Question 1

Most analysts prefer using price to free cash flow rather than price-to-earnings (P/E) ratio because price to free cash flow is ____.

Accepted Answer

A)  easier to compute 
B)  more accurate than cash flow per share 
C)  a stricter measure that reduces the cash flow by the amount of capital expenditures 
D)  more reliable as a measure of performance 
A)  easier to compute 
B)  more accurate than cash flow per share 
C)  a stricter measure that reduces the cash flow by the amount of capital expenditures 
D)  more reliable as a measure of performance C

Question 2

Income taxes on inventory profits can be deferred by ____.

Accepted Answer

A)  different tax schedules 
B)  different inventory valuation methods 
C)  long-term equipment 
D)  different cash flow methods 
A)  different tax schedules 
B)  different inventory valuation methods 
C)  long-term equipment 
D)  different cash flow methods B

Question 3

What is the market price per share of Big Whoop Inc. if the firm had net income of $200,000, earnings per share of $2.70, total equity of $800,000, and a market-to-book ratio of 1.5?

Accepted Answer

A)  $16.20 
B)  $10.80 
C)  $7.20 
D)  $12.40 
A)  $16.20 
B)  $10.80 
C)  $7.20 
D)  $12.40 A

Question 4

The ____ ratio is a more severe measure of a firm's ability to meet fixed financial obligations.

Accepted Answer

A)  acid test 
B)  debt 
C)  fixed-charge coverage 
D)  debt-to-equity 
A)  acid test 
B)  debt 
C)  fixed-charge coverage 
D)  debt-to-equity

Question 5

If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must ____.

Accepted Answer

A)  decrease its equity multiplier 
B)  increase its equity multiplier 
C)  increase sales and increase assets 
D)  reduce sales and increase assets 
A)  decrease its equity multiplier 
B)  increase its equity multiplier 
C)  increase sales and increase assets 
D)  reduce sales and increase assets

Question 6

Market-based ratios can be which of the following: 
I. Price-to-earnings ratio
II. Dividend yield

Accepted Answer

A)  Statement I only is correct. 
B)  Statement II only is correct. 
C)  Both statements I and II are correct 
D)  Neither statement I nor statement II is correct. 
A)  Statement I only is correct. 
B)  Statement II only is correct. 
C)  Both statements I and II are correct 
D)  Neither statement I nor statement II is correct.

Question 7

Firms with a positive economic value added (EVA) have a(n) ____.

Accepted Answer

A)  increased growth in earnings 
B)  increasing rate of return on investment 
C)  return on capital greater than their cost of capital 
D)  high return on book value 
A)  increased growth in earnings 
B)  increasing rate of return on investment 
C)  return on capital greater than their cost of capital 
D)  high return on book value

Question 8

Financial leverage management ratios measure the ____.

Accepted Answer

A)  amount of interest paid by the firm 
B)  firm's use of fixed-charge financing 
C)  amount of equity funds retired by the firm 
D)  static ratio 
A)  amount of interest paid by the firm 
B)  firm's use of fixed-charge financing 
C)  amount of equity funds retired by the firm 
D)  static ratio

Question 9

If a firm has interest expenses of $10,000 per year, sales of $700,000, a tax rate of 40%, and a net profit margin of 7%, what is the firm's times interest earned ratio (round to two decimals)?

Accepted Answer

A)  8.17 
B)  4.90 
C)  13.25 
D)  9.17 
A)  8.17 
B)  4.90 
C)  13.25 
D)  9.17

Question 10

The analysis of financial statements is affected by inflation because ____.

Accepted Answer

A)  the value of long-term debt will increase 
B)  the value of fixed assets may be understated 
C)  the life of long-term assets is decreased 
D)  inventory increases 
A)  the value of long-term debt will increase 
B)  the value of fixed assets may be understated 
C)  the life of long-term assets is decreased 
D)  inventory increases

Question 11

A low financial ratio may be caused by a ____ or a(n) ____.

Accepted Answer

A)  low denominator; accounting error 
B)  high denominator; accounting error 
C)  low denominator; high numerator 
D)  high denominator; low numerator 
A)  low denominator; accounting error 
B)  high denominator; accounting error 
C)  low denominator; high numerator 
D)  high denominator; low numerator

Question 12

The earnings per share figure ____.

Accepted Answer

A)  is a comparative ratio 
B)  is the best measure of a firm's profitability 
C)  can be computed only if a firm has no debt 
D)  is part of the price-to-earnings ratio 
A)  is a comparative ratio 
B)  is the best measure of a firm's profitability 
C)  can be computed only if a firm has no debt 
D)  is part of the price-to-earnings ratio

Question 13

What is the main purpose of financial analysis and what does it identify?

Accepted Answer

Financial analysis identifies the major

Question 14

Determine the cost of sales for a firm with the following financial ratios and data: Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times

Accepted Answer

A)  $2,000,000 
B)  $6,000,000 
C)  $3,000,000 
D)  $1,000,000 
A)  $2,000,000 
B)  $6,000,000 
C)  $3,000,000 
D)  $1,000,000

Question 15

The type of ratio that indicates the firm's ability to provide adequate returns in the form of dividends and share price appreciation is the ____.

Accepted Answer

A)  profitability ratios 
B)  asset management ratios 
C)  liquidity ratios 
D)  financial leverage management ratios 
A)  profitability ratios 
B)  asset management ratios 
C)  liquidity ratios 
D)  financial leverage management ratios

Question 16

Asset management ratios indicate ____.

Accepted Answer

A)  how well a firm is using its assets to generate sales 
B)  how efficiently a firm is allocating its liabilities 
C)  the return on assets 
D)  the profitability of the firm 
A)  how well a firm is using its assets to generate sales 
B)  how efficiently a firm is allocating its liabilities 
C)  the return on assets 
D)  the profitability of the firm

Question 17

A firm with an equity multiplier of 4.0, will have a debt ratio of ____.

Accepted Answer

A)  0.25 
B)  1.00 
C)  0.75 
D)  4.00 
A)  0.25 
B)  1.00 
C)  0.75 
D)  4.00

Question 18

The current ratio is not the most stringent measure of liquidity, because it ____.

Accepted Answer

A)  is difficult to calculate 
B)  includes some items, such as inventory, that may not be readily liquid 
C)  requires many years of past data 
D)  includes many non-current items in its calculation 
A)  is difficult to calculate 
B)  includes some items, such as inventory, that may not be readily liquid 
C)  requires many years of past data 
D)  includes many non-current items in its calculation

Question 19

Stockholder's equity is also known by another name, which is ____.

Accepted Answer

A)  dividend liability 
B)  equity earnings 
C)  net worth 
D)  cash flow 
A)  dividend liability 
B)  equity earnings 
C)  net worth 
D)  cash flow

Question 20

The Market Value Added (MVA) is ____.

Accepted Answer

A)  an indicator of how successful a firm has been at increasing its financing its assets 
B)  the return on total capital minus cost of capital 
C)  an indication of an increase in operating efficiency 
D)  the present value of all expected future EVA 
A)  an indicator of how successful a firm has been at increasing its financing its assets 
B)  the return on total capital minus cost of capital 
C)  an indication of an increase in operating efficiency 
D)  the present value of all expected future EVA

Exam 3: Evaluation of Financial Performance

Most analysts prefer using price to free cash flow rather than price-to-earnings (P/E) ratio because price to free cash flow is ____.

Income taxes on inventory profits can be deferred by ____.

What is the market price per share of Big Whoop Inc. if the firm had net income of $200,000, earnings per share of $2.70, total equity of $800,000, and a market-to-book ratio of 1.5?

The ____ ratio is a more severe measure of a firm's ability to meet fixed financial obligations.

If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must ____.

Market-based ratios can be which of the following: I. Price-to-earnings ratio II. Dividend yield

Firms with a positive economic value added (EVA) have a(n) ____.

Financial leverage management ratios measure the ____.

If a firm has interest expenses of $10,000 per year, sales of $700,000, a tax rate of 40%, and a net profit margin of 7%, what is the firm's times interest earned ratio (round to two decimals)?

The analysis of financial statements is affected by inflation because ____.

A low financial ratio may be caused by a ____ or a(n) ____.

The earnings per share figure ____.

What is the main purpose of financial analysis and what does it identify?

Determine the cost of sales for a firm with the following financial ratios and data: Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times

The type of ratio that indicates the firm's ability to provide adequate returns in the form of dividends and share price appreciation is the ____.

Asset management ratios indicate ____.

A firm with an equity multiplier of 4.0, will have a debt ratio of ____.

The current ratio is not the most stringent measure of liquidity, because it ____.

Stockholder's equity is also known by another name, which is ____.

The Market Value Added (MVA) is ____.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

A low financial ratio may be caused by a or a(n) .