Deck 3: Fundamental Interpretations Made From Financial Statement Data

Question 1

Rotablade's net income was $600,000 on sales of $24 million for the year.Average assets for the year were $8 million.For the year:

A)margin was 4%, turnover was 3.0, and ROI was 12%.
B)margin was 2.5%, turnover was 2.0, and ROI was 5%.
C)margin was 4%, turnover was 2.0, and ROI was 8%.
D)margin was 2.5%, turnover was 3.0, and ROI was 7.5%

Answer 1

D

Question 2

Mamba Metals, Inc.had an ROI of 12%, margin of 3%, and sales of $20 million for the year.Mamba's turnover for the year was:

A)3.0
B)4.0
C)36%
D)$600,000

Answer 2

B

Question 3

Yellowday Energy's margin was 3% and turnover was 4.0 on sales of $50 million for the year.Net income for the year was:

A)$500,000
B)$1,500,000
C)$2,000,000
D)$6,000,000

Answer 3

B

Question 4

Return on equity:

A)will be the same as return on investment.
B)relates dividends and turnover.
C)relates dividends and stockholders' equity.
D)relates net income and stockholders' equity.

Question 5

An advantage of the DuPont model for calculating ROI is that:

A)it focuses on asset utilization as well as net income.
B)it is easier to use than the straightforward ROI formula.
C)it uses average assets and the straightforward ROI formula does not.
D)it uses average stockholders' equity.

Question 6

Mechforce Manufacturing's net income was $420,000 on sales of $14 million.Average assets for the year were $10 million.Margin for the year was:

A)1.4
B)1.8
C)3.0%
D)4.2%

Question 7

Another term for return on equity is:

A)return on investment.
B)return on assets.
C)return on retained earnings.
D)none of these.

Question 8

Around Square, Inc.had an ROI of 12.5%, turnover of 5.0, and sales of $8 million for the year.Around Square's margin for the year was:

A)$1,000,000
B)2.5%
C)4.0%
D)$1,600,000

Question 9

The return on investment measure of performance:

A)is relevant only to business enterprises.
B)is used by individuals to compare investment performance.
C)is calculated using sales as the amount of return.
D)is calculated using total assets at the beginning of the period as the amount of investment.

Question 10

The return on investment measure of performance:

A)is never as important a measure of management effectiveness as the amount of net income.
B)relates dividends paid to the entity's assets.
C)is calculated using net income as the amount of return.
D)is calculated by dividing average assets for a period by the amount of net income for the period.

Question 11

Yellowday Energy's margin was 3% and turnover was 4.0 on sales of $50 million for the year.ROI for the year was:

A)3.0%
B)4.0%
C)12.0%
D)12.5%

Question 12

When comparing entity financial ratios with industry ratios:

A)it should be assumed that the data result from the consistent application of alternative accounting methods.
B)relative values at a point in time may not be significant.
C)the trend of entity ratios should be compared to the current year's industry ratio.
D)entity ratios should not be compared with industry ratios.

Question 13

Yellowday Energy's margin was 3% and turnover was 4.0 on sales of $50 million for the year.Average assets for the year were:

A)$1,500,000
B)$6,000,000
C)$12,500,000
D)$20,000,000

Question 14

Financial statement ratios support informed judgments and decision making most effectively:

A)when viewed for a single year.
B)when viewed as a trend of entity data.
C)when compared to an industry average for the most recent year.
D)when the trend of entity data is compared to the trend of industry data.

Question 15

Compoform's net income for the year was $320,000.Average liabilities totaled $1.6 million and average stockholders' equity totaled $2.4 million.Return on investment (ROI)was:

A)8.0%
B)13.3%
C)20.0%
D)40.0%

Question 16

Mechforce Manufacturing's net income was $420,000 on sales of $14 million.Average assets for the year were $10 million.Turnover for the year was:

A)1.4
B)1.8
C)3.0%
D)4.2%

Question 17

United Machining's margin was 2% and turnover was 3.0 on sales of $60 million for the year.On the basis on this information:

A)net income for the year was $3,600,000, average assets were $20 million, and ROI was 2%.
B)net income for the year was $1,200,000, average assets were $10 million, and ROI was 2%.
C)net income for the year was $1,200,000, average assets were $20 million, and ROI was 6%.
D)net income for the year was $3,600,000, average assets were $10 million, and ROI was 6%.

Question 18

ZeroFued's net income for the year was $300,000.Average assets totaled $2 million, and average liabilities totaled $500,000.Return on equity (ROE)was:

A)12%
B)15%
C)20%
D)60%

Question 19

Another term for return on investment is:

A)Return on equity.
B)Return on assets.
C)Return on retained earnings.
D)Return to sender.

Question 20

Mechforce Manufacturing's net income was $420,000 on sales of $14 million.Average assets for the year were $10 million.ROI for the year was:

A)1.4
B)1.8
C)3.0%
D)4.2%

Question 21

Which of the following is not usually considered a measure of an entity's liquidity?

A)Current ratio.
B)Acid-test ratio.
C)Cash ratio.
D)Working capital.

Question 22

NTO Designs has a margin of 7%, turnover of 1.2, and sales of $2,100,000.
Required:
Calculate NTO Designs' net income, average total assets, and return on investment (ROI).

Question 23

Which of the following is a universally accepted measure of profitability?

A)Return on investment.
B)Return on retained earnings.
C)Return on liabilities.
D)All of these.

Question 24

A current ratio of 6.0 is usually an indication that the firm:

A)has a low degree of liquidity.
B)has a reasonable degree of liquidity.
C)has not made the most productive use of its assets.
D)has made the most productive use of its assets.

Question 25

Attesson, Inc.has a current ratio of 1.9 and current assets of $136,800.
Required:
Calculate Attesson's current liabilities and working capital.

Question 26

Financial ratios:

A)help financial statement users to evaluate the financial characteristics of companies by putting the large dollar amounts reported in financial statements into relative terms for comparison purposes.
B)provide for a more meaningful analysis when the trends of financial ratios for a company are compared to the industry average trends over a period of time.
C)Both of these statements are true.
D)Neither of these statements is true.

Question 27

FGT Motorsports had net assets at the end of the year of $320,000.The only transactions affecting stockholders' equity during the year were net income of $51,000 and dividends of $11,000.
Required:
Calculate FGT Motorsports' average stockholders' equity and return on equity (ROE).

Question 28

One-Two-Tree Landscaping Services has net income of $18,000, sales of $300,000, and average total assets of $125,000.
Required:
Calculate One-Two-Tree's margin, turnover, and return on investment (ROI).

Question 29

If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining the loan, relative to its working capital just prior to the loan, would be:

A)Higher.
B)Lower.
C)The same.
D)Would depend on the amount borrowed.

Question 30

For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is that it:

A)raises the current ratio.
B)lowers the current ratio.
C)doesn't affect the current ratio.
D)depends on the amount paid.

Question 31

Which of the following accounts is part of working capital?

A)Retained Earnings
B)Sales
C)Merchandise Inventory
D)Common Stock

Question 32

2R Designs has accounts receivable of $4,100, cash of $3,500, property, plant, and equipment of $30,200, merchandise inventory of $2,200, accounts payable of $5,700, other accrued liabilities of $1,300, common stock of $10,000, and retained earnings of $23,000.
Required:
Calculate 2R Designs' working capital and current ratio.