Question 1

Ratios that measure the ﬁrm's ﬁnancial leverage are known as:

Accepted Answer

A)  Asset management ratios. 
B)  Long-term solvency ratios. 
C)  Short-term solvency ratios. 
D)  Proﬁtability ratios. 
E)  Market value ratios. 
A)  Asset management ratios. 
B)  Long-term solvency ratios. 
C)  Short-term solvency ratios. 
D)  Proﬁtability ratios. 
E)  Market value ratios.

Question 2

Without making reference to its formula, provide a deﬁnition of cash ratio.

Accepted Answer

The cash ratio measures the amount of ca

Question 3

Explain the types of activities that are shown on a statement of cash ﬂows?

Accepted Answer

The statement of cash ﬂows is partitione

Question 4

Last year, which is used as the base year, a ﬁrm had cash of $46, accounts receivable of $132, inventory of $319, and net ﬁxed assets of $640. This year, the ﬁrm has cash of $52, accounts
Receivable of $147, inventory of $312, and net ﬁxed assets of $576. What is the common-base year
Value of accounts receivable?

Accepted Answer

A)  .88 
B)  .90 
C)  1.11 
D)  1.13 
E)  1.18 
A)  .88 
B)  .90 
C)  1.11 
D)  1.13 
E)  1.18

Question 5

Without making reference to its formula, provide a deﬁnition of ﬁxed asset turnover.

Accepted Answer

A measure of a company's ability to gene

Question 6

Which one of the following transactions is a use of cash?

Accepted Answer

A)  Payment to a supplier for a credit purchase. 
B)  Sale of inventory on credit. 
C)  Cash sale to a customer. 
D)  Collection of an account due from a customer. 
E)  Obtaining a bank loan. 
A)  Payment to a supplier for a credit purchase. 
B)  Sale of inventory on credit. 
C)  Cash sale to a customer. 
D)  Collection of an account due from a customer. 
E)  Obtaining a bank loan.

Question 7

Which of the following is NOT a source of industry benchmark information for Canadian companies?

Accepted Answer

A)  Statistics Canada. 
B)  Dun & Bradstreet Canada. 
C)  Foster's Statistics. 
D)  Financial Post Datagroup. 
E)  All of these are sources for industry benchmark information. 
A)  Statistics Canada. 
B)  Dun & Bradstreet Canada. 
C)  Foster's Statistics. 
D)  Financial Post Datagroup. 
E)  All of these are sources for industry benchmark information.

Question 8

Dun & Bradstreet Canada publishes peer group ﬁnancial information for a host of industries, yet the
numbers typically only appear in common-size form. Why not report average dollar amounts
instead?

Accepted Answer

The common-size numbers are inherently m

Question 9

A Halifax ﬁrm has an interval measure of 83. This means that the ﬁrm must:

Accepted Answer

A)  Pay its creditors within the next 83 days or go bankrupt. 
B)  Get additional ﬁnancing within the next 83 days or possibly face closing the ﬁrm. 
C)  Sell all of its common stock in the next 83 days or become privately owned. 
D)  Pay a dividend to its shareholders every 83 days. 
E)  Pay interest on its debt every 83 days. 
A)  Pay its creditors within the next 83 days or go bankrupt. 
B)  Get additional ﬁnancing within the next 83 days or possibly face closing the ﬁrm. 
C)  Sell all of its common stock in the next 83 days or become privately owned. 
D)  Pay a dividend to its shareholders every 83 days. 
E)  Pay interest on its debt every 83 days.

Question 10

Which one of the following statements is correct?

Accepted Answer

A)  Book values should always be given precedence over market values. 
B)  Financial statements are frequently the basis used for performance evaluations. 
C)  Historical information has no value when predicting the future. 
D)  Potential lenders place little value on ﬁnancial statement information. 
E)  Reviewing ﬁnancial information over time has very limited value. 
A)  Book values should always be given precedence over market values. 
B)  Financial statements are frequently the basis used for performance evaluations. 
C)  Historical information has no value when predicting the future. 
D)  Potential lenders place little value on ﬁnancial statement information. 
E)  Reviewing ﬁnancial information over time has very limited value.

Question 11

The ﬁnancial ratio measured as EBIT plus depreciation, divided by interest expense, is the:

Accepted Answer

A)  Cash coverage ratio. 
B)  Debt-equity ratio. 
C)  Times interest earned ratio. 
D)  Gross margin. 
E)  Total debt ratio. 
A)  Cash coverage ratio. 
B)  Debt-equity ratio. 
C)  Times interest earned ratio. 
D)  Gross margin. 
E)  Total debt ratio.

Question 12

Su Lee's has sales of $54,600, total assets of $56,100, and a proﬁt margin of 4 %. The ﬁrm has a total debt ratio of 30 %. What is the return on equity?

Accepted Answer

A)  5.39 % 
B)  5.42 % 
C)  5.48 % 
D)  5.56 % 
E)  6.31 % 
A)  5.39 % 
B)  5.42 % 
C)  5.48 % 
D)  5.56 % 
E)  6.31 %

Question 13

Tellus and Rojers Corp. are close competitors. Last year, both had the same level of cost of goods sold, but Tellus turned its inventory over ﬁve times during the year while Rojers Corp. turned its
Inventory over every 65 days. If the objective is to keep inventory as low as possible (on average),
Which of the following is true?

Accepted Answer

A)  Tellus did a better job since its inventory turnover was lower. 
B)  Rojers Corp, did a better job since its days' sales in inventory was lower. 
C)  Tellus a better job since its days' sales in inventory was lower. 
D)  Rojers Corp. did a better job since its inventory turnover was lower. 
E)  Tellus did a better job since its level of inventory was lower. 
A)  Tellus did a better job since its inventory turnover was lower. 
B)  Rojers Corp, did a better job since its days' sales in inventory was lower. 
C)  Tellus a better job since its days' sales in inventory was lower. 
D)  Rojers Corp. did a better job since its inventory turnover was lower. 
E)  Tellus did a better job since its level of inventory was lower.

Question 14

A statement that expresses each account as a percentage of sales is called a:

Accepted Answer

A)  Common-size statement of ﬁnancial position. 
B)  Common-size statement of comprehensive income. 
C)  Common-size statement of cash ﬂows. 
D)  Ratio statement of comprehensive income. 
E)  Statement of ratio analysis. 
A)  Common-size statement of ﬁnancial position. 
B)  Common-size statement of comprehensive income. 
C)  Common-size statement of cash ﬂows. 
D)  Ratio statement of comprehensive income. 
E)  Statement of ratio analysis.

Question 15

The ﬁnancial ratio days' sales in inventory is measured as:

Accepted Answer

A)  Inventory turnover plus 365 days. 
B)  Inventory times 365 days. 
C)  Inventory plus cost of goods sold, divided by 365 days. 
D)  365 days divided by inventory. 
E)  365 days divided by inventory turnover. 
A)  Inventory turnover plus 365 days. 
B)  Inventory times 365 days. 
C)  Inventory plus cost of goods sold, divided by 365 days. 
D)  365 days divided by inventory. 
E)  365 days divided by inventory turnover.

Question 16

Stephen's Auto Body Shop (Oshawa) has a debt-equity ratio of .6, a total asset turnover of 1.43, and a proﬁt margin of 5 %. The ﬁrm has a return on assets of _____ % and a return on equity of _____
%)

Accepted Answer

A)  7.15; 4.29 
B)  7.15; 11.44 
C)  8.58; 4.29 
D)  8.58; 7.15 
E)  11.44; 7.15 
A)  7.15; 4.29 
B)  7.15; 11.44 
C)  8.58; 4.29 
D)  8.58; 7.15 
E)  11.44; 7.15

Question 17

What was the total asset turnover in 2015?

Accepted Answer

A)  0.23 
B)  0.25 
C)  0.52 
D)  0.57 
E)  1.92 
A)  0.23 
B)  0.25 
C)  0.52 
D)  0.57 
E)  1.92

Question 18

The market-to-book ratio is measured as:

Accepted Answer

A)  Total equity divided by total assets. 
B)  Net income times market price per share of stock. 
C)  Net income divided by market price per share of stock. 
D)  Market price per share of stock divided by earnings per share. 
E)  Market value of equity per share divided by book value of equity per share. 
A)  Total equity divided by total assets. 
B)  Net income times market price per share of stock. 
C)  Net income divided by market price per share of stock. 
D)  Market price per share of stock divided by earnings per share. 
E)  Market value of equity per share divided by book value of equity per share.

Question 19

What is a more meaningful measure of proﬁtability for a ﬁrm, return on assets or return on equity?
Why?

Accepted Answer

Most would argue ROE since it measures r

Question 20

Which of the following is NOT incorporated into the calculation of the Du Pont identity?

Accepted Answer

A)  Return on assets 
B)  Equity multiplier 
C)  Total asset turnover 
D)  Proﬁt margin 
E)  Receivables turnover 
A)  Return on assets 
B)  Equity multiplier 
C)  Total asset turnover 
D)  Proﬁt margin 
E)  Receivables turnover

Exam 3: Working With Financial Statements

Ratios that measure the ﬁrm's ﬁnancial leverage are known as:

Without making reference to its formula, provide a deﬁnition of cash ratio.

Explain the types of activities that are shown on a statement of cash ﬂows?

Without making reference to its formula, provide a deﬁnition of ﬁxed asset turnover.

Which one of the following transactions is a use of cash?

Which of the following is NOT a source of industry benchmark information for Canadian companies?

Dun & Bradstreet Canada publishes peer group ﬁnancial information for a host of industries, yet the numbers typically only appear in common-size form. Why not report average dollar amounts instead?

A Halifax ﬁrm has an interval measure of 83. This means that the ﬁrm must:

Which one of the following statements is correct?

The ﬁnancial ratio measured as EBIT plus depreciation, divided by interest expense, is the:

Su Lee's has sales of $54,600, total assets of $56,100, and a proﬁt margin of 4 %. The ﬁrm has a total debt ratio of 30 %. What is the return on equity?

A statement that expresses each account as a percentage of sales is called a:

The ﬁnancial ratio days' sales in inventory is measured as:

Stephen's Auto Body Shop (Oshawa) has a debt-equity ratio of .6, a total asset turnover of 1.43, and a proﬁt margin of 5 %. The ﬁrm has a return on assets of _____ % and a return on equity of _____ %)

What was the total asset turnover in 2015?

The market-to-book ratio is measured as:

What is a more meaningful measure of proﬁtability for a ﬁrm, return on assets or return on equity? Why?

Which of the following is NOT incorporated into the calculation of the Du Pont identity?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Long-Term Financial Planning and Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Filters

Stephen's Auto Body Shop (Oshawa) has a debt-equity ratio of .6, a total asset turnover of 1.43, and a proﬁt margin of 5 %. The ﬁrm has a return on assets of _ % and a return on equity of _ %)