Question 1

Financial ratio analysis is most often performed as a

Accepted Answer

A) comparative analysis 
B) trend analysis 
C) point in time analysis 
D) comparative analysis and a trend analysis 
A) comparative analysis 
B) trend analysis 
C) point in time analysis 
D) comparative analysis and a trend analysis

Question 2

indicate the firm's capacity to meet its debt obligations, both short-term and long-term.

Accepted Answer

A) Liquidity ratios 
B) Activity ratios 
C) Financial leverage ratios 
D) Profitability ratios 
A) Liquidity ratios 
B) Activity ratios 
C) Financial leverage ratios 
D) Profitability ratios

Question 3

If a firm's price to earnings (P/E) ratio is 10,

Accepted Answer

A) it is not possible for it to be paying dividends also 
B) its market to book ratio has to be at least 2.0 
C) its net profit margin is positive 
D) its return on stockholders' equity is negative 
A) it is not possible for it to be paying dividends also 
B) its market to book ratio has to be at least 2.0 
C) its net profit margin is positive 
D) its return on stockholders' equity is negative

Question 4

Firms with a positive economic value added (EVA):

Accepted Answer

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

Question 5

Companies can avoid paying income taxes on inventory profits by using the inventory valuation method.

Accepted Answer

A) LIFO 
B) FIFO 
C) Priced out 
D) Priced in 
A) LIFO 
B) FIFO 
C) Priced out 
D) Priced in

Question 6

Common stock prices are dependent on the amount and stability of a firm's cash flows so common stockholders are especially interested in:

Accepted Answer

A) profitability measurements 
B) accounting profits 
C) earnings after tax 
D) NOPAT 
A) profitability measurements 
B) accounting profits 
C) earnings after tax 
D) NOPAT

Question 7

Primary sources of comparative financial data include

Accepted Answer

A) Dun and Bradstreet 
B) New York Times 
C) Richard Moore, Inc. 
D) Framingham Financial Library 
A) Dun and Bradstreet 
B) New York Times 
C) Richard Moore, Inc. 
D) Framingham Financial Library

Question 8

The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:

Accepted Answer

A) an accurate picture of the company's market position 
B) based on the company's accounting information system (AIS) 
C) constructed in conformity with generally accepted accounting principles 
D) developed using management's choice of accounting enhancement techniques 
A) an accurate picture of the company's market position 
B) based on the company's accounting information system (AIS) 
C) constructed in conformity with generally accepted accounting principles 
D) developed using management's choice of accounting enhancement techniques

Question 9

How does a firm determine its enterprise value?

Accepted Answer

A) price per share of its stock × the common shares outstanding. 
B) sales × (1 + growth rate in sales) 
C) EBIT × (1 - tax rate) 
D) Net Income + depreciation 
A) price per share of its stock × the common shares outstanding. 
B) sales × (1 + growth rate in sales) 
C) EBIT × (1 - tax rate) 
D) Net Income + depreciation

Question 10

Given the following information, determine Salem Company's fixed assets.
Sales = $10,000,000
Total asset turnover = 4 times Current ratio = 2.40
Current liabilities = $500,000
Total assets = current assets + fixed assets

Accepted Answer

A) $1,200,000 
B) $4,800,000 
C) $1,300,000 
D) Cannot be determined 
A) $1,200,000 
B) $4,800,000 
C) $1,300,000 
D) Cannot be determined

Question 11

Financial leverage 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 12

What information can be determined by common size financial statements?

Accepted Answer

Common size financial statements can:
1.

Question 13

Newfangled Dangle Systems had earnings after tax of $1,000,000 last year.Included in its expenses were $50,000 of interest, $100,000 of deferred taxes, and $150,000 of depreciation.In addition, the company paid dividends of $200,000 to its stockholders last year.What was Newfangled's after­tax cash flow last year?

Accepted Answer

A) $1,500,000 
B) $1,300,000 
C) $1,150,000 
D) $1,250,000 
A) $1,500,000 
B) $1,300,000 
C) $1,150,000 
D) $1,250,000

Question 14

Given the following information, calculate the return on equity for Regrets Only Dating Services, Inc.:
Net Profit margin = 5% Total asset turnover = 2 Debt ratio = 0.73

Accepted Answer

A) 14% 
B) 7.3% 
C) 37% 
D) 21% 
A) 14% 
B) 7.3% 
C) 37% 
D) 21%

Question 15

The following policy that is consistent with an increase in a firm's return on total assets is:

Accepted Answer

A) costs increase more than revenues 
B) the firm's net working capital (current assets minus current liabilities) position declines 
C) the firm sells off some unused assets and pays the proceeds to existing stockholders in the form of an extra dividend 
D) the firm's net working capital (current assets minus current liabilities) position declines, and the firm sells off some unused assets and pays the proceeds to existing stockholders in the form of an extra dividend 
A) costs increase more than revenues 
B) the firm's net working capital (current assets minus current liabilities) position declines 
C) the firm sells off some unused assets and pays the proceeds to existing stockholders in the form of an extra dividend 
D) the firm's net working capital (current assets minus current liabilities) position declines, and the firm sells off some unused assets and pays the proceeds to existing stockholders in the form of an extra dividend

Question 16

A firm's current ratio is 1.5 and its quick ratio is 1.0.If its current liabilities are $10,000, what are its inventories?

Accepted Answer

A) $ 5,000 
B) $10,000 
C) $15,000 
D) $20,000 
A) $ 5,000 
B) $10,000 
C) $15,000 
D) $20,000

Question 17

The earnings per share figure

Accepted Answer

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

Question 18

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 are 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 are decreased 
D) inventory increases

Question 19

ratios indicate how efficiently a firm is using its assets to generate sales.

Accepted Answer

A) Liquidity 
B) Asset management 
C) Financial leverage 
D) Equity 
A) Liquidity 
B) Asset management 
C) Financial leverage 
D) Equity

Question 20

Which ratio is frequently used in conjunction with the analysis of a bond's quality?

Accepted Answer

A) times interest earned 
B) deferred liability ratio 
C) receivables turnover 
D) dividend coverage ratio 
A) times interest earned 
B) deferred liability ratio 
C) receivables turnover 
D) dividend coverage ratio

Exam 3: Evaluation of Financial Performance

Financial ratio analysis is most often performed as a

indicate the firm's capacity to meet its debt obligations, both short-term and long-term.

If a firm's price to earnings (P/E) ratio is 10,

Firms with a positive economic value added (EVA):

Companies can avoid paying income taxes on inventory profits by using the inventory valuation method.

Common stock prices are dependent on the amount and stability of a firm's cash flows so common stockholders are especially interested in:

Primary sources of comparative financial data include

The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:

How does a firm determine its enterprise value?

Given the following information, determine Salem Company's fixed assets. Sales = $10,000,000 Total asset turnover = 4 times Current ratio = 2.40 Current liabilities = $500,000 Total assets = current assets + fixed assets

Financial leverage ratios measure the

What information can be determined by common size financial statements?

Given the following information, calculate the return on equity for Regrets Only Dating Services, Inc.: Net Profit margin = 5% Total asset turnover = 2 Debt ratio = 0.73

The following policy that is consistent with an increase in a firm's return on total assets is:

A firm's current ratio is 1.5 and its quick ratio is 1.0.If its current liabilities are $10,000, what are its inventories?

The earnings per share figure

The analysis of financial statements is affected by inflation because

ratios indicate how efficiently a firm is using its assets to generate sales.

Which ratio is frequently used in conjunction with the analysis of a bond's quality?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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