Question 1

An example of a liquidity ratio is the

Accepted Answer

A) quick ratio. 
B) debt ratio. 
C) interest coverage ratio. 
D) return on assets. 
A) quick ratio. 
B) debt ratio. 
C) interest coverage ratio. 
D) return on assets. A

Question 2

A retailer that accepts credit cards will have a higher accounts receivable turnover ratio than a retailer with its own credit department.

Accepted Answer

A) True 
 B)False  True

Question 3

Suppose Phil's Fisheries (PF)has a total asset turnover ratio of 1.90 and a return on total assets of 7.20%.What is PF's net profit margin?

Accepted Answer

A) 3.79 
B) 13.68 
C) 9.10 
D) None of the above 
A) 3.79 
B) 13.68 
C) 9.10 
D) None of the above A

Question 4

Smith Corporation has current assets of $11,400,inventories of $4,000,and a current ratio of 2.6.What is Smith's quick or acid test ratio?

Accepted Answer

A) 1.69 
B) 0.54 
C) 0.74 
D) 1.35 
A) 1.69 
B) 0.54 
C) 0.74 
D) 1.35

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

Which of the following parties would be interested in an analysis of the firm's financial statements?

Accepted Answer

A) Investors 
B) Creditors 
C) The firm's managers 
D) all of the above 
A) Investors 
B) Creditors 
C) The firm's managers 
D) all of the above

Question 7

Why is the quick ratio a more refined measure of liquidity than the current ratio?

Accepted Answer

A) It measures how quickly cash and other liquid assets flow through the company. 
B) Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets. 
C) It is a quicker calculation to make. 
D) Cash is the most liquid current asset. 
A) It measures how quickly cash and other liquid assets flow through the company. 
B) Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets. 
C) It is a quicker calculation to make. 
D) Cash is the most liquid current asset.

Question 8

Which of the following is a limitation related to the usage of ratios when reviewing a firm's performance?

Accepted Answer

A) Ratios reveal differences in policy and performance between years. 
B) Ratios can be used to compare firms that are in the same industry if one firm's sales are higher than another firm. 
C) Financial ratios are designed for the use of creditors,not for managers. 
D) Different accounting practices between firms can distort comparisons. 
A) Ratios reveal differences in policy and performance between years. 
B) Ratios can be used to compare firms that are in the same industry if one firm's sales are higher than another firm. 
C) Financial ratios are designed for the use of creditors,not for managers. 
D) Different accounting practices between firms can distort comparisons.

Question 9

Financial ratios that are higher than industry averages may indicate problems which are as detrimental to the firm as ratios that are too low.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following ratios would be the most useful in evaluating the ability of a firm to meet its short-term obligations?

Accepted Answer

A) The quick ratio (acid test) 
B) Return on equity 
C) Total asset turnover 
D) Operating profit margin 
A) The quick ratio (acid test) 
B) Return on equity 
C) Total asset turnover 
D) Operating profit margin

Question 11

Which of the following industries has the highest average inventory turnover ratio?

Accepted Answer

A) Retail clothing stores 
B) Jewellery stores 
C) Car dealerships 
D) Supermarkets 
A) Retail clothing stores 
B) Jewellery stores 
C) Car dealerships 
D) Supermarkets

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

If you were given the components of current assets and of current liabilities,what ratio(s)could you compute?

Accepted Answer

A) Acid test or quick ratio 
B) Average collection period 
C) Current ratio 
D) Both A and C 
E) All of the above 
A) Acid test or quick ratio 
B) Average collection period 
C) Current ratio 
D) Both A and C 
E) All of the above

Question 14

Discuss the limitations of ratio analysis.

Accepted Answer

It is often difficult to find adequate b

Question 15

Common-size income statements represent all figures on the income statement

Accepted Answer

A) as a percentage change from the previous year. 
B) as percentages of the current year's sales. 
C) as a percentage of some benchmark figure. 
D) as a percentage of total assets. 
A) as a percentage change from the previous year. 
B) as percentages of the current year's sales. 
C) as a percentage of some benchmark figure. 
D) as a percentage of total assets.

Question 16

On a common-size income statement,EBIT is equal to 100%.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is NOT a limitation related to the usage of ratios when reviewing a firm's performance?

Accepted Answer

A) Many firms experience seasonality in their operations. 
B) Ratios cannot be used to compare firms that are in the same industry if one firm's sales are higher than another firm. 
C) Some firms operate in a variety of business lines,which makes it difficult to make comparisons. 
D) Accounting practices differ widely among firms. 
A) Many firms experience seasonality in their operations. 
B) Ratios cannot be used to compare firms that are in the same industry if one firm's sales are higher than another firm. 
C) Some firms operate in a variety of business lines,which makes it difficult to make comparisons. 
D) Accounting practices differ widely among firms.

Question 18

Wireless Communications has a total asset turnover of 2.66,total liabilities of $1,004,162,and sales revenues of $7,025,000.What is Wireless's debt ratio?

Accepted Answer

A) 38.0% 
B) 14.3% 
C) 26.7% 
D) 81.1% 
A) 38.0% 
B) 14.3% 
C) 26.7% 
D) 81.1%

Question 19

According to the DuPont Analysis,an increase in net profit margin will decrease return on assets.

Accepted Answer

A) True 
 B)False

Question 20

Common-size financial statements represent all figures on the financial statements

Accepted Answer

A) in inflation adjusted dollars from a base year. 
B) as if all companies being compared had the same total revenue. 
C) as if all companies being compared had the same total assets. 
D) as a percentage of either sales or total assets. 
A) in inflation adjusted dollars from a base year. 
B) as if all companies being compared had the same total revenue. 
C) as if all companies being compared had the same total assets. 
D) as a percentage of either sales or total assets.

An example of a liquidity ratio is the

A retailer that accepts credit cards will have a higher accounts receivable turnover ratio than a retailer with its own credit department.

Suppose Phil's Fisheries (PF)has a total asset turnover ratio of 1.90 and a return on total assets of 7.20%.What is PF's net profit margin?

Smith Corporation has current assets of $11,400,inventories of $4,000,and a current ratio of 2.6.What is Smith's quick or acid test ratio?

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

Which of the following parties would be interested in an analysis of the firm's financial statements?

Why is the quick ratio a more refined measure of liquidity than the current ratio?

Which of the following is a limitation related to the usage of ratios when reviewing a firm's performance?

Financial ratios that are higher than industry averages may indicate problems which are as detrimental to the firm as ratios that are too low.

Which of the following ratios would be the most useful in evaluating the ability of a firm to meet its short-term obligations?

Which of the following industries has the highest average inventory turnover ratio?

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

If you were given the components of current assets and of current liabilities,what ratio(s)could you compute?

Discuss the limitations of ratio analysis.

Common-size income statements represent all figures on the income statement

On a common-size income statement,EBIT is equal to 100%.

Which of the following is NOT a limitation related to the usage of ratios when reviewing a firm's performance?

Wireless Communications has a total asset turnover of 2.66,total liabilities of $1,004,162,and sales revenues of $7,025,000.What is Wireless's debt ratio?

According to the DuPont Analysis,an increase in net profit margin will decrease return on assets.

Common-size financial statements represent all figures on the financial statements

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

Share Valuation

Investment Decision Criteria

Analysing 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

An example of a liquidity ratio is the

A retailer that accepts credit cards will have a higher accounts receivable turnover ratio than a retailer with its own credit department.

Suppose Phil's Fisheries (PF)has a total asset turnover ratio of 1.90 and a return on total assets of 7.20%.What is PF's net profit margin?

Smith Corporation has current assets of $11,400,inventories of $4,000,and a current ratio of 2.6.What is Smith's quick or acid test ratio?

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

Which of the following parties would be interested in an analysis of the firm's financial statements?

Why is the quick ratio a more refined measure of liquidity than the current ratio?

Which of the following is a limitation related to the usage of ratios when reviewing a firm's performance?

Financial ratios that are higher than industry averages may indicate problems which are as detrimental to the firm as ratios that are too low.

Which of the following ratios would be the most useful in evaluating the ability of a firm to meet its short-term obligations?

Which of the following industries has the highest average inventory turnover ratio?

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

If you were given the components of current assets and of current liabilities,what ratio(s)could you compute?

Discuss the limitations of ratio analysis.

Common-size income statements represent all figures on the income statement

On a common-size income statement,EBIT is equal to 100%.

Which of the following is NOT a limitation related to the usage of ratios when reviewing a firm's performance?

Wireless Communications has a total asset turnover of 2.66,total liabilities of $1,004,162,and sales revenues of $7,025,000.What is Wireless's debt ratio?

According to the DuPont Analysis,an increase in net profit margin will decrease return on assets.

Common-size financial statements represent all figures on the financial statements

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

Share Valuation

Investment Decision Criteria

Analysing 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