Question 1

A firm has a current ratio of 1.4 and a quick ratio of .9.Given this, you know for certain that the firm:

Accepted Answer

A) pays cash for its inventory. 
B) has more than half its current assets invested in inventory. 
C) has more cash than inventory. 
D) has more current liabilities than it does current assets. 
E) has positive net working capital.

Question 2

The ratios that are based on financial statement values and used for comparison purposes are called:

Accepted Answer

A) financial ratios. 
B) industrial statistics. 
C) equity standards. 
D) accounting returns. 
E) analytical standards.

Question 3

Outdoor Gear reduced its general and administrative costs this year.This cost improvement will increase which of the following ratios?
I.Profit margin
II.Return on assets
III.Total asset turnover
IV.Return on equity

Accepted Answer

A) I and II only 
B) I and III only 
C) II, III, and IV only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 4

A firm has adopted a policy whereby it will not seek any additional external financing.Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio?

Accepted Answer

A) 5.11 percent 
B) 4.88 percent 
C) 6.62 percent 
D) 7.67 percent 
E) 8.37 percent

Question 5

The Bike Shoppe has total assets of $536,712 and an equity multiplier of 1.36.What is the debt-equity ratio?

Accepted Answer

A) .68 
B) .24 
C) 1.24 
D) ..36 
E) .1.36

Question 6

Fried Donuts has sales of $764,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000.What is the internal growth rate?

Accepted Answer

A) 5.48 percent 
B) 6.38 percent 
C) 5.98 percent 
D) 7.34 percent 
E) 7.92 percent

Question 7

Steve's Music Supply has a return on equity of 19.3 percent, a profit margin of 10.1 percent, and total equity of $645,685. What is the net income?

Accepted Answer

A) $65,214.19 
B) $123,383.71 
C) $124,617.21 
D) $65,214.19. 
E) $125,863.40

Question 8

Southern Style Realty has total assets of $485,390, net fixed assets of $250,000, current liabilities of $23,456, and long-term liabilities of $148,000.What is the total debt ratio?

Accepted Answer

A) ..30 
B) ..35 
C) ..69 
D) ..53 
E) ..68

Question 9

Adell Furniture has a profit margin of 8.2 percent on sales of $211,000.The common size ratio of dividends is .03 and total assets are $196,000.What is the plowback ratio?

Accepted Answer

A) 58.20 percent 
B) 27.33 percent 
C) 54.60 percent 
D) 63.41 percent 
E) 68.20 percent

Question 10

Sweet Candies reduced its fixed assets this year without affecting the shop's operations, sales, or equity.This reduction will increase which of the following ratios?
I.Capital intensity ratio
II.Return on assets
III.Total asset turnover
IV.Return on equity

Accepted Answer

A) I and II only 
B) II and III only 
C) II, III, and IV only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 11

A firm has net working capital of $8,200 and current assets of $37,500.What is the current ratio?

Accepted Answer

A) .69 
B) ..78 
C) 1.28 0. 
D) 1.45 
E) .1.67

Question 12

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

Accepted Answer

A) zero percent. 
B) 100 percent. 
C) equal to the ROA. 
D) negative. 
E) infinite.

Question 13

All else held constant, which one of the following will decrease if a firm increases its net income?

Accepted Answer

A) Return on assets 
B) Profit margin 
C) Return on equity 
D) Price-sales ratio 
E) Price-earnings ratio

Question 14

The DuPont identity can be accurately defined as:

Accepted Answer

A) Return on equity × Total asset turnover × Equity multiplier. 
B) Equity multiplier × Return on assets. 
C) Profit margin × Return on equity. 
D) Total asset turnover × Profit margin × Debt-equity ratio. 
E) Equity multiplier × Return on assets × Profit margin.

Question 15

Spring Falls Gifts has sales of $680,300, total assets of $589,100, and a profit margin of 4.3 percent.What is the return on assets?

Accepted Answer

A) 4.30 percent 
B) 6.54 percent 
C) 3.83 percent 
D) 7.01 percent 
E) 4.97 percent

Question 16

The Texas Rustler has total assets of $645,563 and an equity multiplier of 1.22.What is the debt-equity ratio?

Accepted Answer

A) .44 
B) .32 
C) 1.22 
D) .22 
E) 1.36

Question 17

Which one of the following is the abbreviation for the U.S.government coding system that classifies a firm by its specific type of business operations?

Accepted Answer

A) BEC 
B) SED 
C) BID 
D) SIC 
E) SBC

Question 18

Which ratio was primarily designed to monitor firms with negative earnings?

Accepted Answer

A) Price-sales ratio 
B) Market-to-book ratio 
C) Profit margin 
D) ROE 
E) ROA

Question 19

The Blue Lagoon has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06.What is the profit margin?

Accepted Answer

A) 15.06 percent 
B) 13.57 percent 
C) 15.84 percent 
D) 16.92 percent 
E) 14.60 percent

Question 20

Last year, a firm earned $67,800 in net income on sales of $934,600.Total assets increased by $62,000 and total equity increased by $43,500 for the year.No new equity was issued and no shares were repurchased.What is the retention ratio?

Accepted Answer

A) 29.62 percent 
B) 35.84 percent 
C) 56.25 percent 
D) 70.38 percent 
E) 64.16 percent

Exam 3: Working With Financial Statements