Question 1

A Quebec City ﬁrm has a debt-equity ratio of .65. From this, you can determine that the ﬁrm has _____ in assets for every $1 in equity.

Accepted Answer

A)  $.54 
B)  $.65 
C)  $1.54 
D)  $1.65 
E)  $2.54 
A)  $.54 
B)  $.65 
C)  $1.54 
D)  $1.65 
E)  $2.54

Question 2

Suppose you calculated the following ratio for a ﬁrm: The sum of the compensation paid to owners,
directors, and managers, divided by total sales. Which class of ﬁnancial ratios should this be
included in and why? Who might be interested in such a ratio?

Accepted Answer

This doesn't ﬁt well into any of the ﬁve

Question 3

Syed's Industries has accounts receivable of $700, inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How long does it take Syed's to both sell its inventory and then collect the
Payment on the sale?

Accepted Answer

A)  128 days 
B)  146 days 
C)  163 days 
D)  190 days 
E)  211 days 
A)  128 days 
B)  146 days 
C)  163 days 
D)  190 days 
E)  211 days

Question 4

Life Industries has sales of $46,230, costs of goods sold of $27,742.50, inventory of $675, and accounts receivable of $2,300. How many days, on average, does it take Life Industries to sell the
Inventory and collect the payment on the sale?

Accepted Answer

A)  9.28 days 
B)  21.00 days 
C)  27.04 days 
D)  36.67 days 
E)  61.20 days 
A)  9.28 days 
B)  21.00 days 
C)  27.04 days 
D)  36.67 days 
E)  61.20 days

Question 5

Which of the following statements is false concerning the use of accounting data versus market value data?

Accepted Answer

A)  The primary reason for using accounting data is the lack of readily available market value information. 
B)  Whenever market value information is available, it should be used instead of accounting data. 
C)  If market value and accounting data conﬂict, the accounting data should be given precedence. 
D)  If a ﬁrm has only current assets and current liabilities, book values will likely be reasonable approximations of market values. 
E)  Little direct market value information exists for privately held and not-for-proﬁt businesses. 
A)  The primary reason for using accounting data is the lack of readily available market value information. 
B)  Whenever market value information is available, it should be used instead of accounting data. 
C)  If market value and accounting data conﬂict, the accounting data should be given precedence. 
D)  If a ﬁrm has only current assets and current liabilities, book values will likely be reasonable approximations of market values. 
E)  Little direct market value information exists for privately held and not-for-proﬁt businesses.

Question 6

Which one of the following statements is correct concerning ratio analysis?

Accepted Answer

A)  A single ratio is often computed differently by different individuals. 
B)  Ratios do NOT address the problem of size differences among ﬁrms. 
C)  There is only a very limited number of ratios which can be used for analytical purposes. 
D)  Each ratio has a speciﬁc formula that is used consistently by all analysts. 
E)  Ratios can NOT be used for comparison purposes over periods of time. 
A)  A single ratio is often computed differently by different individuals. 
B)  Ratios do NOT address the problem of size differences among ﬁrms. 
C)  There is only a very limited number of ratios which can be used for analytical purposes. 
D)  Each ratio has a speciﬁc formula that is used consistently by all analysts. 
E)  Ratios can NOT be used for comparison purposes over periods of time.

Question 7

From a cash ﬂow position, which one of the following ratios best measures a ﬁrm's ability to pay the interest on its debts?

Accepted Answer

A)  Times interest earned ratio 
B)  Cash coverage ratio 
C)  Cash ratio 
D)  Quick ratio 
E)  Interval measure 
A)  Times interest earned ratio 
B)  Cash coverage ratio 
C)  Cash ratio 
D)  Quick ratio 
E)  Interval measure

Question 8

Which of the following could be calculated with the use of only a statement of ﬁnancial position?

Accepted Answer

A)  Interval measure. 
B)  Equity multiplier. 
C)  Receivables turnover. 
D)  Times interest earned. 
E)  Return on equity. 
A)  Interval measure. 
B)  Equity multiplier. 
C)  Receivables turnover. 
D)  Times interest earned. 
E)  Return on equity.

Question 9

The statement of cash ﬂows cannot be standardized.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would be considered a use of cash?

Accepted Answer

A)  Accounts receivable increase. 
B)  Accounts payable increase. 
C)  Common stock increase. 
D)  Revenue increase. 
E)  Net ﬁxed assets decrease by the amount of depreciation. 
A)  Accounts receivable increase. 
B)  Accounts payable increase. 
C)  Common stock increase. 
D)  Revenue increase. 
E)  Net ﬁxed assets decrease by the amount of depreciation.

Question 11

Katrina's Fury has $697,400 in sales. The proﬁt margin is 3.4 % and the ﬁrm has 12,500 shares of stock outstanding. The market price per share is $33. What is the price-earnings ratio?

Accepted Answer

A)  15.8 
B)  16.2 
C)  16.6 
D)  17.1 
E)  17.4 
A)  15.8 
B)  16.2 
C)  16.6 
D)  17.1 
E)  17.4

Question 12

A _____________ standardizes items on the statement of comprehensive income and statement of ﬁnancial position as a percentage of total sales and total assets, respectively.

Accepted Answer

A)  Tax reconciliation statement. 
B)  statement of standardization 
C)  statement of changes in ﬁnancial position 
D)  Common-base year statement. 
E)  Common-size statement. 
A)  Tax reconciliation statement. 
B)  statement of standardization 
C)  statement of changes in ﬁnancial position 
D)  Common-base year statement. 
E)  Common-size statement.

Question 13

Which of the following statements about the current ratio is accurate?

Accepted Answer

A)  Use of book values in calculation of this ratio is unacceptable because the market values of these assets and liabilities tend to deviate from book values. 
B)  This ratio is calculated by dividing current liabilities by current assets. 
C)  It will always be greater than the quick ratio in companies that carry inventory. 
D)  This ratio is intended to indicate the long run liquidity position of the ﬁrm. 
E)  The higher the current ratio, the higher the level of cash in a ﬁrm. 
A)  Use of book values in calculation of this ratio is unacceptable because the market values of these assets and liabilities tend to deviate from book values. 
B)  This ratio is calculated by dividing current liabilities by current assets. 
C)  It will always be greater than the quick ratio in companies that carry inventory. 
D)  This ratio is intended to indicate the long run liquidity position of the ﬁrm. 
E)  The higher the current ratio, the higher the level of cash in a ﬁrm.

Question 14

The ﬁnancial ratio measured as net income divided by sales is known as the ﬁrm's:

Accepted Answer

A)  Proﬁt margin. 
B)  Return on assets. 
C)  Return on equity. 
D)  Asset turnover. 
E)  Earnings before interest and taxes (EBIT). 
A)  Proﬁt margin. 
B)  Return on assets. 
C)  Return on equity. 
D)  Asset turnover. 
E)  Earnings before interest and taxes (EBIT).

Question 15

Danny Corporation's total current assets are valued at $233,000 and are comprised of cash, accounts receivable and inventory. Determine the value of the cash account given the following
Information: sales = $225,000; cost of goods sold = $135,000; accounts receivable turnover = 3
Times; inventory turnover = 1.5 times.

Accepted Answer

A)  $68,000 
B)  $66,000 
C)  $64,000 
D)  $62,000 
E)  $60,000 
A)  $68,000 
B)  $66,000 
C)  $64,000 
D)  $62,000 
E)  $60,000

Question 16

Calculate gross proﬁt margin given the following information: sales = $1,200; cost of goods sold = $450; general and administrative costs = $150.

Accepted Answer

A)  0.385 
B)  0.50 
C)  0.625 
D)  0.75 
E)  0.875 
A)  0.385 
B)  0.50 
C)  0.625 
D)  0.75 
E)  0.875

Question 17

It is easier to evaluate a ﬁrm using its ﬁnancial statements when the ﬁrm:

Accepted Answer

A)  Is a conglomerate. 
B)  Is global in nature. 
C)  Uses the same accounting procedures as other ﬁrms in its industry. 
D)  Has a different ﬁscal year than other ﬁrms in its industry. 
E)  Tends to have one-time events such as asset sales and property acquisitions. 
A)  Is a conglomerate. 
B)  Is global in nature. 
C)  Uses the same accounting procedures as other ﬁrms in its industry. 
D)  Has a different ﬁscal year than other ﬁrms in its industry. 
E)  Tends to have one-time events such as asset sales and property acquisitions.

Question 18

Glen Acre Wines has sales of $682,100, total debt of $285,000, total equity of $323,900, and a proﬁt margin of 8 %. What is the return on assets?

Accepted Answer

A)  6.28 % 
B)  8.96 % 
C)  9.03 % 
D)  9.11 % 
E)  9.17 % 
A)  6.28 % 
B)  8.96 % 
C)  9.03 % 
D)  9.11 % 
E)  9.17 %

Question 19

Which ratio is not a measure of long-term solvency?

Accepted Answer

A)  Total debt ratio. 
B)  Price-earnings ratio. 
C)  Debt/equity ratio. 
D)  Equity multiplier 
E)  Times interest earned. 
A)  Total debt ratio. 
B)  Price-earnings ratio. 
C)  Debt/equity ratio. 
D)  Equity multiplier 
E)  Times interest earned.

Question 20

The ﬁnancial statement that summarizes the sources and uses of cash over a speciﬁed period of time is the:

Accepted Answer

A)  Statement of comprehensive income. 
B)  Statement of ﬁnancial position. 
C)  Tax reconciliation statement. 
D)  Statement of cash ﬂows. 
E)  Statement of operating position. 
A)  Statement of comprehensive income. 
B)  Statement of ﬁnancial position. 
C)  Tax reconciliation statement. 
D)  Statement of cash ﬂows. 
E)  Statement of operating position.

Exam 3: Working With Financial Statements

A Quebec City ﬁrm has a debt-equity ratio of .65. From this, you can determine that the ﬁrm has _____ in assets for every $1 in equity.

Suppose you calculated the following ratio for a ﬁrm: The sum of the compensation paid to owners, directors, and managers, divided by total sales. Which class of ﬁnancial ratios should this be included in and why? Who might be interested in such a ratio?

Syed's Industries has accounts receivable of $700, inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How long does it take Syed's to both sell its inventory and then collect the Payment on the sale?

Life Industries has sales of $46,230, costs of goods sold of $27,742.50, inventory of $675, and accounts receivable of $2,300. How many days, on average, does it take Life Industries to sell the Inventory and collect the payment on the sale?

Which of the following statements is false concerning the use of accounting data versus market value data?

Which one of the following statements is correct concerning ratio analysis?

From a cash ﬂow position, which one of the following ratios best measures a ﬁrm's ability to pay the interest on its debts?

Which of the following could be calculated with the use of only a statement of ﬁnancial position?

The statement of cash ﬂows cannot be standardized.

Which of the following would be considered a use of cash?

Katrina's Fury has $697,400 in sales. The proﬁt margin is 3.4 % and the ﬁrm has 12,500 shares of stock outstanding. The market price per share is $33. What is the price-earnings ratio?

A _____________ standardizes items on the statement of comprehensive income and statement of ﬁnancial position as a percentage of total sales and total assets, respectively.

Which of the following statements about the current ratio is accurate?

The ﬁnancial ratio measured as net income divided by sales is known as the ﬁrm's:

Calculate gross proﬁt margin given the following information: sales = $1,200; cost of goods sold = $450; general and administrative costs = $150.

It is easier to evaluate a ﬁrm using its ﬁnancial statements when the ﬁrm:

Glen Acre Wines has sales of $682,100, total debt of $285,000, total equity of $323,900, and a proﬁt margin of 8 %. What is the return on assets?

Which ratio is not a measure of long-term solvency?

The ﬁnancial statement that summarizes the sources and uses of cash over a speciﬁed period of time is the:

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

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