Question 1

Assume the following data: Long-term debt = 100; Value of leases = 20; Book value of equity = 80. Calculate the debt ratio.

Accepted Answer

A) 0.50 
B) 0.55 
C) 0.56 
D) 0.60 
A) 0.50 
B) 0.55 
C) 0.56 
D) 0.60

Question 2

Financial ratios can help you to ask the right questions but they rarely answer these questions on their own.

Accepted Answer

A) True 
 B)False

Question 3

What are some of the pitfalls involved in using financial ratios?

Accepted Answer

It is easy to rely on financial ratios t

Question 4

The difference between current assets of a firm and its current liabilities is called

Accepted Answer

A) net tangible fixed assets. 
B) net working capital. 
C) gross working capital. 
D) net worth. 
A) net tangible fixed assets. 
B) net working capital. 
C) gross working capital. 
D) net worth.

Question 5

Profitability ratios indicate
I. whether the firm is using its assets productively;
II. whether the firm is liquid;
III. whether the firm is profitable;
IV. how highly the firm is valued by investors

Accepted Answer

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

Question 6

Assume the following data: Sales = 3,200; Cost of goods sold = 1,600; Total assets = 1,600; Inventory = 200. Calculate the inventory period.

Accepted Answer

A) 18.3 
B) 45.6 
C) 22.8 
D) 16.0 
A) 18.3 
B) 45.6 
C) 22.8 
D) 16.0

Question 7

Net working capital equals total assets minus total liabilities.

Accepted Answer

A) True 
 B)False

Question 8

Assume the following data: Sales = 3,200; Cost of goods sold = 1,600; Total assets = 1,600; Inventory = 200. Calculate the asset turnover ratio.

Accepted Answer

A) 2.00 
B) 0.94 
C) 1.33 
D) 1.00 
A) 2.00 
B) 0.94 
C) 1.33 
D) 1.00

Question 9

Leverage ratios indicate how heavily the company is in debt.

Accepted Answer

A) True 
 B)False

Question 10

The following are known as current assets:

Accepted Answer

A) cash, marketable securities, and receivables. 
B) cash, marketable securities, receivables, and inventories. 
C) marketable securities, receivables, inventories, and payables. 
D) receivables, inventories, and payables. 
A) cash, marketable securities, and receivables. 
B) cash, marketable securities, receivables, and inventories. 
C) marketable securities, receivables, inventories, and payables. 
D) receivables, inventories, and payables.

Question 11

Which of the following is an example of a leverage ratio?

Accepted Answer

A) Debt-equity ratio 
B) Quick ratio 
C) Market to book ratio 
D) Return on equity 
A) Debt-equity ratio 
B) Quick ratio 
C) Market to book ratio 
D) Return on equity

Question 12

Net working capital (NWC)is calculated as

Accepted Answer

A) total assets - total liabilities. 
B) current assets + current liabilities. 
C) current assets - current liabilities. 
D) current liabilities - current assets. 
A) total assets - total liabilities. 
B) current assets + current liabilities. 
C) current assets - current liabilities. 
D) current liabilities - current assets.

Question 13

Which measure would be most useful in comparing the operating profitability of two firms in different industries?

Accepted Answer

A) Net profit margin 
B) Return on equity 
C) Sales to total assets 
D) Return on assets 
A) Net profit margin 
B) Return on equity 
C) Sales to total assets 
D) Return on assets

Question 14

The following groups are stakeholders of a public company:
I. shareholders;
II. bankers;
III. suppliers;
IV. employees;
V. bondholders;
VI. management

Accepted Answer

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

Question 15

Assume the following data: EBIT = 400; Net income = 100; Equity = 1,000. Calculate the ROE (return on equity).

Accepted Answer

A) 10.0 percent 
B) 12.0 percent 
C) 7.5 percent 
D) 30.0 percent 
A) 10.0 percent 
B) 12.0 percent 
C) 7.5 percent 
D) 30.0 percent

Question 16

Which of the following factors would be influential in a typical financial plan?
I. how a firm can generate superior long-term returns;
II. choice of industry;
III. position within the industry

Accepted Answer

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

Question 17

What are the common ratios used to measure the liquidity of a firm?

Accepted Answer

The ratios commonly used to me

Question 18

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200. Calculate the quick ratio.

Accepted Answer

A) 1.0 
B) 2.0 
C) 1.2 
D) 0.4 
A) 1.0 
B) 2.0 
C) 1.2 
D) 0.4

Question 19

An advantage of EVA, as compared to accounting measures of net income, is that EVA accounts for the cost of capital.

Accepted Answer

A) True 
 B)False

Question 20

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Accounts receivable = 200. Calculate the current ratio.

Accepted Answer

A) 2.0 
B) 1.5 
C) 1.0 
D) 2.5 
A) 2.0 
B) 1.5 
C) 1.0 
D) 2.5

Exam 28: Financial Analysis

Assume the following data: Long-term debt = 100; Value of leases = 20; Book value of equity = 80. Calculate the debt ratio.

Financial ratios can help you to ask the right questions but they rarely answer these questions on their own.

What are some of the pitfalls involved in using financial ratios?

The difference between current assets of a firm and its current liabilities is called

Profitability ratios indicate I. whether the firm is using its assets productively; II. whether the firm is liquid; III. whether the firm is profitable; IV. how highly the firm is valued by investors

Assume the following data: Sales = 3,200; Cost of goods sold = 1,600; Total assets = 1,600; Inventory = 200. Calculate the inventory period.

Net working capital equals total assets minus total liabilities.

Assume the following data: Sales = 3,200; Cost of goods sold = 1,600; Total assets = 1,600; Inventory = 200. Calculate the asset turnover ratio.

Leverage ratios indicate how heavily the company is in debt.

The following are known as current assets:

Which of the following is an example of a leverage ratio?

Net working capital (NWC)is calculated as

Which measure would be most useful in comparing the operating profitability of two firms in different industries?

The following groups are stakeholders of a public company: I. shareholders; II. bankers; III. suppliers; IV. employees; V. bondholders; VI. management

Assume the following data: EBIT = 400; Net income = 100; Equity = 1,000. Calculate the ROE (return on equity).

Which of the following factors would be influential in a typical financial plan? I. how a firm can generate superior long-term returns; II. choice of industry; III. position within the industry

What are the common ratios used to measure the liquidity of a firm?

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200. Calculate the quick ratio.

An advantage of EVA, as compared to accounting measures of net income, is that EVA accounts for the cost of capital.

Assume the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Accounts receivable = 200. Calculate the current ratio.

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters