Question 1

Net profit margin is net profit before noncontrolling share of earnings and nonrecurring items to total assets.

Accepted Answer

A) True 
 B)False

Question 2

In order to compute gross profit margin, the income statement must be in single-step format.

Accepted Answer

A) True 
 B)False

Question 3

Interim reports cover fiscal periods of less than one year.

Accepted Answer

A) True 
 B)False

Question 4

Total asset turnover measures the ability of a firm to:

Accepted Answer

A)  generate profits on sales 
B)  generate sales through the use of assets 
C)  buy new assets 
D)  move inventory 
E)  cover long-term debt 
A)  generate profits on sales 
B)  generate sales through the use of assets 
C)  buy new assets 
D)  move inventory 
E)  cover long-term debt

Question 5

Ratios of profits to sales and to identifiable assets can help to analyze profitability by segment.

Accepted Answer

A) True 
 B)False

Question 6

DuPont analysis can be done with net income or operating income figures as long as the related asset base is consistent.

Accepted Answer

A) True 
 B)False

Question 7

Net profit margin measures return on:

Accepted Answer

A)  sales 
B)  owners' equity 
C)  productive assets 
D)  total assets 
E)  inventory 
A)  sales 
B)  owners' equity 
C)  productive assets 
D)  total assets 
E)  inventory

Question 8

Which of the following circumstances will cause sales to fixed assets to be abnormally high?

Accepted Answer

A)  A recent purchase of land. 
B)  A labor-intensive industry. 
C)  A highly mechanized facility. 
D)  High direct labor costs from a new union contract. 
E)  The use of units-of-production depreciation. 
A)  A recent purchase of land. 
B)  A labor-intensive industry. 
C)  A highly mechanized facility. 
D)  High direct labor costs from a new union contract. 
E)  The use of units-of-production depreciation.

Question 9

Income tax expense in interim reporting should:

Accepted Answer

A)  be based on the quarterly income only 
B)  contain a judgment estimation of the annual effective tax rate 
C)  be based on the income year-to-date 
D)  exclude extraordinary items in earlier quarters of the year 
E)  disregard year-end adjustments 
A)  be based on the quarterly income only 
B)  contain a judgment estimation of the annual effective tax rate 
C)  be based on the income year-to-date 
D)  exclude extraordinary items in earlier quarters of the year 
E)  disregard year-end adjustments

Question 10

When used properly, pro forma financial information makes a positive contribution to financial reporting.

Accepted Answer

A) True 
 B)False

Question 11

Noncontrolling interest share of earnings is:

Accepted Answer

A)  the total earnings of unconsolidated subsidiaries 
B)  earnings based on the percent of holdings by parent company of unconsolidated subsidiaries 
C)  the total earnings of consolidated subsidiaries 
D)  earnings based on the percent of holdings by outside owners of consolidated subsidiaries 
E)  none of the answers are correct 
A)  the total earnings of unconsolidated subsidiaries 
B)  earnings based on the percent of holdings by parent company of unconsolidated subsidiaries 
C)  the total earnings of consolidated subsidiaries 
D)  earnings based on the percent of holdings by outside owners of consolidated subsidiaries 
E)  none of the answers are correct

Question 12

Which of the following expresses DuPont analysis?

Accepted Answer

A)  net profit margin = total asset turnover times return on assets 
B)  total asset turnover = operating asset turnover times financial leverage 
C)  return on assets = net profit margin times total asset turnover 
D)  return on investment = return on equity (1 - tax rate) 
E)  dividend yield = dividend payout times earnings per share 
A)  net profit margin = total asset turnover times return on assets 
B)  total asset turnover = operating asset turnover times financial leverage 
C)  return on assets = net profit margin times total asset turnover 
D)  return on investment = return on equity (1 - tax rate) 
E)  dividend yield = dividend payout times earnings per share

Question 13

Either a drop in net profit margin or a drop in total asset turnover, or both, can cause return on assets to fall.

Accepted Answer

A) True 
 B)False

Question 14

Return on assets cannot fall under which of the following circumstances?
Net Profit Margin
Total Asset Turnover

Accepted Answer

A)  decline rise 
B)  rise decline 
C)  rise rise 
D)  decline decline 
E)  The ratio could fall under all of the answers. 
A)  decline rise 
B)  rise decline 
C)  rise rise 
D)  decline decline 
E)  The ratio could fall under all of the answers.

Question 15

The DuPont method return on assets uses two component ratios.What are they?

Accepted Answer

A)  inventory turnover * gross profit margin 
B)  times interest earned * debt ratio 
C)  return on equity * dividend payout 
D)  net profit margin * total asset turnover 
E)  return on investment * total investment turnover 
A)  inventory turnover * gross profit margin 
B)  times interest earned * debt ratio 
C)  return on equity * dividend payout 
D)  net profit margin * total asset turnover 
E)  return on investment * total investment turnover

Question 16

Net earnings before deducting minority share of earnings is utilized in the following ratios, since noncontrolling interests are included in the base.Which ratio is an exception to this statement?

Accepted Answer

A)  net profit margin 
B)  return on assets 
C)  return on equity 
D)  return on investment 
E)  none of the answers are correct 
A)  net profit margin 
B)  return on assets 
C)  return on equity 
D)  return on investment 
E)  none of the answers are correct

Question 17

Profitability is the ability of the firm to generate earnings.

Accepted Answer

A) True 
 B)False

Question 18

Return on investment measures the return on long-term suppliers of funds.

Accepted Answer

A) True 
 B)False

Question 19

Operating income is:

Accepted Answer

A)  net sales less cost of goods sold 
B)  earnings before interest and tax 
C)  earnings before tax and nonrecurring items 
D)  gross profit less operating expenses 
E)  net income plus interest 
A)  net sales less cost of goods sold 
B)  earnings before interest and tax 
C)  earnings before tax and nonrecurring items 
D)  gross profit less operating expenses 
E)  net income plus interest

Question 20

Equity earnings are usually lower than the cash generated from the investment as dividends.

Accepted Answer

A) True 
 B)False

Net profit margin is net profit before noncontrolling share of earnings and nonrecurring items to total assets.

In order to compute gross profit margin, the income statement must be in single-step format.

Interim reports cover fiscal periods of less than one year.

Total asset turnover measures the ability of a firm to:

Ratios of profits to sales and to identifiable assets can help to analyze profitability by segment.

DuPont analysis can be done with net income or operating income figures as long as the related asset base is consistent.

Net profit margin measures return on:

Which of the following circumstances will cause sales to fixed assets to be abnormally high?

Income tax expense in interim reporting should:

When used properly, pro forma financial information makes a positive contribution to financial reporting.

Noncontrolling interest share of earnings is:

Which of the following expresses DuPont analysis?

Either a drop in net profit margin or a drop in total asset turnover, or both, can cause return on assets to fall.

Return on assets cannot fall under which of the following circumstances? Net Profit Margin Total Asset Turnover

The DuPont method return on assets uses two component ratios.What are they?

Net earnings before deducting minority share of earnings is utilized in the following ratios, since noncontrolling interests are included in the base.Which ratio is an exception to this statement?

Profitability is the ability of the firm to generate earnings.

Return on investment measures the return on long-term suppliers of funds.

Operating income is:

Equity earnings are usually lower than the cash generated from the investment as dividends.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters

Exam 8: Profitability

Net profit margin is net profit before noncontrolling share of earnings and nonrecurring items to total assets.

In order to compute gross profit margin, the income statement must be in single-step format.

Interim reports cover fiscal periods of less than one year.

Total asset turnover measures the ability of a firm to:

Ratios of profits to sales and to identifiable assets can help to analyze profitability by segment.

DuPont analysis can be done with net income or operating income figures as long as the related asset base is consistent.

Net profit margin measures return on:

Which of the following circumstances will cause sales to fixed assets to be abnormally high?

Income tax expense in interim reporting should:

When used properly, pro forma financial information makes a positive contribution to financial reporting.

Noncontrolling interest share of earnings is:

Which of the following expresses DuPont analysis?

Either a drop in net profit margin or a drop in total asset turnover, or both, can cause return on assets to fall.

Return on assets cannot fall under which of the following circumstances? Net Profit Margin Total Asset Turnover

The DuPont method return on assets uses two component ratios.What are they?

Net earnings before deducting minority share of earnings is utilized in the following ratios, since noncontrolling interests are included in the base.Which ratio is an exception to this statement?

Profitability is the ability of the firm to generate earnings.

Return on investment measures the return on long-term suppliers of funds.

Operating income is:

Equity earnings are usually lower than the cash generated from the investment as dividends.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters