Question 1

Common size balance sheets are prepared by dividing all quantities by ____________.

Accepted Answer

A)  total assets 
B)  total liabilities 
C)  shareholder's equity 
D)  fixed assets 
A)  total assets 
B)  total liabilities 
C)  shareholder's equity 
D)  fixed assets

Question 2

Which of the following statements is true concerning Economic Value Added?

Accepted Answer

A)  A growing number of firms tie managers' compensation to EVA. 
B)  A profitable firm will always have a positive EVA. 
C)  EVA recognizes that the cost of capital is not a real cost. 
D)  If a firm has positive present value of growth opportunities it will have positive EVA. 
A)  A growing number of firms tie managers' compensation to EVA. 
B)  A profitable firm will always have a positive EVA. 
C)  EVA recognizes that the cost of capital is not a real cost. 
D)  If a firm has positive present value of growth opportunities it will have positive EVA.

Question 3

The net income of the company is $120.Accounts payable increase by $20,depreciation is $15,and equipment is purchased for $40.If the firm issued $110 in new bonds,what is the total change in cash for the firm for all activities?

Accepted Answer

A)  Increase of $225 
B)  Increase of $130 
C)  Decrease of $195 
D)  Decrease of $110 
A)  Increase of $225 
B)  Increase of $130 
C)  Decrease of $195 
D)  Decrease of $110

Question 4

The tax burden of the firm is .4,the interest burden is 0.65,the return on sales is 0.05,the asset turnover is 0.90,and the leverage ratio is 1.35.What is the ROE of the firm?

Accepted Answer

A)  1.58% 
B)  5.68% 
C)  12.20% 
D)  13.33% 
A)  1.58% 
B)  5.68% 
C)  12.20% 
D)  13.33%

Question 5

Use the following cash flow data of Haven Hardware for the year ended December 31, 2008.  
-What is the net cash provided by operating activities of Haven Hardware?

Accepted Answer

A)  ($30,000) 
B)  $220,000 
C)  $320,000 
D)  $780,000 
A)  ($30,000) 
B)  $220,000 
C)  $320,000 
D)  $780,000

Question 6

Use the following cash flow data of Haven Hardware for the year ended December 31, 2008.  
-What is the net cash provided by or used in financing activities of Haven Hardware?

Accepted Answer

A)  ($10,000) 
B)  ($120,000) 
C)  $10,000 
D)  $120,000 
A)  ($10,000) 
B)  ($120,000) 
C)  $10,000 
D)  $120,000

Question 7

The firms leverage ratio is 1.2,interest burden ratio is .81,profit margin is .24,and its asset turnover is 1.25.What is the firm's ROA?

Accepted Answer

A)  .250 
B)  .300 
C)  .335 
D)  .372 
A)  .250 
B)  .300 
C)  .335 
D)  .372

Question 8

The financial statements of Flathead Lake Manufacturing Company are given below:   Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's current ratio for 2007 indicates that Flathead's liquidity has ________ since 2006.

Accepted Answer

A)  risen 
B)  fallen 
C)  stayed the same 
D)  can't tell from the information given 
A)  risen 
B)  fallen 
C)  stayed the same 
D)  can't tell from the information given

Question 9

A high price to book ratio may indicate which one of the following?

Accepted Answer

A)  The firm expanded its plant and equipment in the past few years. 
B)  The firm is doing a better job controlling its inventory expense than other related firms. 
C)  Investors may believe that this firm has opportunities of earnings a rate of return excess of the market capitalization rate. 
D)  The firm's P/E ratio is too high. 
A)  The firm expanded its plant and equipment in the past few years. 
B)  The firm is doing a better job controlling its inventory expense than other related firms. 
C)  Investors may believe that this firm has opportunities of earnings a rate of return excess of the market capitalization rate. 
D)  The firm's P/E ratio is too high.

Question 10

Which of the following results in an increase in cash to the firm?

Accepted Answer

A)  Dividends paid 
B)  A delay in collecting on accounts receivable 
C)  Net new investments 
D)  Increase in accounts payable 
A)  Dividends paid 
B)  A delay in collecting on accounts receivable 
C)  Net new investments 
D)  Increase in accounts payable

Question 11

When assessing sustainability of a firm's cash flows,analysts will prefer to see cash growth generated from which of the following sources?

Accepted Answer

A)  Cash flow from investment activities 
B)  Cash flow from operating activities 
C)  Cash flow from financing 
D)  Cash flow from extraordinary events 
A)  Cash flow from investment activities 
B)  Cash flow from operating activities 
C)  Cash flow from financing 
D)  Cash flow from extraordinary events

Question 12

Use the following cash flow data of Haven Hardware for the year ended December 31, 2008.  
-What is the cash at the end of 2008 for Haven Hardware?

Accepted Answer

A)  $6,000 
B)  $94,000 
C)  $736,000 
D)  $188,000 
A)  $6,000 
B)  $94,000 
C)  $736,000 
D)  $188,000

Question 13

Which one of the following ratios is used to calculate the times interest earned ratio?

Accepted Answer

A)  Net profit/Interest expense 
B)  Pretax profit/EBIT 
C)  EBIT/Sales 
D)  EBIT/Interest expense 
A)  Net profit/Interest expense 
B)  Pretax profit/EBIT 
C)  EBIT/Sales 
D)  EBIT/Interest expense

Question 14

The financial statements of Burnaby Mountain Trading Company are given below.   Note: The common shares are trading in the stock market for $27 each.
-Refer to the financial statements of Burnaby Mountain Trading Company.The firm's quick ratio for 2008 is _________.

Accepted Answer

A)  1.30 
B)  1.50 
C)  1.69 
D)  2.83 
A)  1.30 
B)  1.50 
C)  1.69 
D)  2.83

Question 15

A firm has lower inventory turnover,a longer ACP,and a lower fixed-asset turnover than the industry averages.You should not be surprised to find that this firm has _____________.
I.lower ATO than the industry average
II.lower ROA than the industry average
III.lower ROE than the industry average

Accepted Answer

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

Question 16

Many observers believe that firms "manage" their income statements to _______.

Accepted Answer

A)  minimize taxes over time 
B)  maximize expenditures 
C)  smooth their earnings over time 
D)  generate level sales 
A)  minimize taxes over time 
B)  maximize expenditures 
C)  smooth their earnings over time 
D)  generate level sales

Question 17

If a firm's ratio of (stockholders' equity/total assets)is lower than the industry average and its ratio of (long-term debt/stockholders' equity)is also lower than the industry average,this would suggest that the firm _________.

Accepted Answer

A)  has more current liabilities than the industry average 
B)  has more leased assets than the industry average 
C)  will be less profitable than the industry average 
D)  has more current assets than the industry average 
A)  has more current liabilities than the industry average 
B)  has more leased assets than the industry average 
C)  will be less profitable than the industry average 
D)  has more current assets than the industry average

Question 18

A firm has an ROA of 19%,a debt/equity ratio of 1.8,a tax rate of 30%,and the interest rate on its debt is 7%.Its ROE is _________.

Accepted Answer

A)  15.12% 
B)  28.42% 
C)  37.24% 
D)  40.60% 
A)  15.12% 
B)  28.42% 
C)  37.24% 
D)  40.60%

Question 19

Which of the following is not a ratio used in the DuPont analysis?

Accepted Answer

A)  Interest burden 
B)  Profit margin 
C)  Asset turnover 
D)  Earnings yield ratio 
A)  Interest burden 
B)  Profit margin 
C)  Asset turnover 
D)  Earnings yield ratio

Question 20

A firm has a ROE equal to the industry average but its price to book ratio is below the industry average.You know that the firm's _________.

Accepted Answer

A)  earnings yield is above the industry average 
B)  P/E ratio is above the industry average 
C)  dividend payout ratio is too high 
D)  interest burden must be below the industry average 
A)  earnings yield is above the industry average 
B)  P/E ratio is above the industry average 
C)  dividend payout ratio is too high 
D)  interest burden must be below the industry average

Exam 14: Financial Statement Analysis

Common size balance sheets are prepared by dividing all quantities by ____________.

Which of the following statements is true concerning Economic Value Added?

The net income of the company is $120.Accounts payable increase by $20,depreciation is $15,and equipment is purchased for $40.If the firm issued $110 in new bonds,what is the total change in cash for the firm for all activities?

The tax burden of the firm is .4,the interest burden is 0.65,the return on sales is 0.05,the asset turnover is 0.90,and the leverage ratio is 1.35.What is the ROE of the firm?

Use the following cash flow data of Haven Hardware for the year ended December 31, 2008. -What is the net cash provided by operating activities of Haven Hardware?

Use the following cash flow data of Haven Hardware for the year ended December 31, 2008. -What is the net cash provided by or used in financing activities of Haven Hardware?

The firms leverage ratio is 1.2,interest burden ratio is .81,profit margin is .24,and its asset turnover is 1.25.What is the firm's ROA?

A high price to book ratio may indicate which one of the following?

Which of the following results in an increase in cash to the firm?

When assessing sustainability of a firm's cash flows,analysts will prefer to see cash growth generated from which of the following sources?

Use the following cash flow data of Haven Hardware for the year ended December 31, 2008. -What is the cash at the end of 2008 for Haven Hardware?

Which one of the following ratios is used to calculate the times interest earned ratio?

The financial statements of Burnaby Mountain Trading Company are given below. Note: The common shares are trading in the stock market for $27 each. -Refer to the financial statements of Burnaby Mountain Trading Company.The firm's quick ratio for 2008 is _________.

A firm has lower inventory turnover,a longer ACP,and a lower fixed-asset turnover than the industry averages.You should not be surprised to find that this firm has _____________. I.lower ATO than the industry average II.lower ROA than the industry average III.lower ROE than the industry average

Many observers believe that firms "manage" their income statements to _______.

If a firm's ratio of (stockholders' equity/total assets)is lower than the industry average and its ratio of (long-term debt/stockholders' equity)is also lower than the industry average,this would suggest that the firm _________.

A firm has an ROA of 19%,a debt/equity ratio of 1.8,a tax rate of 30%,and the interest rate on its debt is 7%.Its ROE is _________.

Which of the following is not a ratio used in the DuPont analysis?

A firm has a ROE equal to the industry average but its price to book ratio is below the industry average.You know that the firm's _________.

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