Exam 8: Financial Analysis

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

Rappaport Corp.'s sales last year were $320,000, and its net income after taxes was $23,000 What was its profit margin on sales?

Ziebart Corp.'s EBITDA last year was $390,000 (= EBIT + depreciation + amortization), its interest charges were $9,500, it had to repay $26,000 of long-term debt, and it had to make a payment of $17,400 under a long-term lease The firm had no amortization charges What was the EBITDA coverage ratio?

Harper Corp.'s sales last year were $395,000, and its year-end receivables were $42,500 Harper sells on terms that call for customers to pay 30 days after the purchase, but many delay payment beyond Day 30 On average, how many days late do customers pay? Base your answer on this equation: DSO - Allowed credit period = Average days late, and use a 365-day year when calculating the DSO.

year Central Chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2 The CFO believes that the company could reduce its assets by $21,000 without affecting either sales or costs Had it reduced its assets in this amount, and had the debt ratio, sales, and costs remained constant, by how much would the ROE have changed?

Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

is the firm's book value per share?

Emerson Inc.'s would like to undertake a policy of paying out 45% of its incomeIts latest net income was $1,250,000, and it had 225,000 shares outstandingWhat dividend per share should it declare?

Orono 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?

Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used similar accounting methods.

observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average Which of the following statements is CORRECT?

new firm is developing its business plan It will require $565,000 of assets, and it projects $452,800 of sales and $354,300 of operating costs for the first year Management is quite sure of these numbers because of contracts with its customers and suppliers It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below this level the bank will call in the loan and the firm will go bankrupt What is the maximum debt ratio the firm can use? (Hint: Find the maximum dollars of interest, then the debt that produces that interest, and then the related debt ratio.)

is the firm's debt ratio?

Firms A and B have the same current ratio, 0.75, the same amount of sales, and the same amount of current liabilities However, Firm A has a higher inventory turnover ratio than B Therefore, we can conclude that A's quick ratio must be smaller than B's.

inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its assets.

Branch Corp.'s total assets at the end of last year were $315,000 and its net income after taxes was $22,750 What was its return on total assets?

Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000 What was its total assets turnover ratio (TATO)?

Heaton Corpsells on terms that allow customers 45 days to pay for merchandise Its sales last year were $425,000, and its year-end receivables were $60,000 If its DSO is less than the 45-day credit period, then customers are paying on time Otherwise, they are paying late By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when calculating the DSO A positive answer indicates late payments, while a negative answer indicates early payments.

Industries has sales of $100,000 and accounts receivable of $11,500, and it gives its customers 30 days to pay The industry average DSO is 27 days, based on a 365-day year If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant?