Question 1

Jessica's Boutique has cash of $218,accounts receivable of $457,accounts payable of $398,and inventory of $647.What is the value of the quick ratio?

Accepted Answer

A) .55 
B) 1.05 
C) 1.70 
D) 1.32 
E) 1.52

Question 2

The quick ratio is measured as:

Accepted Answer

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

Question 3

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 4

Assume BGL Enterprises increases its operating efficiency by lowering its costs while holding its sales constant.As a result,given all else constant,the:

Accepted Answer

A) return on equity will increase. 
B) return on assets will decrease. 
C) profit margin will decline. 
D) total debt ratio will decrease. 
E) price-earnings ratio will increase.

Question 5

Northern Industries has accounts receivable of $42,300,inventory of $61,200,sales of $544,200,and cost of goods sold of $393,500.How many days,on average,does it take the firm to sell its inventory?

Accepted Answer

A) 93.08 
B) 74.92 
C) 85.14 
D) 56.77 
E) 80.46

Question 6

Puffy's Pastries generates five cents of net income for every $1 in equity.Thus,Puffy's has ________ of 5 percent.

Accepted Answer

A) a return on assets 
B) a profit margin 
C) a return on equity 
D) an EV multiple 
E) a price-earnings ratio

Question 7

You would like to compare your firm's cost structure to that of your competitors.However,your competitors are much larger in size than your firm.Which one of these would best enable you to compare costs across your industry?

Accepted Answer

A) Pro forma balance sheet 
B) Common-size income statement 
C) Statement of cash flows 
D) Pro forma income statement 
E) Common-size balance sheet

Question 8

Which one of the following sets of ratios would generally be of the most interest to stockholders?

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) Return on equity and price-earnings ratio 
E) Cash coverage ratio and equity multiplier

Question 9

Southern Markets has sales of $78,400,net income of $2,400,costs of goods sold of $43,100,and depreciation of $6,800.What is the common-size statement value of EBIT?

Accepted Answer

A) 36.35 percent 
B) 38.08 percent 
C) 41.93 percent 
D) 32.49 percent 
E) 35.46 percent

Question 10

The sustainable growth rate:

Accepted Answer

A) assumes there is no external financing of any kind. 
B) is normally higher than the internal growth rate. 
C) assumes the debt-equity ratio is variable. 
D) is based on receiving additional external equity financing. 
E) assumes the dividend payout ratio is equal to zero.

Question 11

Flo's Restaurant has sales of $418,000,total equity of $224,400,a tax rate of 23 percent,a debt-equity ratio of .37,and a profit margin of 5.1 percent.What is the return on assets?

Accepted Answer

A) 6.93 percent 
B) 9.50 percent 
C) 11.08 percent 
D) 7.13 percent 
E) 13.13 percent

Question 12

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

Accepted Answer

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

Question 13

Suppose a firm calculates its external financial need for a growth rate of ten percent and finds that the need is a negative value.What are the firm's options in this case?

Accepted Answer

The answer of Suppose a firm calculates its external financial...

Question 14

The measure of net income returned from every dollar invested in total assets is the:

Accepted Answer

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

Question 15

The DuPont identity can be computed as:

Accepted Answer

A) Net income × Profit margin × (1 + Debt-equity ratio). 
B) Profit margin × 1/Capital intensity ratio × (1 + Debt-equity ratio). 
C) Net income × Total asset turnover × Equity multiplier. 
D) Profit margin × Total asset turnover × Debt-equity ratio. 
E) Return on equity × Profit margin × Total asset turnover.

Question 16

Weston's has sales of $38,900,net income of $2,400,total assets of $43,100,and total equity of $24,700.Interest expense is $830.What is the common-size statement value of the interest expense?

Accepted Answer

A) 2.13 percent 
B) 3.08 percent 
C) 1.93 percent 
D) 2.49 percent 
E) 3.46 percent

Question 17

If a firm bases its growth projection on the rate of sustainable growth,shows positive net income,and has a dividend payout ratio of 30 percent,then the:

Accepted Answer

A) fixed assets will have to increase at the sustainable growth rate,even if the firm is currently operating at only 78 percent of capacity. 
B) number of common shares outstanding will increase at the same rate of growth. 
C) debt-equity ratio will have to increase. 
D) debt-equity ratio will remain constant while retained earnings increase. 
E) fixed assets,the debt-equity ratio,and number of common shares outstanding will all increase.

Question 18

Which one of these values best represents the funds needed to acquire a firm and payoff all of that firm's debt?

Accepted Answer

A) Market value of total assets 
B) Book value of equity 
C) Return on assets 
D) Market value of equity 
E) Enterprise value

Question 19

The current ratio is measured as:

Accepted Answer

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

Question 20

You are comparing the common-size financial statements for two firms in the same industry that have very similar operations.You note that their sales revenues are similar in dollar value but yet the common-size EBIT for one firm is 30 percent compared to only 26 percent for the other firm.What are some possible explanations for this difference given the strong similarities of the two firms?

Accepted Answer

The answer of You are comparing the common-size financial statements...

Exam 3: Financial Statements and Cash Flow