Deck 12: Operations Management: Financial Dimensions

Question 1

A retail asset is ________.

A) the net worth of a retailer as reflected on a balance sheet
B) an item that is either cash or can be easily converted to cash
C) an item that a retailer owns that has a monetary value
D) the value of items the retailer owns less retail liabilities on these items

Answer 1

C

Question 2

The return on net worth (RONW)ratio is based on a retailer's ________.

A) net profit margin and financial leverage
B) net profit margin and asset turnover
C) net profit margin, asset turnover, and financial leverage
D) gross profit margin and operating costs as a percent of sales

Answer 2

C

Question 3

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

A) a long-term relationship with a supplier
B) goodwill paid by the retailer in a recent acquisition
C) valuable depreciated real-estate
D) a valuable warehouse recently purchased at its appraised value

Answer 3

C

Question 4

A retailer's assets equal its ________.

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

Question 5

Net sales divided by total assets equals ________.

A) financial leverage
B) investment intensity
C) inventory turnover
D) asset turnover

Question 6

The return on assets (ROA)measure for a retailer is comprised of ________.

A) gross profit and operating expenses
B) asset turnover and net profit margin
C) gross margin return on inventory (GMROI) and inventory turnover
D) net profit and investment intensity

Question 7

A retailer's revenues and expenses for a given period of time are summarized in a ________.

A) profit-and-loss (income) statement
B) balance sheet
C) strategic profit model
D) product/market opportunity matrix

Question 8

A retailer's assets,liabilities,and net worth are summarized at a specific period of time in a ________.

A) profit-and-loss (income) statement
B) balance sheet
C) strategic profit model
D) product/market opportunity matrix

Question 9

Which are examples of fixed assets to a retailer?

A) cash, inventory on hand, and accounts receivable
B) buildings, store fixtures, and real-estate
C) accounts receivable, sales tax receipts before required payments, and fixtures
D) inventory on order, fixtures, and accounts receivable

Question 10

The quick ratio equals ________.

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

Question 11

A retailer can increase its financial leverage through ________.

A) selling common stock
B) leasing rather than purchasing assets
C) reducing operating expenses
D) increasing short- and long-term debt

Question 12

A firm can increase its asset turnover performance by ________.

A) lowering rental costs through use of low-cost warehouse-type locations
B) reducing labor expense through centralized operations
C) increasing liabilities to lower the asset base
D) stocking inventory that is fast-moving

Question 13

A retailer can best measure its liquidity by evaluating its ________.

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

Question 14

Which are examples of current assets to a retailer?

A) cash, inventory on hand, and accounts receivable
B) buildings, fixtures, and land
C) accounts receivable, sales tax receipts before required payments, and fixtures
D) inventory on order, fixtures, and replacement parts in inventory

Question 15

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

A) asset turnover
B) return on assets
C) the strategic profit model
D) zero-based budgeting

Question 16

A retailer's net worth equals its ________.

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

Question 17

Financial leverage equals ________.

A) total assets divided by net worth
B) total assets divided by total liabilities
C) total current assets divided by total current liabilities
D) (net worth - total assets) divided by net sales

Question 18

Return on investment is measured by which ratio?

A) return on net sales
B) return on net worth
C) assets to net sales
D) accounts payable to net sales

Question 19

The relationship between a retailer's net profits and net sales is its ________.

A) asset turnover
B) net profit margin
C) operating costs
D) cost of goods sold

Question 20

A retailer's net worth is also referred to as its ________.

A) current assets plus fixed assets
B) net assets
C) present value of assets
D) owner's equity

Question 21

A disadvantage to a firm's having too high an asset turnover ratio is the ________.

A) high inventory holding costs
B) high quantity of stale merchandise on hand
C) loss of quantity discounts with suppliers
D) loss of bargaining power with suppliers

Question 22

The current ratio equals ________.

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

Question 23

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

A) a high proportion of slow-selling inventory
B) high financial leverage
C) a high profit margin
D) high debt relative to assets

Question 24

An example of an operating expenditure is ________.

A) depreciation
B) salesperson salaries
C) fixture costs
D) computer costs

Question 25

A firm's current assets equal $150,000; its fixed assets are $850,000; its current liabilities are $225,000 and its fixed liabilities are $400,000.What is its net worth?

A) $ 75,000
B) $375,000
C) $450,000
D) $600,000

Question 26

The budgeting process begins anew each time in ________ budgeting.

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

Question 27

An example of a fixed cost to an electronics retailer is ________.

A) advertising expense
B) personnel bonuses
C) sales commissions
D) electric utility expense

Question 28

Which strategy involves productivity?

A) A retailer trains its sales personnel in order to increase the sale of related items.
B) A retailer sells common stock at $15 per share.
C) A retailer sells a $10 million long-term bond to finance new store construction.
D) A retailer uses an advertising agency to develop an image-related promotional theme.

Question 29

In incremental budgeting,________.

A) budgeted amounts are inflexible throughout the budget time period
B) the budget is changed to reflect input from lower-level executives, as well as middle and top management
C) a retailer starts each expense classification at zero and adds an appropriate amount
D) past budgets are used as a guide in the current budgeting process

Question 30

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

A) budget
B) financing needs
C) sales forecast
D) forecast

Question 31

The undertaking of a new retail venture precluded a retailer from other ventures due to the scarcity of resources (capital,management talent,and labor).This refers to ________.

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

Question 32

Natural account expenses are ________.

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

Question 33

As part of bankruptcy protection,a retailer can ________.

A) raise additional capital for mergers
B) refuse to pay bills
C) get out of leases
D) convert stock ownership to bonds

Question 34

December accounts for 25 percent of a clothing store's annual sales.Thirty percent of December's sales are on the retailer's own credit card.These sales will be paid for by consumers sometimes in January of the following year.These credit sales have a significant impact on the retailer's ________ budget.

A) cash flow
B) zero-based
C) incremental
D) top-down

Question 35

Leveraged buyouts are characterized by ________.

A) initial public offerings (IPOs)
B) high degrees of debt
C) financing from real-estate investment trusts (REITs)
D) mergers and consolidations

Question 36

A retailer can improve its asset turnover by ________.

A) reducing interest expenditures
B) utilizing quick response (QR) inventory planning
C) increasing financial leverage
D) lowering operating expenses

Question 37

A participative relationship is the keystone of ________ budgeting.

A) hierarchical
B) centralized
C) bottom-up
D) top-down

Question 38

A collection period equals ________.

A) accounts receivable divided by net sales
B) [(cash + accounts receivable) divided by net sales] × 365
C) (accounts receivable divided by net sales) × 365
D) (current assets divided by net sales) × 365

Question 39

A retailer seeking to decrease its collection period should ________.

A) decrease the frequency of mailing credit statements
B) reduce its debt through the sale of common stock
C) encourage slow-paying customers to use bank credit cards
D) sell assets to convert them to cash

Question 40

A retailer can increase its profit margin by ________.

A) increasing its financial leverage
B) increasing debt
C) increasing its marketing expenditures
D) lowering its cost of goods sold

Question 41

In a leveraged buyout,a firm's financial leverage ratio ________.

A) equals zero
B) equals 1
C) equals infinity
D) is a high number

Question 42

A difficulty with increasing a retailer's return on net worth through high financial leverage is the ________.

A) possible loss in sales due to being out-of-stock on desirable merchandise
B) negative effect on net profit due to high inventory levels
C) uncertainty of repayment of interest and debt
D) high costs of stocking inventory

Question 43

A retailer has a collection period of 37 days.Its net sales equal $1,000,000.Its accounts receivable equals ________.

A) $27,027
B) $36,000
C) $101,370
D) The answer cannot be determined from the information provided.

Question 44

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

A) buying in large quantities
B) increasing its inventory turnover
C) paying accounts payable early to receive cash discounts
D) demanding longer payment terms from vendors

Question 45

The collection period measures ________.

A) average grants to charitable institutions
B) the average time in court needed to get customers to pay late bills
C) how current a retailer is in paying its accounts payable
D) the average age of accounts receivable

Question 46

A retailer typically has half of its sales on credit.Credit sales are payable in full within 30 days of the merchandise's sales.The retailer's collection period (based on total net sales)is 15 days.The retailer has ________.

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

Question 47

A retailer with a high interest cost due to high financial leverage needs to carefully evaluate its ________.

A) quick ratio
B) return on net worth
C) collection period
D) assets to net sales ratio

Question 48

A firm's collection period is 37 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) slow paying of accounts payable

Question 49

A retailer's liabilities are very low relative to its assets.The retailer has ________.

A) low financial leverage
B) low fixed assets
C) high asset turnover
D) low net worth

Question 50

Which budgeting process is most compatible with a management style that assumes that employees can be self-managers?

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

Question 51

A retailer has a return on net worth of 24 percent.If its asset turnover is 3 and its profit margin is 4.0 percent,what is its financial leverage?

A) 2 times
B) 2 percent
C) 4 times
D) 4 percent

Question 52

A retailer has $300,000 in cash,$500,000 in accounts receivable,$1,000,000 in inventories,$400,000 in marketable securities,and $2,000,000 in total current liabilities.What is its current ratio?

A) 0.15
B) 0.40
C) 1.100
D) 1.375

Question 53

A multi-unit retailer seeks to determine the profitability of a number of stores located in the Northeast.In calculating expenses by geographic area,the firm does not have to allocate which expenses?

A) direct costs
B) opportunity costs
C) natural account expenses
D) variable costs

Question 54

A retailer's net sales equals $300,000; its accounts receivable is $30,000.Its collection period is approximately ________.

A) 10 days
B) 30 days
C) 36 days
D) 54 days

Question 55

A retailer has $10 of assets for each $9 of liabilities.What is its financial leverage?

A) 0.9 times
B) 9.0 times
C) 10.0 times
D) The answer cannot be determined based on the information given.

Question 56

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

A) quick ratio assumes that marketable securities can be quickly converted to cash
B) quick ratio is a more severe test
C) quick ratio assumes that inventories can be quickly converted to cash
D) current ratio measures only the most liquid assets

Question 57

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

A) whether the budget request is raised or lowered
B) the degree of centralization in the budgetary process
C) whether zero or incremental budgeting is used
D) the time interval between initial budget setting and the end of the budgetary process

Question 58

A firm has $400,000 in cash,$250,000 in accounts receivable,and $700,000 in current liabilities.Its quick ratio is ________.

A) 0.36
B) 0.57
C) 0.93
D) 1.14

Question 59

A disadvantage associated with the use of leveraged buyouts is ________.

A) a high collection period
B) low asset turnover
C) the high debt-to-assets ratio
D) low return on net assets

Question 60

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 debt
D) control operating expenses

Question 61

Leveraged buyouts (LBOs)are characterized by high debt.

Question 62

A retailer's return on net worth is based upon its asset turnover,net profit margin,and financial leverage.

Question 63

A firm's collection period needs to be evaluated on the basis of its percent of credit sales.

Question 64

A retailer opened 10 new home appliance stores.The same resources could have been used to expand its 15 existing stores into category killer stores.While the retailer earned $600,000 last year,it figures it could have earned $1,000,000 if it went with the larger store alternative.Its opportunity costs last year were ________.

A) $400,000
B) $600,000
C) $1,600,000
D) The answer cannot be determined based on the information provided.

Question 65

Which natural expense category is charged as an expense in the period incurred,but does not have a negative effect on cash flow?

A) depreciation
B) travel
C) media costs
D) equipment rentals

Question 66

While too little a financial leverage figure represents overly conservative management,too high a figure represents high risk.

Question 67

A retailer that can double its asset turnover,while keeping its profit margin constant,doubles its return on assets.

Question 68

Annual cash flow planning is especially difficult when a retailer ________.

A) uses quick response (QR) inventory planning
B) has high depreciation expense
C) buys merchandise on a consignment basis
D) has a highly seasonal business

Question 69

A retailer assigns a return on investment of 10 percent on the value of its company-owned warehouse.This illustrates which concept?

A) asset turnover
B) incremental budgeting
C) opportunity costs
D) prototype store

Question 70

The discount division of a diversified retailer has revenues of $10,000,000,direct costs of $8,000,000,and indirect costs of $3,000,000.What is the short-run impact of eliminating this division?

A) The short-run profit will increase by $1,000,000.
B) The short-run profit will decrease by $2,000,000.
C) The short-run profit will decrease by $3,000,000.
D) The short-run impact cannot be determined based on the information provided.

Question 71

A low assets to net sales ratio represents the use of debt to finance acquisitions,growth,or stock repurchase.

Question 72

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

Question 73

A low overall gross margin may mean that a firm's operating expenses are too high.

Question 74

The expense categories that appear on a profit-and-loss statement are ________ expenses.

A) direct
B) indirect
C) functional account
D) natural account

Question 75

A firm's quick and current ratios are both measures of long-term debt levels.

Question 76

The discount division of a diversified retailer has revenues of $10,000,000,direct costs of $8,000,000,and indirect costs of $3,000,000.What is the division's total profit?

A) -$1,000,000
B) $2,000,000
C) $5,000,000
D) Total profit cannot be determined based on the information provided.

Question 77

Top-down budgeting represents a decentralized budgetary process.

Question 78

Which expense is normally not in a retailer's cash flow budget?

A) interest expense
B) employee fringe benefits
C) drawing account
D) opportunity costs

Question 79

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

A) use of a reference point in the budget process
B) degree of employee participation
C) use of top-down versus bottom-up processes
D) extent to which inflation is taken into account

Question 80

All expenditure levels are questioned in ________ budgeting.

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