Question 1

A firm has days' sales in inventory of 105 days,an average collection period of 35 days,and takes 42 days,on average,to pay its accounts payable. Taken together,what do these three figures imply about the firm's operations and its cash flows?

Accepted Answer

The answer of A firm has days' sales in inventory...

Question 2

The cash ratio is measured as:

Accepted Answer

A)  current assets divided by current liabilities. 
B)  current assets minus cash on hand, divided by current liabilities. 
C)  current liabilities plus current assets, divided by cash on hand. 
D)  cash on hand plus inventory, divided by current liabilities. 
E)  cash on hand divided by current liabilities.

Question 3

Last year,Alfred's Automotive had a price-earnings ratio of 15. This year,the price earnings ratio is 18. Based on this information,it can be stated with certainty that:

Accepted Answer

A)  the price per share increased. 
B)  the earnings per share decreased. 
C)  investors are paying a higher price for each share of stock purchased. 
D)  investors are receiving a higher rate of return this year. 
E)  either the price per share, the earnings per share, or both changed.

Question 4

The financial ratio measured as net income divided by sales is known as the firm's:

Accepted Answer

A)  profit margin. 
B)  return on assets. 
C)  return on equity. 
D)  asset turnover. 
E)  earnings before interest and taxes.

Question 5

What is the days' sales in receivables in 2011?

Accepted Answer

A)  31.8 days 
B)  33.7 days 
C)  38.4 days 
D)  41.9 days 
E)  47.4 days

Question 6

The only difference between Joe's and Moe's is that Joe's has old,fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:

Accepted Answer

A)  Joe's will have a lower profit margin. 
B)  Joe's will have a lower return on equity. 
C)  Moe's will have a higher net income. 
D)  Moe's will have a lower profit margin. 
E)  Moe's will have a higher return on assets.

Question 7

Windswept,Inc. has 90 million shares of stock outstanding. Its price-earnings ratio for 2011 is 12. What is the market price per share of stock?

Accepted Answer

A)  $57.12 
B)  $59.94 
C)  $62.82 
D)  $64.13 
E)  $65.03

Question 8

It is often said that anyone with a pencil can calculate financial ratios,but it takes a brain to interpret them. What kinds of things should an analyst keep in mind when evaluating the financial statements of a given firm?

Accepted Answer

The answer of It is often said that anyone with...

Question 9

A firm has net working capital of $600,net fixed assets of $2,400,sales of $8,000,and current liabilities of $800. How many dollars worth of sales are generated from every $1 in total assets?

Accepted Answer

A)  $2.11 
B)  $2.32 
C)  $3.73 
D)  $4.52 
E)  $6.70

Question 10

What is the debt-equity ratio for 2011?

Accepted Answer

A)  22.5% 
B)  26.2% 
C)  35.5% 
D)  45.1% 
E)  47.7%

Question 11

Which one of the following sets of ratios applies most directly to shareholders?

Accepted Answer

A)  Return on assets and profit margin 
B)  Quick ratio and times interest earned 
C)  Price-earnings ratio and debt-equity ratio 
D)  Market-to-book ratio and price-earnings ratio 
E)  Cash coverage ratio and times equity multiplier

Question 12

When examining the EBITDA ratio,lower numbers are:

Accepted Answer

A)  considered good. 
B)  considered mediocre. 
C)  considered poor. 
D)  indifferent to higher numbers. 
E)  it is impossible to garner information from this ratio.

Question 13

It is easier to evaluate a firm using its financial statements when the firm:

Accepted Answer

A)  is a conglomerate. 
B)  is global in nature. 
C)  uses the same accounting procedures as other firms in its industry. 
D)  has a different fiscal year than other firms in its industry. 
E)  tends to have one-time events such as asset sales and property acquisitions.

Question 14

Puffy's Pastries generates five cents of net income for every $1 in sales. Thus,Puffy's has a _______ of 5%.

Accepted Answer

A)  return on assets 
B)  return on equity 
C)  profit margin 
D)  Du Pont measure 
E)  total asset turnover

Question 15

If a firm decreases its operating costs,all else constant,then:

Accepted Answer

A)  the profit margin increases while the equity multiplier decreases. 
B)  the return on assets increases while the return on equity decreases. 
C)  the total asset turnover rate decreases while the profit margin increases. 
D)  both the profit margin and the equity multiplier increase. 
E)  both the return on assets and the return on equity increasE.

Question 16

The inventory turnover ratio is measured as:

Accepted Answer

A)  total sales minus inventory. 
B)  inventory times total sales. 
C)  cost of goods sold divided by inventory. 
D)  inventory times cost of goods sold. 
E)  inventory plus cost of goods sold.

Question 17

Mario's Home Systems has sales of $2,800,cost of goods sold of $2,100,inventory of $600,and accounts receivable of $600. How many days,on average,does it take Mario's to sell its inventory?

Accepted Answer

A)  42.10 days 
B)  66.37 days 
C)  78.21 days 
D)  104.29 days 
E)  273.75 days

Question 18

To calculate sustainable growth rate without using return on equity,the analyst needs the:

Accepted Answer

A)  profit margin. 
B)  payout ratio. 
C)  debt-to-equity ratio. 
D)  total asset turnover. 
E)  All of

Question 19

Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?
I. comparing the current financial ratios to those of the same firm from prior time periods
II. comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operations
III. comparing the financial statements of the firm to the financial statements of similar firms operating in other countries
IV. comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic area

Accepted Answer

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

Question 20

Neal's Nails has an 11% return on assets and a 30% dividend payout ratio. What is the internal growth rate?

Accepted Answer

A)  7.11% 
B)  7.70% 
C)  8.34% 
D)  8.46% 
E)  11.99%

Exam 3: Financial Statements Analysis and Financial Models