Exam 4: Analysis of Financial Statements

Last year Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $51,000 without affecting either sales or costs. Had it reduced its assets by this amount, and had the debt ratio, sales, and costs remained constant, how much would the ROE have changed?

(The following information applies to Problems 110 through 127.) The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -What is the firm's days sales outstanding? Assume a 365-day year for this calculation.

Profitability ratios show the combined effects of liquidity, asset management, and debt management on a firm's operating results.

If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.

Song Corp's stock price at the end of last year was $23.50 and its earnings per share for the year were $1.30. What was its P/E ratio?

(The following information applies to Problems 110 through 127.) The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -What is the firm's debt ratio?

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?

Precision Aviation had a profit margin of 6.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE?

If a bank loan officer were considering a company's loan request, which of the following statements would you consider to be CORRECT?

A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger?

Ajax Corp's sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE) ratio?

Meyer Inc's assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to establish a debt ratio of 55%. The size of the firm does not change. How much debt must the company add or subtract to achieve the target debt ratio?

What is the firm's equity multiplier?

The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher growth in the future.

The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

The current and inventory turnover ratios both help us measure a firm's liquidity. The current ratio measures the relationship of the firm's current assets to its current liabilities, while the inventory turnover ratio gives us an indication of how long it takes the firm to convert its inventory into cash.

Which of the following statements is CORRECT?

Which of the following would indicate an improvement in a company's financial position, holding other things constant?

The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.

If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.