firms, all else being the same.

In ratio analysis, a comparison to a standard industry ratio is made to isolate__________ deviations from the norm.

The DuPont system merges the income statement and balance sheet into two summary measures ofprofitability:

The following groups of ratios provide the information critical to the short-run operation of the firm:

The inflationary effects typically have greater impact, the larger the differences in the age of the assets of the firms being compared. Without adjustment, inflation tends to cause older firms (older assets) to appear more efficient and profitable than newer firms (newer assets).

As the financial leverage multiplier increases this may result in

Ratio analysis merely directs the analyst to potential areas of concern; it does not provideconclusive evidence as to the existence of a problem.

A firm with a substandard net profit margin can improve its return on total assets by

A firm with a total asset turnover lower than industry standard may have

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters

Exam 3: Financial Statement Analysis

The higher the value of the times interest earned ratio, the higher the proportion of the firm's interest earnings compared to its contractual interest payments.

The net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest and taxes, have been deducted.

The ___________measures the percentage of profit earned on each sales dollar before interest and taxes.

A firm with a substandard return on total assets can improve its return on equity, all else remainingthe same, by

Cross-sectional ratio analysis is used to

The three summary ratios basic to the DuPont system of analysis are

In ratio analysis, the financial statements being used for comparison should be dated at the same point in time during the year. If not, the effect of seasonality may produce erroneous conclusions and decisions.

The ___________measures the return on owners' (both preferred and common stockholders) investment in the firm.

Without adjustment, inflation may tend to cause_________ firms to appear more efficient andprofitable than _________ firms, all else being the same.

In ratio analysis, a comparison to a standard industry ratio is made to isolate__________ deviations from the norm.

The DuPont system merges the income statement and balance sheet into two summary measures ofprofitability:

The following groups of ratios provide the information critical to the short-run operation of the firm:

The inflationary effects typically have greater impact, the larger the differences in the age of the assets of the firms being compared. Without adjustment, inflation tends to cause older firms (older assets) to appear more efficient and profitable than newer firms (newer assets).

As the financial leverage multiplier increases this may result in

Ratio analysis merely directs the analyst to potential areas of concern; it does not provideconclusive evidence as to the existence of a problem.

A firm with a substandard net profit margin can improve its return on total assets by

A firm with a total asset turnover lower than industry standard may have

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Corporate Securities, Derivatives, and Swaps

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters

Without adjustment, inflation may tend to cause_ firms to appear more efficient andprofitable than _ firms, all else being the same.