Exam 14: Financial Analysis and Long-Term Financial Planning

Assume a firm is developing, manufacturing, and selling a basic software package at $500 per copy. Raw materials and direct labor total $200 per copy. Fixed costs are $250,000. If the firm sells 5,000 units per year, what will be the operating profit?

The interest coverage ratio indicates the ability of a firm to meet its contractual obligations for interest, leases, and debt principal repayments out of its operating income.

The current ratio is computed by dividing the sum of cash, marketable securities, and accounts receivable by the current liabilities.

Ratios used to compares a firm's ratios against average ratios for other companies in the firm's industry:

A high price-to-book value ratio would tend to indicate that investors are more optimistic about the market value of firm's asset, and its managers' abilities.

A firm with a total asset turnover lower than the industry standard and a current ratio which meets the industry standard may have

The fixed asset turnover is computed as net fixed assets divided by net sales.

Operating return on assets is calculated as earnings after interest and taxes divided by total assets.

Net working capital is current assets plus current liabilities.

Return on total assets = Net profit margin × Total asset turnover.

Financial technique that involves dividing various financial statement numbers into one another:

(Net income ∕ Common equity)

Sacramento Sandals (SS) has fixed annual operating costs of $75,000. SS retails each pair of sandals for $14.99 each and the variable cost per pair is $4.99. Based on this information, the breakeven sales level in units is

Sacramento Sandals (SS) has fixed annual operating costs of $75,000. SS retails each pair of sandals for $14.99 each and the variable cost per pair is $4.99. Based on this information, the breakeven sales level in dollars is

Which one of the following is not a basic component of the DuPont method of ratio analysis?

All other things being equal, an increase in the amount of fixed operating costs for a firm would:

Which item is not included in the calculation for both the quick ratio and the current ratio?

The average payment period is computed by dividing the year-end accounts payable amount by the firm's average cost of goods sold (COGS) per day.

Liquidity ratios indicate the ability to meet short-term obligations to creditors as they mature or come due.

What would be the return on total assets of a firm if net income is $50,000, total sales are $100,000, and total assets are $175,000?