Deck 12: Operations Management: Financial Dimensions

Question 1

A retailer's success in reaching particular performance standards is best measured by _____.

A)several key business ratios
B)the strategic profit model
C)asset turnover
D)the profit-and-loss statement

Answer 1

A

Question 2

A retailer with a financial leverage ratio of 1 has _____.

A)no long-term debt
B)debt equal to current assets
C)debt equal to net worth
D)debt equal to fixed assets

Answer 2

A

Question 3

While _____ assets are recorded on a balance sheet on the basis of cost,_____ assets are recorded on the basis of cost less accumulated depreciation.

A)fixed;hidden
B)fixed;current
C)hidden;fixed
D)current;fixed

Answer 3

D

Question 4

(Net sales/total assets)equals _____.

A)financial leverage
B)asset turnover
C)cost of goods sold
D)profit margin

Question 5

The relationship among net profit margin,asset turnover,and financial leverage is known as _____.

A)zero-based budgeting
B)the strategic profit model
C)opportunity costs
D)gross profit

Question 6

Which concepts result in the same performance measure?

A)return on net worth and the strategic profit model
B)asset turnover and net profit margin
C)financial leverage and asset turnover
D)return on net worth and asset turnover

Question 7

Cash,inventory on hand,and accounts receivable are examples of _____.

A)liabilities
B)net worth
C)current assets
D)current liabilities

Question 8

(Total assets/net worth)equals _____.

A)asset turnover
B)cost of goods sold
C)profit margin
D)financial leverage

Question 9

The difference between net sales and the cost of goods sold equals the _____.

A)net profit before taxes
B)total costs
C)operating expenses
D)gross profit

Question 10

Examples of fixed assets to a retailer are _____.

A)taxes payable,accounts payable,and mortgage interest due
B)owner's equity,cash on hand,and inventory on hand
C)property,store fixtures,and trucks
D)cash on hand,inventory,and accounts receivable

Question 11

The quick ratio equals _____.

A)(total assets)/(annual net sales)
B)(total assets)/(total liabilities)
C)(current assets)/(total current liabilities)
D)(cash + accounts receivable)/(total current liabilities)

Question 12

An example of a hidden asset to a retailer is _____.

A)a depreciated building
B)new cash registers
C)cash on hand
D)accounts receivable

Question 13

A summary of a retailer's revenues and expenses over a particular time period is referred to as a _____.

A)cash flow projection
B)balance sheet
C)profit-and-loss statement
D)accounts receivable aging analysis

Question 14

(Net profit/net sales)equals _____.

A)asset turnover
B)profit margin
C)cost of goods sold
D)financial leverage

Question 15

The return on net worth ratio is based on a retailer's _____.

A)net profit,fixed assets,and fixed liabilities
B)net profit,current assets,and current liabilities
C)net profit,net sales,total assets,and net worth
D)net profit,total assets,net sales,and net liabilities

Question 16

A retailer's net worth equals _____.

A)current plus fixed assets
B)fixed assets minus fixed liabilities
C)current assets minus current liabilities
D)total assets minus total liabilities

Question 17

A retailer's net profit margin times its asset turnover equals its _____.

A)return on assets
B)strategic profit model
C)return on net worth
D)financial leverage

Question 18

A retailer's assets,liabilities,and net worth are portrayed on its _____.

A)balance sheet
B)profit-and-loss statement
C)budget statement
D)sales forecast

Question 19

Any items that a retailer owns with a monetary value are _____.

A)assets
B)current assets
C)fixed assets
D)net worth

Question 20

The difference between gross profit and total costs equals the _____.

A)cost of goods sold
B)net profit after taxes
C)cost of goods available for sales
D)net profit before taxes

Question 21

A retail ownership change financed by low-grade loans from banks and investors is a(n)_____.

A)initial public offering
B)sale-leaseback
C)leveraged buyout
D)reorganization loan

Question 22

Functional account expenses are _____.

A)shared by two or more departments
B)reported by the names of their cost
C)classified on the basis of purpose or activity
D)related to a retailer's performance during the budget period

Question 23

A retailer with a less-than-average profit margin could seek to increase its profit margin by _____.

A)reducing its operating expenses
B)increasing its asset turnover
C)increasing its financial leverage
D)increasing its inventory turnover

Question 24

A firm's current assets equal $40,000;its fixed assets are $200,000;its current liabilities are $20,000;and its fixed liabilities are $80,000.What is its net worth?

A)$40,000
B)$60,000
C)$140,000
D)$240,000

Question 25

Senior management centrally directs and controls budgets based on _____ budgeting.

A)top-down
B)zero-based
C)bottom-up
D)incremental

Question 26

The forgoing of possible benefits is measured through _____.

A)zero-based budgeting
B)top-down budgeting
C)opportunity costs
D)bottom-up budgeting

Question 27

The starting point in developing a budget based on zero-based budgeting is _____.

A)last year's budget
B)zero
C)a competitor's budget
D)the budgeted expense amount that maximizes profits

Question 28

A collection period equals _____.

A)[(accounts receivable)/(net sales)] x 365
B)(accounts receivable)/(net sales)
C)[(current assets)/net sales)] x 365
D)[(cash)+ (accounts receivable)/(net sales)] x 365

Question 29

The collection period is affected by _____.

A)inventory turnover
B)whether domestic or imported merchandise is sold
C)vendor terms
D)normal selling terms to consumers

Question 30

A danger to a firm's having a high asset turnover is the _____.

A)high operating costs
B)high level of old inventory on hand
C)high probability of being out of stock
D)low profits as a percent of sales

Question 31

A retailer's planned expenditures for a given time period based on its expected performance is its _____.

A)asset turnover
B)net worth
C)budget
D)sales forecast

Question 32

An example of a capital expenditure is _____.

A)personnel salaries
B)store fixtures
C)sales commissions
D)insurance

Question 33

Cash flow management is especially important when a retailer _____.

A)is not concerned with liquidity
B)has a highly seasonal business
C)has low overall costs
D)allocates expenses on the basis of sales

Question 34

A retailer will have low asset turnover when it has _____.

A)high debt
B)a high profit margin
C)inappropriate inventory
D)high financial leverage

Question 35

The collection period measures the _____.

A)age of credit sales
B)age of accounts receivable
C)age of accounts payable
D)number of accounts due

Question 36

The most severe measure of a retailer's liquidity is the _____.

A)quick ratio
B)collection period
C)current ratio
D)assets to net sales ratio

Question 37

Which asset is counted in determining a retailer's quick ratio?

A)hidden assets
B)merchandise inventories
C)marketable securities
D)accounts receivable

Question 38

Staying open longer hours,increasing the use of mail and phone orders,and purchasing goods through vendors with faster delivery times allows a retailer to _____.

A)increase its return on assets
B)increase its profit margins
C)increase its financial leverage
D)decrease its return on assets

Question 39

Improving employee performance and reducing costs through automation are two ways to increase _____.

A)inventory turnover
B)retailer productivity
C)asset turnover
D)financial leverage

Question 40

The quick ratio measures a retailer's _____.

A)liquidity
B)collection quality
C)financial leverage
D)profitability

Question 41

Return on net worth equals return on assets times _____.

A)profit margin
B)cost of goods sold
C)asset turnover
D)financial leverage

Question 42

A retailer typically has half of its sales on credit;the balance of sales are by cash,check,or debit card.Credit sales are payable in full in 30 days.The retailer's collection period is 25 days.The retailer has _____.

A)slow-turning accounts receivable
B)fast-turning accounts receivable
C)average-turning accounts receivable
D)high financial leverage

Question 43

A retailer considering undertaking significant additional debt to finance a regional expansion needs to carefully evaluate its _____.

A)collection period
B)quick ratio
C)accounts payable to net sales
D)return on net sales

Question 44

A firm's collection period is 46 days;its overall terms are 30 days.This indicates _____.

A)slow-turning accounts receivable
B)fast-turning accounts receivable
C)average-turning accounts receivable
D)full paying of accounts payable

Question 45

A retailer has $100,000 in cash,$300,000 in accounts receivable,$500,000 in inventory,$200,000 in marketable securities,and $800,000 in total current liabilities.What is its current ratio?

A)0.375
B)0.5
C)1.125
D)1.375

Question 46

A retailer can increase its return on assets by increasing its _____.

A)financial leverage
B)asset turnover
C)debt
D)cost of goods sold

Question 47

A firm's quick ratio equals 1.5.This means that _____.

A)liquidity is very high
B)the firm's collection period is poor
C)the firm is in financial difficulty
D)financial leverage is too high

Question 48

A retailer's return on assets equals 5 percent.Its financial leverage is 4.What is its return on net worth?

A)10 percent
B)16 percent
C)20 percent
D)The answer cannot be determined from the information provided

Question 49

A firm has $60,000 in cash,$200,000 in accounts receivable,and $400,000 in current liabilities.Its quick ratio is _____.

A)0.5
B)0.65
C)1.7
D)2.0

Question 50

The collection period measures _____.

A)the quality of accounts receivable
B)return on net worth
C)inventory turnover
D)order lead time

Question 51

The use of leveraged buyouts by retailers has the greatest impact on which ratio?

A)quick ratio
B)accounts payable to net sales
C)collection period
D)assets to net sales

Question 52

The quick ratio measures a retailer's ability to _____.

A)raise capital with a stock offering
B)earn a satisfactory profit
C)cover short-term liabilities
D)turn inventory at satisfactory levels

Question 53

A retailer has no debt (short term or long term).Its financial leverage _____.

A)equals 0
B)equals 1
C)equals infinity
D)cannot be determined based on the information given

Question 54

A danger to a retailer with a very high financial leverage is _____.

A)the reduction in inventory valuation
B)the reduction in return on net worth
C)that high debt service must be paid
D)high variable cost levels

Question 55

A retailer's assets are very small relative to its liabilities.The retailer has _____.

A)low fixed assets
B)low profit margin
C)high financial leverage
D)high net worth

Question 56

A retailer's net sales equals $1,000,000;its accounts receivables are $150,000.Its collection period is _____ days.

A)6
B)15
C)47
D)55

Question 57

A firm with a conservative financial leverage ratio has _____.

A)a lot of debt relative to assets
B)little debt relative to assets
C)no debt
D)high return on net worth

Question 58

A firm's accounts receivables are $1,000,000;its net sales are $16,000,000.Its collection period is _____ days.

A)6
B)23
C)30
D)67

Question 59

A firm's asset turnover is 4 and its profit margin is 3.5 percent.Its financial leverage is 6.The firm's return on assets is _____ percent.

A)14
B)18
C)21
D)63

Question 60

The basic difference between the quick ratio and the current ratio is that the _____.

A)quick ratio measures liquidity while the current ratio measures profitability
B)current ratio test is a more difficult one
C)current ratio includes inventories and marketable securities
D)current ratio measures only the most liquid assets

Question 61

Leveraged buyouts are initially financed through the sale of common stock.

Question 62

A retailer can most easily improve its collection period by a significant degree by _____.

A)switching to vendors which grant liberal credit terms
B)raising its initial markup
C)encouraging retail credit customers to use bank and commercial credit cards
D)using point-of-sale systems

Question 63

A firm's markdown strategy has the greatest impact on which ratio?

A)collection period
B)current ratio
C)quick ratio
D)overall gross profit

Question 64

Retailers are often sought after as acquisitions due to their significant hidden assets.

Question 65

A retailer's return on net worth equals asset turnover times profit margin times (financial leverage).

Question 66

A retailer has a collection period of 30 days.Its net sales equals $1,000,000.Its accounts receivable _____.

A)equals $30,000
B)equals $60,000
C)equals $82,192
D)cannot be determined from the information provided.

Question 67

A retailer can most effectively improve its cash flow through _____.

A)the use of scrambled merchandising
B)the use of prototype stores
C)purchasing its property versus leasing
D)securing more favorable terms from vendors

Question 68

In comparing the performance of seasonal retailers,the same time periods (such as the fourth quarter of 2011 and the fourth quarter of 2010)should be used.

Question 69

The major difference between the top-down and bottom-up budgeting process is the _____.

A)resulting budget amount obtained
B)degree of employee/manager participation
C)starting amount in the budget
D)absence or presence of opportunity costs in the budgetary process

Question 70

Return on assets is a ratio based on a retailer's net sales,net assets,and financial leverage.

Question 71

Budgeting decisions are centralized in _____ budgeting.

A)incremental
B)bottom-up
C)zero-based
D)top-down

Question 72

The major difference between zero-based and incremental budgeting is the _____.

A)degree of employee participation
B)resulting budget amount obtained
C)absence or presence of opportunity costs in the budgetary process
D)starting point in the budget process

Question 73

Which budgeting process uses important aspects of a participative management style?

A)incremental budgeting
B)zero-based budgeting
C)top-down budgeting
D)bottom-up budgeting

Question 74

A retailer can increase its accounts payable to net sales ratio by _____.

A)increasing its inventory turnover
B)paying accounts payable early to receive cash discounts
C)switching to vendors with net 45 versus net 30 terms
D)increasing its initial markup

Question 75

Capital and operating expenditure budgets do not reflect which cost?

A)insurance
B)opportunity costs
C)employee fringe benefits
D)mortgage interest

Question 76

The difference between net sales and cost of goods sold is gross profit.

Question 77

A collection period of 50 days is good for a retailer that offers 30-day credit arrangements.

Question 78

A retailer's net worth is computed as its assets plus its liabilities.

Question 79

A low asset turnover ratio may mean that a retailer has slow-selling inventory.

Question 80

Top-down budgeting utilizes operating personnel in budget formulation.