Question 1

Which of the following class(es)of ratios examines the ability of the firm to meet its short-term obligations?

Accepted Answer

A) Profitability and activity ratios 
B) Leverage and coverage ratios 
C) Liquidity ratios 
D) All of the above 
A) Profitability and activity ratios 
B) Leverage and coverage ratios 
C) Liquidity ratios 
D) All of the above

Question 2

On their most recent balance sheet, a company reports total assets of $8 million, common shares of $4 million, and retained earnings of $2 million.The debt-to-equity ratio is:

Accepted Answer

A) 0.33 
B) 1.00 
C) 2.00 
D) 3.00 
A) 0.33 
B) 1.00 
C) 2.00 
D) 3.00

Question 3

Igor the intern has obtained the following financial data for PDQ Corporation:
 
The leverage ratio for 2022 is:

Accepted Answer

A) 1.6667 
B) 1.9655 
C) 26.32% 
D) 86.21% 
A) 1.6667 
B) 1.9655 
C) 26.32% 
D) 86.21%

Question 4

Marie invested $3 million in 10-year bonds of Abitibi Mills Company nine years ago.Recent changes in the industry have Marie worried about whether she will receive her principal at the end of next year.Which ratio(s)will most directly address Marie's concern?
I.Debt / asset
II.Debt / equity
III.Times interest earned

Accepted Answer

A) I only 
B) I and II only 
C) III only 
D) II and III only 
A) I only 
B) I and II only 
C) III only 
D) II and III only

Question 5

Which of the following best describes what a turnover ratio measures?

Accepted Answer

A) how many times the denominator is being used to generate the numerator value in a given period. 
B) for each dollar invested in the denominator, how much in the numerator value is generated. 
C) how efficiently the management of the firm is managing the denominator value. 
D) all of the above. 
A) how many times the denominator is being used to generate the numerator value in a given period. 
B) for each dollar invested in the denominator, how much in the numerator value is generated. 
C) how efficiently the management of the firm is managing the denominator value. 
D) all of the above.

Question 6

Discuss some difficulties when comparing the ratios of similar (i.e same size and same industry)corporations from different countries.

Accepted Answer

The comparison of financial ratios of si

Question 7

Why is the DuPont system used by analysts?

Accepted Answer

A) The DuPont system provides information about the sources of a company's ROE. 
B) The DuPont system is easier to calculate than the standard ROE. 
C) The DuPont system produces different ROE results than the standard ROE formula. 
D) The DuPont system excludes leverage, which can distort the calculation of ROE. 
A) The DuPont system provides information about the sources of a company's ROE. 
B) The DuPont system is easier to calculate than the standard ROE. 
C) The DuPont system produces different ROE results than the standard ROE formula. 
D) The DuPont system excludes leverage, which can distort the calculation of ROE.

Question 8

To produce chewing gum, DryFruit Gum Company pays $100,000 per year for rent on a long-term lease and $25 per kilogram for sorbitol and other ingredients.These are the only costs associated with making DryFruit Gum.During the year, the firm sold 30,000 kilograms of chewing gum at $45 per kilogram.Ignoring income taxes, the degree of total leverage (DTL)for DryFruit is:

Accepted Answer

A) 1.20 
B) .5556 
C) .4444 
D) .3704 
A) 1.20 
B) .5556 
C) .4444 
D) .3704

Question 9

A firm began the current fiscal year with total assets of $8 million, common shares of $4 million and retained earnings of $2 million.At the end of the current year the firm reported net income of $1 million, all of which was retained by the firm.The debt-to-asset ratio for this reporting period is:

Accepted Answer

A) 0.25 
B) 0.125 
C) 0.75 
D) 0.5 
A) 0.25 
B) 0.125 
C) 0.75 
D) 0.5

Question 10

Which of the following is NOT true?

Accepted Answer

A) The process of preparing financial forecasts begins by preparing a projected income statement. 
B) In preparing a projected income statement, start with a sales or revenue forecast prepared by marketing personnel. 
C) The relationship between sales and some costs may be complex, for example sales and fixed costs. 
D) Interest expenses are commonly based on a percentage of sales. 
A) The process of preparing financial forecasts begins by preparing a projected income statement. 
B) In preparing a projected income statement, start with a sales or revenue forecast prepared by marketing personnel. 
C) The relationship between sales and some costs may be complex, for example sales and fixed costs. 
D) Interest expenses are commonly based on a percentage of sales.

Question 11

What is the major implication of the adoption of IFRS standards globally?

Accepted Answer

As more and more countries adopt IFRS st

Question 12

What is the difference between invested capital and spontaneous liabilities?

Accepted Answer

A) The firm knows who invests capital in the firm, but not the identity of who the firm owes its spontaneous liabilities. 
B) Invested capital is randomly determined, so the corresponding liabilities must be spontaneous and therefore also random. 
C) Invested capital is the amount of equity invested in the firm, while spontaneous liabilities are the sum of long-term and short-term debt. 
D) Invested capital is the result of investor decisions while spontaneous liabilities arise from the firm's business operations. 
A) The firm knows who invests capital in the firm, but not the identity of who the firm owes its spontaneous liabilities. 
B) Invested capital is randomly determined, so the corresponding liabilities must be spontaneous and therefore also random. 
C) Invested capital is the amount of equity invested in the firm, while spontaneous liabilities are the sum of long-term and short-term debt. 
D) Invested capital is the result of investor decisions while spontaneous liabilities arise from the firm's business operations.

Question 13

What is the base, or denominator, of a productivity ratio?

Accepted Answer

A) Revenue 
B) An asset value 
C) A liability value 
D) A shareholders' equity value 
A) Revenue 
B) An asset value 
C) A liability value 
D) A shareholders' equity value

Question 14

In 2022, Voyage Company had earnings per share of $45 and paid a dividend of $15 per share.The dividend yield was 8%.The book value per share is $100.The dividend payout ratio was:

Accepted Answer

A) 4.167 
B) 3.0000 
C) 0.3333 
D) 0.1500 
A) 4.167 
B) 3.0000 
C) 0.3333 
D) 0.1500

Question 15

At the beginning of the year a company has $140 in inventory and at the end of the year the inventory on the balance sheet is $110.If the firm reports cost of goods sold on the income statement of $400, then the inventory turnover ratio would be:

Accepted Answer

A) 1.60 
B) 2.86 
C) 3.20 
D) 3.64 
A) 1.60 
B) 2.86 
C) 3.20 
D) 3.64

Question 16

Financial ratios are used to perform an analysis of:

Accepted Answer

A) a company's historical performance 
B) a company's performance relative to its peers 
C) a company's historical performance and its relative performance to its peers 
D) a company using only a single ratio 
A) a company's historical performance 
B) a company's performance relative to its peers 
C) a company's historical performance and its relative performance to its peers 
D) a company using only a single ratio

Question 17

Which one of the following is TRUE?

Accepted Answer

A) Fixed asset turnover represents the contribution of every dollar of assets to credit sales. 
B) The inverse of the inventory turnover times 365 estimates the number of days to liquidate inventory. 
C) The collection period of receivables and payables cannot be inferred from their productivity ratios. 
D) Productivity ratios estimate the productivity of borrowed amounts. 
A) Fixed asset turnover represents the contribution of every dollar of assets to credit sales. 
B) The inverse of the inventory turnover times 365 estimates the number of days to liquidate inventory. 
C) The collection period of receivables and payables cannot be inferred from their productivity ratios. 
D) Productivity ratios estimate the productivity of borrowed amounts.

Question 18

The dividend payout ratio aids investors by:

Accepted Answer

A) providing information about the sustainability of the dividend 
B) providing information about the company's future revenue growth 
C) measuring the company's dividend yield 
D) reporting the company's net income margin 
A) providing information about the sustainability of the dividend 
B) providing information about the company's future revenue growth 
C) measuring the company's dividend yield 
D) reporting the company's net income margin

Question 19

Why are leverage ratios important in overall financial analysis of a firm?

Accepted Answer

A) Low ROA can generate high ROE if the company is highly levered. 
B) Use of leverage magnifies losses which increases risk. 
C) Leverage ratios measure a firm's ROA. 
D) High ROE can only be generated with high leverage. 
A) Low ROA can generate high ROE if the company is highly levered. 
B) Use of leverage magnifies losses which increases risk. 
C) Leverage ratios measure a firm's ROA. 
D) High ROE can only be generated with high leverage.

Question 20

Two firms, STM and VPL, have the same contribution margin however VPL's fixed costs (including interest)are greater than STM's.The sales levels and income tax rates of the two firms are the same.We would expect:

Accepted Answer

A) VPL's income to have the same variability as STM 
B) VPL's income to be less variable than STM 
C) VPL's income to be more variable than STM 
D) Can't determine with the information provided 
A) VPL's income to have the same variability as STM 
B) VPL's income to be less variable than STM 
C) VPL's income to be more variable than STM 
D) Can't determine with the information provided

Exam 4: Financial Statement Analysis and Forecasting

Which of the following class(es)of ratios examines the ability of the firm to meet its short-term obligations?

On their most recent balance sheet, a company reports total assets of $8 million, common shares of $4 million, and retained earnings of $2 million.The debt-to-equity ratio is:

Igor the intern has obtained the following financial data for PDQ Corporation: The leverage ratio for 2022 is:

Which of the following best describes what a turnover ratio measures?

Discuss some difficulties when comparing the ratios of similar (i.e same size and same industry)corporations from different countries.

Why is the DuPont system used by analysts?

Which of the following is NOT true?

What is the major implication of the adoption of IFRS standards globally?

What is the difference between invested capital and spontaneous liabilities?

What is the base, or denominator, of a productivity ratio?

In 2022, Voyage Company had earnings per share of $45 and paid a dividend of $15 per share.The dividend yield was 8%.The book value per share is $100.The dividend payout ratio was:

At the beginning of the year a company has $140 in inventory and at the end of the year the inventory on the balance sheet is $110.If the firm reports cost of goods sold on the income statement of $400, then the inventory turnover ratio would be:

Financial ratios are used to perform an analysis of:

Which one of the following is TRUE?

The dividend payout ratio aids investors by:

Why are leverage ratios important in overall financial analysis of a firm?

Two firms, STM and VPL, have the same contribution margin however VPL's fixed costs (including interest)are greater than STM's.The sales levels and income tax rates of the two firms are the same.We would expect:

An Introduction to Finance

Business Corporate Finance

Financial Statements

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

Risk, Return, and Portfolio Theory

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards, Futures, and Swaps

Options

Capital Budgeting, Risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

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