Exam 2: Essential Concepts in Finance: Part A

There is a special earnings category called EBITA(Earnings before interest, taxes and amortization): a) why might this number be of interest to an analyst? b) why might this number be a poor indicator of the future of the company?

The capital budget would include which of the following items?

Although good asset turnover relative to the industry is generally considered a good thing, extremely high asset turnover is often considered by analysts to be a warning sign that there may be tough times ahead. Why would they be concerned? (Hint: remember that this is a ratio)

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Quick Ratio is:

Given the following information for XYZ Corporation, calculate the P/E ratio: EPS = $2.50 BVS = $7.00 Shares outstanding = 100,000 Market price = $30.00

Compared with industry, a company has a high current ratio and a low quick ratio. What is the most likely cause? What other ratios could be examined to support the finding?

Compare the information supplied by an income statement, a balance sheet, and a statement of cash flow.

Use the following information to answer the question: -Show the Modified DuPont Equation for the company.

Use the following information to answer the question: Sales for 2000 are projected to double; no new equipment is expected to be purchased or sold in 2000. Depreciation expense along with preferred stock and common stock will remain unchanged in 2000. Current assets, accounts payable, accrued expenses, COGS, and selling expenses vary at a constant percentage of sales. Notes payable, long- term debt, preferred stock, and common stock are scheduled to stay the same. -Projected additional funds needed in the year 2000 are: (current assets and current liabilities except notes payable vary directly with sales)

When projection statements show only a small amount of additional funds needed, which of the following is an appropriate choice?

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Total Asset Turnover ratio is:

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Return on Equity is:

Johnson Inc. and Thompson Inc. have identical accounting systems. Both have a current ratio of 2.3, but, Johnson has a quick ratio of 1.1 while Thompson has a quick ratio of 1.3. This means:

Given the following information, calculate earnings per share:

Amortization is non cash expense that increases cash flow because:

Sales will grow from $100,000 this year to $150,000 next year. Preferred dividends were $10,000 this year. What is the new projected amount of preferred dividends?

Use the following information to answer the question: The Deluxe Drugs Company (DDC) has provided you with the following financial statement information for 1999: 1999 year end Balance Sheet (in thousands of dollars) -Compare the Deluxe Drug Company with the industry ratios. What does the Modified DuPont analysis tell you about Deluxe's (a) profitability, (b) expense control, (c) asset utilization, and (d) debt utilization compared with other drug companies? (be specific.)

You would like to make a major expenditure. Your debt ratio is currently at 15%. All else equal, which of the following would probably be the best way to acquire the needed funds?

All but which of the following items on the income statement and balance sheet tend to vary spontaneously with sales?

Shares outstanding of common stock = 1,000,000 Shares outstanding of preferred stock = 500,000 Market price of common stock = $18. -The Gross Profit Margin is: