Exam 4: Analysis of Financial Statements

A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position,i.e. ,that it is becoming more liquid.

Last year Rennie Industries had sales of $270,000,assets of $175,000 (which equals total invested capital),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.The firm finances using only debt and common equity.Had it reduced its assets by this amount,and had the debt/total invested capital ratio,sales,and costs remained constant,how much would the ROE have changed? Do not round your intermediate calculations.

Which of the following statements is CORRECT?

Hoagland Corp's stock price at the end of last year was $20.50,and its book value per share was $25.00.What was its market/book ratio?

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 less risky and/or more likely to enjoy higher growth in the future.

Wie Corp's sales last year were $280,000,and its year-end total assets were $355,000.The average firm in the industry has a total assets turnover ratio (TATO)of 2.4.The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales.By how much must the assets be reduced to bring the TATO to the industry average,holding sales constant? Do not round your intermediate calculations.

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable.This action had no effect on the company's total assets or operating income.Which of the following effects occurred as a result of this action?

Exhibit 4.1 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. Assets 2018 Cash and securities \ 3,000 Accounts receivable 15,000 Inventories 18,000 Total current assets \ 36,000 Net plant and equipment \ 24,000 Total assets \ 60,000 Liabilities and Equity Accounts payable \ 18,630 Accruals 8,370 Notes payable 6,000 Total current liabilities \ 33,000 Long-term bonds \ 9,000 Total liabilities \ 42,000 Common stock \ 5,040 Retained earnings 12,960 Total common equity \ 18,000 Total liabilities and equity \6 0,000 Income Statement (Millions of \ ) 2018 Net sales \ 84,000 Operating costs except depreciation 78,120 Depreciation 1,680 Earnings before interest and taxes (EBIT) \ 4,200 Less interest 900 Earnings before taxes (EBT) \ 3,300 Taxes 1,320 Net income \ 1,980 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of \ ) \ 693.00 Int rate on notes payable \& L-T bonds 6\% Federal plus state income tax rate 40\% Year-end stock price \ 47.52 -Refer to Exhibit 4.1.What is the firm's inventory turnover ratio? Do not round your intermediate calculations.

If a firm's ROE is equal to 9% and its ROA is equal to 6%,its equity multiplier must be 1.5.

Amram Company's current ratio is 2.0.Considered alone,which of the following actions would lower the current ratio?

Duffert Industries has total assets of $1,050,000 and total current liabilities (consisting only of accounts payable and accruals)of $150,000.Duffert finances using only long-term debt and common equity.The interest rate on its debt is 9% and its tax rate is 40%.The firm's basic earning power ratio is 15% and its debt-to capital rate is 40%.What are Duffert's ROE and ROIC? Do not round your intermediate calculations.

Taggart Technologies is considering issuing new common stock and using the proceeds to reduce its outstanding debt.The stock issue would have no effect on total assets,the interest rate Taggart pays,EBIT,or the tax rate.Which of the following is likely to occur if the company goes ahead with the stock issue?

Zero Corp's total common equity at the end of last year was $350,000 and its net income was $70,000.What was its ROE?

The operating margin measures operating income per dollar of assets.

Debt 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.

Exhibit 4.1 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. Assets 2018 Cash and securities \ 3,000 Accounts receivable 15,000 Inventories 18,000 Total current assets \ 36,000 Net plant and equipment \ 24,000 Total assets \ 60,000 Liabilities and Equity Accounts payable \ 18,630 Accruals 8,370 Notes payable 6,000 Total current liabilities \ 33,000 Long-term bonds \ 9,000 Total liabilities \ 42,000 Common stock \ 5,040 Retained earnings 12,960 Total common equity \ 18,000 Total liabilities and equity \6 0,000 Income Statement (Millions of \ ) 2018 Net sales \ 84,000 Operating costs except depreciation 78,120 Depreciation 1,680 Earnings before interest and taxes (EBIT) \ 4,200 Less interest 900 Earnings before taxes (EBT) \ 3,300 Taxes 1,320 Net income \ 1,980 Other data: Shares outstanding (millions) 500.00 Common dividends (millions of \ ) \ 693.00 Int rate on notes payable \& L-T bonds 6\% Federal plus state income tax rate 40\% Year-end stock price \ 47.52 -Refer to Exhibit 4.1.What is the firm's dividends per share? Do not round your intermediate calculations.

Walter Industries' current ratio is 0.5.Considered alone,which of the following actions would increase the company's current ratio?

Other things held constant,a decline in sales accompanied by an increase in financial leverage must result in a lower profit margin.

Helmuth Inc's latest net income was $1,500,000,and it had 225,000 shares outstanding.The company wants to pay out 45% of its income.What dividend per share should it declare? Do not round your intermediate calculations.

Considered alone,which of the following would increase a company's current ratio?