Question 1

________ measures the overall effectiveness of management in generating profits with its available assets.

Accepted Answer

A)  Total asset turnover 
B)  Price/earnings ratio 
C)  Return on equity 
D)  Return on total assets 
A)  Total asset turnover 
B)  Price/earnings ratio 
C)  Return on equity 
D)  Return on total assets D

Question 2

Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms.

Accepted Answer

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

Question 3

Which of the following represents a current asset?

Accepted Answer

A)  automobiles 
B)  buildings 
C)  marketable securities 
D)  equipment 
A)  automobiles 
B)  buildings 
C)  marketable securities 
D)  equipment C

Question 4

The ________ ratios are primarily used as measures of return.

Accepted Answer

A)  liquidity 
B)  activity 
C)  debt 
D)  profitability 
A)  liquidity 
B)  activity 
C)  debt 
D)  profitability

Question 5

A firm with a total asset turnover that is lower than industry standard but with a current ratio that meets industry standard must have excessive ________.

Accepted Answer

A)  fixed assets 
B)  inventory 
C)  accounts receivable 
D)  debt 
A)  fixed assets 
B)  inventory 
C)  accounts receivable 
D)  debt

Question 6

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

Question 7

________ ratio measures the proportion of total assets financed by the firm's creditors.

Accepted Answer

A)  Total asset turnover 
B)  Inventory turnover 
C)  Current 
D)  Debt 
A)  Total asset turnover 
B)  Inventory turnover 
C)  Current 
D)  Debt

Question 8

Which of the following is true of benchmarking?

Accepted Answer

A)  It is an analysis in which a firm's ratio values are analyzed to project the fundamental values of the assets for upcoming years or business cycle. 
B)  It is an analysis in which a firm's ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate. 
C)  It is an analysis in which a firm's financial performance over time is evaluated using financial ratio analysis. 
D)  It is a financial statement analysis technique which combines cross-sectional and time-series analyses. 
A)  It is an analysis in which a firm's ratio values are analyzed to project the fundamental values of the assets for upcoming years or business cycle. 
B)  It is an analysis in which a firm's ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate. 
C)  It is an analysis in which a firm's financial performance over time is evaluated using financial ratio analysis. 
D)  It is a financial statement analysis technique which combines cross-sectional and time-series analyses.

Question 9

Earnings per share results from dividing earnings available for common stockholders by the number of shares of common stock authorized.

Accepted Answer

A) True 
 B)False

Question 10

Higher the value of the times interest earned ratio, higher is the proportion of the firm's interest income compared to its contractual interest payments.

Accepted Answer

A) True 
 B)False

Question 11

Total asset turnover commonly measures the liquidity of a firm's total assets.

Accepted Answer

A) True 
 B)False

Question 12

Given the following balance sheet, income statement, historical ratios and industry averages, calculate the Pulp, Paper, and Paperboard, Inc. financial ratios for the most recent year. Analyze its overall financial situation for the most recent year. Analyze its overall financial situation from both a cross-sectional and time-series viewpoint. Break your analysis into an evaluation of the firm's liquidity, activity, debt, and profitability.
Income Statement
Pulp, Paper, and Paperboard, Inc.
For the Year Ended December 31, 2013   Balance Sheet
Pulp, Paper, and Paperboard, Inc.
December 31, 2013   Historical and Industry Average Ratios
Pulp, Paper and Paperboard, Inc.

Accepted Answer

Historical and Industry Average Ratios
P

Question 13

The magnification of risk and return introduced through the use of fixed-cost financing, such as debt and preferred stock is called financial leverage.

Accepted Answer

A) True 
 B)False

Question 14

Operating profit is ________.

Accepted Answer

A)  gross profit minus operating expenses 
B)  sales revenue minus cost of goods sold 
C)  earnings before depreciation and taxes 
D)  sales revenue minus depreciation expense 
A)  gross profit minus operating expenses 
B)  sales revenue minus cost of goods sold 
C)  earnings before depreciation and taxes 
D)  sales revenue minus depreciation expense

Question 15

The use of the unaudited financial statements for ratio analysis is preferable because it reflects the firm's true financial condition.

Accepted Answer

A) True 
 B)False

Question 16

ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________.

Accepted Answer

A)  30 days 
B)  36 days 
C)  44 days 
D)  57 days 
A)  30 days 
B)  36 days 
C)  44 days 
D)  57 days

Question 17

The two basic measures of liquidity are the debt-to-equity ratio and the asset turnover ratio.

Accepted Answer

A) True 
 B)False

Question 18

Table 3.2
Dana Dairy Products Key Ratios   Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013   Balance Sheet
Dana Dairy Products
December 31, 2013  
-If Dana Dairy Products has credit terms which specify that accounts receivable should be paid in 25 days, the average collection period ________ since 2012. (See Table 3.2)

Accepted Answer

A)  has deteriorated 
B)  has remained the same 
C)  has improved 
D)  cannot be determined 
A)  has deteriorated 
B)  has remained the same 
C)  has improved 
D)  cannot be determined

Question 19

Colonial Furniture's net profits before taxes for 2015 totaled $354,000. The company's total retained earnings were $338,000 for 2014 year-end and $389,000 for 2015 year-end. Colonial is subject to a 26 percent tax rate. What was the cash dividend declared by Colonial Furniture in 2015?

Accepted Answer

The answer of Colonial Furniture's net profits before taxes for...

Question 20

Cross-sectional ratio analysis is used to ________.

Accepted Answer

A)  correct expected problems in operations 
B)  isolate the causes of problems 
C)  provide conclusive evidence of the existence of a problem 
D)  measure relative performance of a firm with its peers 
A)  correct expected problems in operations 
B)  isolate the causes of problems 
C)  provide conclusive evidence of the existence of a problem 
D)  measure relative performance of a firm with its peers

________ measures the overall effectiveness of management in generating profits with its available assets.

Without adjustment, inflation may tend to cause firms to appear more efficient and profitable than firms.

Which of the following represents a current asset?

The ________ ratios are primarily used as measures of return.

A firm with a total asset turnover that is lower than industry standard but with a current ratio that meets industry standard must have excessive ________.

As the financial leverage multiplier increases, this may result in ________.

________ ratio measures the proportion of total assets financed by the firm's creditors.

Which of the following is true of benchmarking?

Earnings per share results from dividing earnings available for common stockholders by the number of shares of common stock authorized.

Higher the value of the times interest earned ratio, higher is the proportion of the firm's interest income compared to its contractual interest payments.

Total asset turnover commonly measures the liquidity of a firm's total assets.

The magnification of risk and return introduced through the use of fixed-cost financing, such as debt and preferred stock is called financial leverage.

Operating profit is ________.

The use of the unaudited financial statements for ratio analysis is preferable because it reflects the firm's true financial condition.

ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________.

The two basic measures of liquidity are the debt-to-equity ratio and the asset turnover ratio.

Colonial Furniture's net profits before taxes for 2015 totaled $354,000. The company's total retained earnings were $338,000 for 2014 year-end and $389,000 for 2015 year-end. Colonial is subject to a 26 percent tax rate. What was the cash dividend declared by Colonial Furniture in 2015?

Cross-sectional ratio analysis is used to ________.

The Role of Managerial Finance

The Financial Market Environment

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Exam 3: Financial Statements and Ratio Analysis

________ measures the overall effectiveness of management in generating profits with its available assets.

Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms.

Which of the following represents a current asset?

The ________ ratios are primarily used as measures of return.

A firm with a total asset turnover that is lower than industry standard but with a current ratio that meets industry standard must have excessive ________.

As the financial leverage multiplier increases, this may result in ________.

________ ratio measures the proportion of total assets financed by the firm's creditors.

Which of the following is true of benchmarking?

Earnings per share results from dividing earnings available for common stockholders by the number of shares of common stock authorized.

Higher the value of the times interest earned ratio, higher is the proportion of the firm's interest income compared to its contractual interest payments.

Total asset turnover commonly measures the liquidity of a firm's total assets.

The magnification of risk and return introduced through the use of fixed-cost financing, such as debt and preferred stock is called financial leverage.

Operating profit is ________.

The use of the unaudited financial statements for ratio analysis is preferable because it reflects the firm's true financial condition.

ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________.

The two basic measures of liquidity are the debt-to-equity ratio and the asset turnover ratio.

Colonial Furniture's net profits before taxes for 2015 totaled $354,000. The company's total retained earnings were $338,000 for 2014 year-end and $389,000 for 2015 year-end. Colonial is subject to a 26 percent tax rate. What was the cash dividend declared by Colonial Furniture in 2015?

Cross-sectional ratio analysis is used to ________.

The Role of Managerial Finance

The Financial Market Environment

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Without adjustment, inflation may tend to cause firms to appear more efficient and profitable than firms.