Deck 8: Financial Strategy

Question 1

Which of the following would have the lowest gross margins?

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

Answer 1

D
Explanation: As a result, customers are more price-conscious.

Question 2

Which of the following calculations leads to gross margin?

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

Answer 2

D

Question 3

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) Discounters traditionally do not profit as well as jewellery stores
D) Jewellery stores cannot offer the variety that a discounter offers
E) All of these are false statements

Answer 3

B

Question 4

Which of the following would have the highest gross margin?

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

Question 5

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

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

Question 6

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

Question 7

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

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

Question 8

All of the following are considered "assets" except:

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

Question 9

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) gross margin
C) net profit
D) net sales
E) total assets

Question 10

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

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

Question 11

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

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

Question 12

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

Question 13

How do you calculate net sales?

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

Question 14

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

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

Question 15

Gross margin:

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

Question 16

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) can also be used to evaluate financial implications of new strategies before they're implemented
C) combines two decision-making areas-margin management and asset management
D) All of the these
E) None of the these

Question 17

_________ 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) Financial leverage
C) General expenses
D) Gross margin
E) Net profit

Question 18

Three types of objectives a retailer might have are:

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

Question 19

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

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

Question 20

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) Environmental objectives
D) Civic objectives
E) Political objectives

Question 21

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

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

Question 22

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

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

Question 23

How can you calculate owners' equity?

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

Question 24

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

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

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

Question 29

How can you calculate assets?

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

Question 30

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

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

Question 31

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

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

Question 32

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

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

Question 33

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

Question 34

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

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

Question 35

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

Question 36

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

Question 37

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

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

Question 38

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) Operations
D) Owner's equity
E) Profits

Question 39

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

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

Question 40

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

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

Question 41

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

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

Question 42

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

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

Question 43

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) Discourage use of cash.
D) Control the use of markdowns.
E) Doing all of these.

Question 44

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

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

Question 45

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

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

Question 46

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

Question 47

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

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

Question 48

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

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

Question 49

Inventory turnover:

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

Question 50

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 calculate net sales.
C) It is used to measure average inventory.
D) It is to see how effectively buyers purchase the right assortments.
E) None of these

Question 51

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) 31.9 percent
D) 32.9 percent
E) Cannot be determined from information given

Question 52

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

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

Which of the following would be a fixed asset?

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

Question 58

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

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

Question 59

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

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

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

Question 61

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

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

Question 62

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

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

Question 63

An advantage of high inventory turnover is:

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

Question 64

Corporations most frequently issue which kind of shares?

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

Question 65

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

Question 66

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

Question 67

A disadvantage of too high an inventory turnover would be:

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

Question 68

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

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

Question 69

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

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

Question 70

The strategic profit model is useful to retailers because it:

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

Question 71

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

Question 72

Notes payable are an example of a/an:

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

Question 73

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

Question 74

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

Question 75

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

Question 76

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) all forms of long-term liabilities.
C) been paid to owners in dividends.
D) been used to pay debts.
E) none of these

Question 77

Current liabilities are:

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

Question 78

When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account,he creates a/an ______________ for the retailer.

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

Question 79

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) $62,000
C) $70,000
D) $327,000
E) $276,000

Question 80

Asset turnover:

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