Deck 8: Financial Strategy

Question 1

gives the retailer a measure of how much profit it is making on merchandise sales without considering the expense associated with operating the store.

A) Expenses
B) Gross margin
C) Net profit
D) General expenses
E) Financial leverage

Answer 1

B

Question 2

The strategic profit model is useful to retailers because it:

A) uses return on assets as the primary criterion for planning and evaluating a firm's financial performance
B) combines two decision-making areas-margin management and asset management
C) can also be used to evaluate financial implications of new strategies before they're implemented
D) All of the these
E) None of the these

Answer 2

D

Question 3

How do you calculate net sales?

A) Combine the total customer returns, customer sales, and customer allowances
B) Add operating expense and interest expense; then subtract from gross sales
C) Subtract cost of goods sold from gross sales
D) Subtract customer returns from gross sales and add promotional allowances from vendors
E) Subtract gross profits from promotional allowances

Answer 3

D

Question 4

The information used to analyze a firm's profit path comes from the:

A) financial leverage statement
B) strategic profit model
C) balance sheet
D) profitability statement
E) income statement

Question 5

Anita purchased a king snake as a pet while she was away from home. When she arrived at her dorm, the resident supervisor reminded Anita of the "no pets" policy, and Anita had to bring the snake back to the store. The pet store's accounting department would enter this transaction as a:

A) fixed cost
B) customer allowance
C) customer return
D) gross margin
E) net cost of doing business

Question 6

Which of the following refers to the total number of dollars received by a retailer after all refunds have been paid to customers for returned merchandise?

A) a balance sheet
B) total assets
C) net profit
D) gross margin
E) net sales

Question 7

Which of the following ratios is included as an integral part of the strategic profit model?

A) Retained earnings
B) Net profit margin
C) Current liabilities
D) Net profit
E) All of these

Question 8

All of the following are considered "assets" EXCEPT:

A) Merchandise inventory
B) Accounts receivables
C) Supplies
D) Notes payable
E) Cash

Question 9

Which of the following would have the lowest gross margins?

A) Future Shop
B) The Bay
C) Walmart
D) Sears
E) Roots

Question 10

Offering people unique merchandise, such as environmentally sensitive products, providing an innovative service to improve personal health, such as weight reduction programs, or sponsoring community events are all examples of:

A) Personal objectives
B) Societal objectives
C) Political objectives
D) Civic objectives
E) Environmental objectives

Question 11

Bernie wanted to know what the net sales and the net profit after tax were during the year 2004 for his nephew's business, The Big Man Shop. Bernie should look at the store's:

A) financial leverage statement
B) balance sheet
C) strategic profit model
D) income statement
E) profitability statement

Question 12

Which of the following would have the highest gross margin?

A) A Buck or Two discount
B) IGA grocery
C) IKEA furniture
D) Holt Renfrew department store
E) Birks jewellers

Question 13

Gross margin:

A) is a performance measure
B) is also referred to as gross profit
C) is a measure of how much profit a retailer is making on the sale of merchandise
D) can be expressed as a percentage of net sales
E) is described by all of these

Question 14

Why would a discount store have lower gross margins than a jewellery store?

A) Discounters are only beginning to explore gross margin in pricing decisions
B) Discounters have a lower priced merchandise strategy
C) Jewellery stores cannot offer the variety that a discounter offers
D) Discounters traditionally do not profit as well as jewellery stores
E) All of these are false statements

Question 15

Three types of objectives a retailer might have are:

A) personal, financial, and environmental
B) financial, environmental, and political
C) financial, societal, and personal
D) societal, political, and personal
E) societal, financial, and environmental

Question 16

If a retailer wanted to compare its financial performance to its past performances, it would utilize the

A) correlation analysis
B) strategic profit model
C) margin model
D) financial environmental assessment
E) trend analysis

Question 17

Which of the following calculations leads to gross margin?

A) Add operating and interest expenses together and subtract that total from gross sales
B) Subtract net profit from net sales
C) Subtract cost of goods sold from gross sales
D) Add customer returns and customer allowances, then subtract the total from net sales
E) Subtract cost of goods sold from net sales

Question 18

Advantages of high inventory turnover include all of the following EXCEPT:

A) Increased sales volume
B) Improved salesperson morale
C) Increased asset turnover
D) Increased cost of goods sold
E) Less risk of obsolescence and markdowns

Question 19

Which of the following summarizes a firm's financial performance over a period of time?

A) Strategic profit statement
B) Income statement
C) Profitability statement
D) Balance sheet
E) Financial leverage statement

Question 20

Why do retailers pursue different strategies when determining whether their return on investment is profitable?

A) Profitability can be defined differently depending upon the retailer
B) Strategies may change depending upon performance
C) Different retailers have different financial operating characteristics
D) Retailers can use the profit path and the turnover path interchangeably
E) Retailers use the turnover strategy only when their investments "turn over" to profit

Question 21

The information used to analyze a firm's turnover path primarily comes from the:

A) owners' equity
B) net profit statement
C) profitability statement
D) income statement
E) balance sheet

Question 22

Which of the following is a general expense for Banana Republic?

A) Health benefits provided to its sales staff
B) Salary of store managers
C) Rent
D) Inventory
E) All of these

Question 23

If net profit measures the profitability of an entire firm, then what measures the profitability of merchandising activities?

A) Shrinkage
B) Owner's equity
C) Asset turnover
D) Gross margin
E) Accounts receivable

Question 24

Celestial Navigation is a store for people who collect nautical items and use them to decorate their homes. Last year its net sales totalled $120,500. The value of the items it sold was $72,300. Taxes for the year ran $7,680. The only expenses that the operation has are (1) licenses for $300, (2) salaries to the owner and one part-time assistant for
$27,000, (3) administrative expenses of $500, and (4) utilities at $1,200. Calculate the net profit margin for Celestial Navigation.

A) 60.2 percent
B) 23.9 percent
C) 40 percent
D) 9.6 percent
E) Cannot be determined from the information provided

Question 25

How can you calculate assets?

A) Cost of goods sold minus net sales
B) Total liabilities minus total assets
C) Total liabilities plus owner's equity
D) Total assets minus total liabilities
E) Gross sales minus (customer returns and customer allowances)

Question 26

Which of the following would be listed as a liability on the balance sheet of a new office supply store?

A) Registers at the front of the store
B) Money owed to vendors for merchandise
C) The computers in the back offices
D) Copying equipment
E) Furniture displays

Question 27

Which of the following is a retail selling expense for a candle shop?

A) Interest payment on a start-up loan
B) Electricity
C) Mall rent
D) Salaries paid to its sales staff
E) Office supplies

Question 28

Which of the following is expressed as a percentage of net sales?

A) Operating expenses
B) Net profit margin
C) Accounts receivable
D) Gross sales
E) Total assets

Question 29

The Bookstore Café is a small restaurant located near a downtown business district. It is opened for breakfast and lunch and serves simple yet nutritious meals, as well as books from the Globe and Mail bestseller list. How would you categorize the book inventory, cooking equipment, tables, chairs, and the register?

A) Investor capital
B) Owners' equity
C) Assets
D) Current liabilities
E) Retained earnings

Question 30

What is a measure of a retailer's overall performance?

A) Net profit
B) Turnover
C) Insurance premium
D) Expense limit
E) Gross margin

Question 31

Which of the following expense is the cost of financing everything from inventory to the purchase of a new store location?

A) Accounts receivable
B) Interest
C) Profits
D) Owner's equity
E) Operations

Question 32

If Mohammed wanted to examine the assets and liabilities of the Silver Exchange Coin Shop on December 31, he should look at its:

A) owners' equity
B) income statement
C) profitability statement
D) balance sheet
E) net profit statement

Question 33

Which of the following is an example of a retail operating expense?

A) Commissions sales
B) Office supplies
C) Staff salaries
D) Rent
E) All of these

Question 34

How can you calculate owners' equity?

A) Total assets minus cost of goods sold
B) Cost of goods sold minus net sales
C) Gross sales minus (customer returns and customer allowances)
D) Total assets minus total liabilities
E) Total liabilities plus total assets

Question 35

Chapter Two is a paperback book exchange store. For each book trade, the buyer pays a $1 trade fee. Books that are sold and not traded cost half of their original purchase price. The store has total assets of $126,000, current assets of $40,200, and liabilities totalling
$160,900. Its net sales equalled $35,000, and its net profit after taxes was $9,000. Calculate the store's net profit margin.

A) 27.7 percent
B) 21.7 percent
C) 7.1 percent
D) 25.7 percent
E) 22.4 percent

Question 36

Upseedaisees is popular loungewear that prides itself on its versatility. Last year, its net sales were $1,450,000 with cost of goods of $353,000. Taxes totalled $61,650. The company's expenses totalled $960,000. Calculate the company's net profit margin.

A) 12.5 percent
B) 24.3 percent
C) 90.5 percent
D) 8.8 percent
E) 5.2 percent

Question 37

Libby's Leather Goods has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and net profit after taxes of $23,000. Calculate the retailer's net profit margin.

A) 20 percent
B) 35.9 percent
C) 25 percent
D) 31.08 percent
E) 18.75 percent

Question 38

What are costs incurred in the normal course of doing business?

A) Margins
B) Revenues
C) Expenses
D) Vendor allowances
E) None of these

Question 39

Which of the following is a retail selling expense for Sears?

A) Utilities
B) Rent
C) Commissions
D) Fire insurance
E) Salary of company CEO

Question 40

The Good Light is a store for people who enjoy and collect candles to decorate their homes. Last year its net sales totalled $90,500 with $7,761 in taxes. The value of the candles it sold was $42,300. The only expenses that the operation has are salaries to the owner and one part-time assistant for $27,000, administrative expenses of $400, and
Utilities at $900. Calculate the net profit after tax for The Good Light.

A) $27,661
B) $54,200
C) $12,139
D) $21,142
E) $10,073

Question 41

Which of the following would be listed as a liability on the balance sheet of a retail shoe store?

A) The store's private parking lot
B) The store's accounts receivable
C) The store's inventory of sandals and open-toed shoes
D) The cash in the store's cash register
E) None of these

Question 42

Which of the following would be an example of a fixed asset for a used record shop?

A) The small building that houses the shop
B) Owners' equity
C) Turntables
D) Music posters
E) Accounts receivable

Question 43

When Charlotte is calculating the current assets for her t-shirt shop in Charlottetown, she needs to remember to include her:

A) notes receivable
B) fixed assets
C) accrued liabilities
D) accounts receivable
E) retained earnings

Question 44

Inventory turnover:

A) equals net sales minus cost of goods sold divided by average turnover
B) equals total assets minus current assets divided by average inventory
C) is calculated by dividing net profit by average retail inventory
D) is calculated by dividing accounts receivable by net sales
E) is none of these

Question 45

Pierre's Antiques is an antique shop featuring early European pieces harmoniously paired with North American native art. He offers many services to his loyal customers, like free delivery for large pieces, free independent appraisals, and design consultations. Most recently, Pierre began accepting Visa and MasterCard in his shop. With all of the attractive services he already offers, why did Pierre add third-party credit cards?

A) To decrease its accrued liabilities
B) To ease the financial burden of accounts receivable
C) To decrease its liquidity
D) To increase its inventory turnover
E) To increase its fixed assets

Question 46

When Cal went to purchase a new filter for his aquarium, he noticed that the pet shop offered a 10% discount for patrons who paid in cash. Why would the pet store make this offer?

A) To increase its inventory turnover
B) To increase its fixed assets
C) To decrease its accrued liabilities
D) To ease the financial burden of accounts receivable
E) To decrease its liquidity

Question 47

When Elisabeth calculates the current assets for her picture framing business, she should not include:

A) notes payable
B) the store's inventory of frames
C) the money in her cash register
D) accounts payable
E) accounts receivable

Question 48

Mary Beth often shops at consignment shops to spread her wardrobe budget. During this visit, she noticed the owners offering a discount for shoppers who pay for their purchases in cash. The consignment shop must be:

A) easing the financial burden of accounts receivable
B) increasing its liquid assets
C) increasing its fixed assets
D) increasing the cost of doing business
E) decreasing its accrued liabilities

Question 49

The balance sheet for Caleb's Surf Shop shows current assets of $65,000, fixed assets of $104,000, and total liabilities of $157,000. Its current assets include accounts receivable totalling $41,000. The store's current liabilities equal $67,000. Calculate owners' equity.

A) $41,000
B) $12,000
C) $78,000
D) $2,000
E) He has no owners' equity.

Question 50

The Robin's Nest offers upscale children's furniture from newborn through grade school. The shop has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, and end-of-the-year inventory valued at
$23,000. What is the retailer's inventory turnover?

A) 6.6 percent
B) 8.2 percent
C) 32.9 percent
D) 31.9 percent
E) Cannot be determined from information given

Question 51

Which of the following would be a fixed asset?

A) The building in which the store is located
B) Merchandise
C) Accounts receivable
D) A hand calculator that is kept near the register
E) All of these

Question 52

Which of the following would be listed as an asset on the balance sheet of a hardware store?

A) Nuts and bolts
B) Display cabinets
C) A $55 credit card charge to a store patron
D) A set of metric wrenches
E) All of these

Question 53

When Nicola is figuring the current assets for her nail salon, she should definitely include in her calculations.

A) retained earnings
B) notes receivable
C) accrued liabilities
D) fixed assets
E) accounts receivable

Question 54

Retailers can ease the financial strain caused by accounts receivable by doing which of the following?

A) Use third-party credit cards.
B) Give discounts to customers who pay with credit cards.
C) Control the use of markdowns.
D) Discourage use of cash.
E) Doing all of these.

Question 55

When Marcia opened her beauty salon, she invested $25,000 in the business. This $25,000 represents:

A) owners' equity
B) leverage
C) the total liability account
D) liquidity
E) the total asset account

Question 56

Which of the following can be converted into cash within one year?

A) Notes receivable
B) Current assets
C) Retained earnings
D) Accrued liabilities
E) Fixed assets

Question 57

Which of the following would be listed as an asset on the balance sheet of a children's clothing shop?

A) Accounts receivable
B) Retained earnings
C) Money owed to vendors
D) Interest due on startup loan
E) All of these

Question 58

What is inventory turnover used for?

A) It is used to see how effectively managers utilize their investment in inventory.
B) It is used to measure average inventory.
C) It is to see how effectively buyers purchase the right assortments.
D) It is used to calculate net sales.
E) None of these

Question 59

Harriet's is a bookstore for people who love mysteries. How would a complete set of P. D. James mystery novels, a first edition copy of The Maltese Falcon, the money in the
Cash register, and an IOU from a loyal customer who forgot her wallet one day when she came to purchase the latest Margaret Atwood book be listed on the store's balance sheet?

A) Fixed assets
B) Current liabilities
C) Current assets
D) Long-term liabilities
E) Owners' equity

Question 60

A store that sells bath oils, natural sponges, and other related items has an average retail inventory of $15,000. Its net sales for last year were $62,000, total assets were $500,000 and its net profit was $9,000. Calculate the retailer's inventory turnover.

A) 6.89
B) 8.06
C) 4.13
D) 24.2
E) 33.33

Question 61

An advantage of high inventory turnover is:

A) improved salespersons' morale
B) decreased operating expenses
C) increased asset turnover
D) more funds for other market opportunities
E) all of these

Question 62

Felicia's Rent to Own has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. Calculate the owners' equity.

A) $300,000
B) $1,300,000
C) $100,000
D) $1,000,000
E) This is no owners' equity.

Question 63

When Morgan Hardware Stores orders two cases of paint from their supplier Sherwin-Williams on credit, the paint store has created for itself a/an:

A) long-term liability
B) notes receivable
C) accounts payable
D) accounts receivable
E) notes payable

Question 64

Which of the following is not an example of a fixed asset for a lawn care service?

A) The trucks used to haul away debris
B) Its accounts receivable
C) The plant nursery owned by the service
D) The bucket truck it uses to do tree surgery
E) A computer which is used to manage the store's inventory

Question 65

Which of the following is an example of a current liability?

A) Accounts receivable
B) Fixtures
C) Accounts payable
D) Merchandise
E) Equipment

Question 66

The strategic profit model is useful to retailers because it:

A) uses inventory turnover as its primary criterion
B) combines margin management and asset management
C) uses owner's equity as its primary criterion
D) is derived from the balance sheet from the last day of the year
E) is derived from the income statement

Question 67

Which of the following is an example of a fixed asset for a music store?

A) A central computer that is used to manage the store's inventory
B) Sheet music
C) Classical and electric guitars
D) A selection of jazz CDs
E) An assortment of music stands

Question 68

By knowing the return on assets for his garden supply store, Chuck will know:

A) total assets divided by net profits
B) how much profit was generated from the investment in assets
C) total assets divided by owners' equity
D) information found only in a firm's income statement
E) information found only on a firm's balance sheet

Question 69

An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. In 1999, its net sales were $2,100,000, and its net profit equalled $42,000. Calculate the store's return on assets.

A) 2.8 percent
B) 71.4 percent
C) 7.5 percent
D) 1.5 percent
E) 75 percent

Question 70

Which of the following is an example of an accrued liability for a florist?

A) Employees' salaries
B) Its refrigeration cases
C) Its inventory of long-stemmed roses
D) Payment due to a supplier
E) Its funeral displays

Question 71

Retained earnings are a portion of owner's equity that has:

A) accumulated over time, but hasn't been paid to investors through dividends.
B) been paid to owners in dividends.
C) been used to pay debts.
D) all forms of long-term liabilities.
E) none of these

Question 72

The Great Outdoors is a camping supply store offering its customers equipment from affordable to elite. It has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, and inventory valued at $23,000. Calculate the owners' equity.

A) $51,000
B) $327,000
C) $62,000
D) $70,000
E) $276,000

Question 73

A disadvantage of too high an inventory turnover would be:

A) decreased operating expenses
B) increased cost of goods sold
C) less risk of markdowns
D) increased sales volume
E) increased asset turnover

Question 74

Current liabilities are:

A) used to evaluate how effectively managers use their investments
B) debts that are expected to be paid in less than one year
C) monies due to the retailer from selling merchandise
D) one way to evaluate owner's equity
E) net sales minus cost of goods sold

Question 75

Notes payable are an example of a/an:

A) long-term liability
B) current liability
C) fixed asset
D) current asset
E) accrued liability

Question 76

If you had $50,000 and you wanted to invest in either a restaurant or in Loblaws stock, which of the following ratios would best help you to decide what to do?

A) Asset turnover
B) Return on assets
C) Gross profit margin
D) Net profit margin
E) Inventory turnover

Question 77

Calculate the return on assets for a hunting outfitter store that has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of
$12,000, net sales of $64,000, and net profit of $23,000.

A) 26.5 percent
B) 18.3 percent
C) 6.6 percent
D) 25.0 percent
E) 8.2 percent

Question 78

Asset turnover:

A) is calculated by dividing total assets by net sales
B) is calculated from information found on a firm's income statement
C) compares how well competing firms manage their assets
D) reveals how profitable a company is
E) is another term for inventory turnover

Question 79

equals a company's net sales divided by its total assets.

A) Current Ratio
B) Gross margin
C) Return on assets
D) Asset turnover
E) Net sales margin

Question 80

Corporations most frequently issue which kind of shares?

A) Preferred
B) Ordinary
C) Common
D) Long-term
E) Choice