Question 1

A firm has sales of $3,900,net income of $1,304,total assets of $4,200,and total equity of $2,850.Interest expense is $80.What is the common-size statement value of the interest expense?

Accepted Answer

A)  1.90%
B)  5.10%
C)  2.05%
D)  8.18%
E)  6.13% C

Question 2

Ratios that measure how efficiently a firm uses its assets to generate sales are known as ________ ratios.

Accepted Answer

A)  profitability
B)  long-term solvency
C)  short-term solvency
D)  utilization
E)  market value D

Question 3

Vaun's Pet Store paid $24,300 in interest and $32,000 in dividends last year.The times interest earned ratio is 4.1,and the depreciation expense is $126,200.What is the value of the cash coverage ratio?

Accepted Answer

A)  8.77 times
B)  5.19 times
C)  7.75 times
D)  9.29 times
E)  8.20 times D

Question 4

A common-size income statement expresses dividends as 3.6 percent.This means that dividends represent 3.6 percent of

Accepted Answer

A)  net income.
B)  total assets.
C)  sales.
D)  taxable earnings.
E)  total owners' equity.

Question 5

Burnside's has accounts receivable of $42,600,inventory of $97,200,sales of $614,200,and cost of goods sold of $298,400.How long does it take the firm to sell its inventory and collect payment on the sale?

Accepted Answer

A)  107.14 days
B)  136.06 days
C)  127.78 days
D)  144.21 days
E)  115.52 days

Question 6

Last year,Bennett's had a PE ratio of 5.4.This year,the PE ratio is 4.9.Based on this information,it can be stated with absolute certainty that

Accepted Answer

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

Question 7

The sustainable rate of growth can be increased by

Accepted Answer

A)  decreasing the equity multiplier.
B)  increasing the profit margin.
C)  decreasing the debt-equity ratio.
D)  increasing the dividend payout ratio.
E)  increasing the capital intensity ratio.

Question 8

The Golden Slipper has sales of $487,900,EBIT of $128,650,taxes of 35 percent,interest paid of $12,400,and a dividend payout ratio of 40 percent.What is the common-size ratio of the addition to retained earnings?

Accepted Answer

A)  10.31%
B)  9.29%
C)  14.43%
D)  11.74%
E)  6.87%

Question 9

You have obtained the following information for Blue Bell Farms.The tax rate is 34 percent.

What is the days' sales in receivables?

Accepted Answer

A)  35.17 days
B)  46.17 days
C)  48.30 days
D)  49.11 days
E)  36.01 days

Question 10

Blue Mountain Foods has net fixed assets of $89,700 and current assets of $38,400,of which $21,400 is inventory.What is the common-size statement value of inventory?

Accepted Answer

A)  23.86%
B)  18.56%
C)  16.71%
D)  55.73%
E)  24.71%

Question 11

The quick ratio is calculated as

Accepted Answer

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

Question 12

Jams and Jellies has net fixed assets of $879,000,long-term debt of $368,000,current liabilities of $136,000,and net working capital of $13,400.The retention ratio is 50 percent and the profit margin is 5.8 percent.Assume all assets and current liabilities change spontaneously with sales and the firm is currently operating at full capacity.What is the external financing need if the current sales of $748,000 are projected to increase by 3 percent?

Accepted Answer

A)  $8,212.12
B)  $11,506.60
C)  $6,390.18
D)  $1,387.58
E)  $4,429.24

Question 13

If Brewster's produces a return on assets of 14 percent and also a return on equity of 14 percent,then the firm

Accepted Answer

A)  has no net working capital.
B)  is using its assets as efficiently as possible.
C)  has no debt of any kind.
D)  also has a current ratio of 14.
E)  has an equity multiplier of 1.4.

Question 14

Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm?
I.The firms may have unrelated lines of business.
II.The operations of the two firms may vary geographically.
III.The firms may use differing accounting methods.
IV.The two firms may be regulated differently.

Accepted Answer

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

Question 15

Which one of the following statements is correct if a firm has an accounts receivable turnover measure of 10?

Accepted Answer

A)  It takes the firm 36.5 days to pay its creditors.
B)  It takes the firm 36.5 days to sell its inventory and collect payment from the sale.
C)  It takes the firm 36.5 days to collect payment for a sale.
D)  The firm has 10 times more in accounts receivable than it does in cash.
E)  It takes an average of 10 days to collect payment from the firm's customers.

Question 16

Which ratio measures the number of times a firm lends money to customers,collects that money,and relends it within a year?

Accepted Answer

A)  Total asset turnover
B)  Days' sales in receivables
C)  Total debt ratio
D)  Receivables turnover
E)  Quick ratio

Question 17

Cellar Wines has a debt-equity ratio of 0.54,sales of $728,700,net income of $94,900,and total debt of $382,000.What is the return on equity?

Accepted Answer

A)  16.67%
B)  9.05%
C)  10.75%
D)  15.50%
E)  13.42%

Question 18

Which one of the following statements is correct concerning ratio analysis?

Accepted Answer

A)  Ratios cannot be used for comparison purposes over extended periods of time.
B)  Ratios do not address the problem of size differences among firms.
C)  Only a very limited number of ratios can be used for analytical purposes.
D)  Each ratio has a specific formula that is used consistently by all analysts.
E)  A single ratio is often computed differently by different individuals.

Question 19

The Cycle Shop has sales of $372,400 and a profit margin of 6.1 percent.There are 12,000 shares of stock outstanding with a market price per share of $8.64.What is the price-earnings ratio?

Accepted Answer

A)  8.47
B)  3.59
C)  9.09
D)  4.56
E)  3.64

Question 20

Supra's has sales of $919,800,total assets of $949,200,a profit margin of 7.3 percent,and a total debt ratio of 0.48.What is the return on equity?

Accepted Answer

A)  14.74%
B)  13.60%
C)  8.71%
D)  10.22%
E)  16.49%

Exam 3: Financial Statements Analysis and Financial Models