Question 1

Which of the following will increase return on equity?

Accepted Answer

A)  An increase in sales with a proportionate increase in costs and expenses 
B)  An increase in sales relative to the asset base 
C)  A decrease in leverage 
D)  Both A and C 
A)  An increase in sales with a proportionate increase in costs and expenses 
B)  An increase in sales relative to the asset base 
C)  A decrease in leverage 
D)  Both A and C

Question 2

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 2016. In addition, the firm's total assets were $2,500,000, and its capital structure is comprised of 40% debt and 60% equity. What was Corbin's return on equity in 2016?

Accepted Answer

A)  15% 
B)  2.5% 
C)  10% 
D)  Return on equity cannot be determined with the information provided. 
A)  15% 
B)  2.5% 
C)  10% 
D)  Return on equity cannot be determined with the information provided.

Question 3

The current ratio and the acid test ratio are both measures of financial leverage.

Accepted Answer

A) True 
 B)False

Question 4

S.M., Inc. had total sales of $400,000 in 2014 (70 percent of its sales are credit). The company's gross profit margin is 10%, its ending inventory is $80,000, and its accounts receivable is $25,000. What amount of funds can be generated by the company if it increases its inventory turnover ratio to 10.0 and reduces its average collection period to 20 days?

Accepted Answer

Average collection period = (accounts re

Question 5

Which of the following transactions does NOT affect the quick ratio?

Accepted Answer

A)  Land held for investment is sold for cash. 
B)  Equipment is purchased and is financed by a long-term debt issue. 
C)  Inventories are sold for cash. 
D)  Inventories are sold on a credit basis. 
A)  Land held for investment is sold for cash. 
B)  Equipment is purchased and is financed by a long-term debt issue. 
C)  Inventories are sold for cash. 
D)  Inventories are sold on a credit basis.

Question 6

There is no such thing as a liquidity ratio being too high.

Accepted Answer

A) True 
 B)False

Question 7

Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The total debt ratio for the firm is 50%. Calculate Millers's return on equity.

Accepted Answer

A)  17.5% 
B)  19.5% 
C)  21.5% 
D)  23.5% 
A)  17.5% 
B)  19.5% 
C)  21.5% 
D)  23.5%

Question 8

Based on the information in Table 1, the debt ratio is

Accepted Answer

A)  0.70. 
B)  0.20. 
C)  0.74. 
D)  0.42. 
A)  0.70. 
B)  0.20. 
C)  0.74. 
D)  0.42.

Question 9

Sputter Motors has sales of $3,450,000, total assets of $1,240,000, cost of goods sold of $2,550,000, and an inventory turnover of 6.38. What is the amount of Sputter's inventory?

Accepted Answer

A)  $421,054 
B)  $638,112 
C)  $543,000 
D)  $399,687 
A)  $421,054 
B)  $638,112 
C)  $543,000 
D)  $399,687

Question 10

What is the purpose of using common size balance sheets and common size income statements?

Accepted Answer

The purpose is to allow a company to com

Question 11

Which of the following is NOT a reason why financial analysts use ratio analysis?

Accepted Answer

A)  Ratios help to pinpoint a firm's strengths. 
B)  Ratios restate accounting data in relative terms. 
C)  Ratios are ideal for smoothing out the differences that may exist when comparing firms that use different accounting practices. 
D)  Some of a firm's weaknesses can be identified through the usage of ratios. 
A)  Ratios help to pinpoint a firm's strengths. 
B)  Ratios restate accounting data in relative terms. 
C)  Ratios are ideal for smoothing out the differences that may exist when comparing firms that use different accounting practices. 
D)  Some of a firm's weaknesses can be identified through the usage of ratios.

Question 12

Companies chosen for benchmarks should be of similar size and in the same or a similar industry.

Accepted Answer

A) True 
 B)False

Question 13

Hi Sky Enterprises has total assets of $3 million, a debt ratio of 30%, and an after-tax profit margin of 11.04% and sales of $2.5 million. What is Hi Sky's return on equity?

Accepted Answer

A)  15% 
B)  35% 
C)  27% 
D)  13% 
A)  15% 
B)  35% 
C)  27% 
D)  13%

Question 14

McKinny Enterprises must raise $580,000 to pay off a bank loan at the end of the year. The firm expects sales of $5,200,000 for the year. Depreciation for the year is $315,000. The company's net profit margin is 5%. Can the company pay off its loan through the retention of earnings?

Accepted Answer

Net profit = sales × net profit margin =

Question 15

Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall's debt ratio.

Accepted Answer

A)  30% 
B)  40% 
C)  50% 
D)  60% 
A)  30% 
B)  40% 
C)  50% 
D)  60%

Question 16

A small start-up company should choose an industry leader in the same industry as a benchmark.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following ratios indicates how rapidly the firm's credit accounts are being collected?

Accepted Answer

A)  Debt ratio 
B)  Gross profit margin 
C)  Accounts receivable turnover ratio 
D)  Fixed asset turnover 
A)  Debt ratio 
B)  Gross profit margin 
C)  Accounts receivable turnover ratio 
D)  Fixed asset turnover

Question 18

A serious pitfall in the interpretation of financial ratios arises when a company, whose business is seasonal, ends its accounting year on March 31, while most companies in the same industry end their accounting period on December 31.

Accepted Answer

A) True 
 B)False

Question 19

The analysis of a firm's financial statements is usually of interest only to people who do not work for the company.

Accepted Answer

A) True 
 B)False

Question 20

The question "Did the common stockholders receive an adequate return on their investment?" is answered through the use of

Accepted Answer

A)  liquidity ratios. 
B)  profitability ratios. 
C)  coverage ratios. 
D)  leverage ratios. 
A)  liquidity ratios. 
B)  profitability ratios. 
C)  coverage ratios. 
D)  leverage ratios.

Which of the following will increase return on equity?

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 2016. In addition, the firm's total assets were $2,500,000, and its capital structure is comprised of 40% debt and 60% equity. What was Corbin's return on equity in 2016?

The current ratio and the acid test ratio are both measures of financial leverage.

Which of the following transactions does NOT affect the quick ratio?

There is no such thing as a liquidity ratio being too high.

Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The total debt ratio for the firm is 50%. Calculate Millers's return on equity.

Based on the information in Table 1, the debt ratio is

Sputter Motors has sales of $3,450,000, total assets of $1,240,000, cost of goods sold of $2,550,000, and an inventory turnover of 6.38. What is the amount of Sputter's inventory?

What is the purpose of using common size balance sheets and common size income statements?

Which of the following is NOT a reason why financial analysts use ratio analysis?

Companies chosen for benchmarks should be of similar size and in the same or a similar industry.

Hi Sky Enterprises has total assets of $3 million, a debt ratio of 30%, and an after-tax profit margin of 11.04% and sales of $2.5 million. What is Hi Sky's return on equity?

McKinny Enterprises must raise $580,000 to pay off a bank loan at the end of the year. The firm expects sales of $5,200,000 for the year. Depreciation for the year is $315,000. The company's net profit margin is 5%. Can the company pay off its loan through the retention of earnings?

Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall's debt ratio.

A small start-up company should choose an industry leader in the same industry as a benchmark.

Which of the following ratios indicates how rapidly the firm's credit accounts are being collected?

A serious pitfall in the interpretation of financial ratios arises when a company, whose business is seasonal, ends its accounting year on March 31, while most companies in the same industry end their accounting period on December 31.

The analysis of a firm's financial statements is usually of interest only to people who do not work for the company.

The question "Did the common stockholders receive an adequate return on their investment?" is answered through the use of

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes, and Cash Flows

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 4: Financial Analysis-Sizing up Firm Performance

Which of the following will increase return on equity?

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 2016. In addition, the firm's total assets were $2,500,000, and its capital structure is comprised of 40% debt and 60% equity. What was Corbin's return on equity in 2016?

The current ratio and the acid test ratio are both measures of financial leverage.

Which of the following transactions does NOT affect the quick ratio?

There is no such thing as a liquidity ratio being too high.

Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The total debt ratio for the firm is 50%. Calculate Millers's return on equity.

Based on the information in Table 1, the debt ratio is

Sputter Motors has sales of $3,450,000, total assets of $1,240,000, cost of goods sold of $2,550,000, and an inventory turnover of 6.38. What is the amount of Sputter's inventory?

What is the purpose of using common size balance sheets and common size income statements?

Which of the following is NOT a reason why financial analysts use ratio analysis?

Companies chosen for benchmarks should be of similar size and in the same or a similar industry.

Hi Sky Enterprises has total assets of $3 million, a debt ratio of 30%, and an after-tax profit margin of 11.04% and sales of $2.5 million. What is Hi Sky's return on equity?

McKinny Enterprises must raise $580,000 to pay off a bank loan at the end of the year. The firm expects sales of $5,200,000 for the year. Depreciation for the year is $315,000. The company's net profit margin is 5%. Can the company pay off its loan through the retention of earnings?

Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall's debt ratio.

A small start-up company should choose an industry leader in the same industry as a benchmark.

Which of the following ratios indicates how rapidly the firm's credit accounts are being collected?

A serious pitfall in the interpretation of financial ratios arises when a company, whose business is seasonal, ends its accounting year on March 31, while most companies in the same industry end their accounting period on December 31.

The analysis of a firm's financial statements is usually of interest only to people who do not work for the company.

The question "Did the common stockholders receive an adequate return on their investment?" is answered through the use of

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes, and Cash Flows

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters