Question 1

Which of the following ratios recognizes that many firms lease rather than buying a long-term asset?

Accepted Answer

A)  Fixed charge coverage ratio 
B)  Times interest earned ratio 
C)  Debt ratio 
D)  Net profit margin 
E)  Equity multiplier ratio 
A)  Fixed charge coverage ratio 
B)  Times interest earned ratio 
C)  Debt ratio 
D)  Net profit margin 
E)  Equity multiplier ratio

Question 2

Alumbat Corporation has $800,000 in debt outstanding, and pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000, its average tax rate is 40 percent, and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. Alumbat's current times interest earned ratio is:

Accepted Answer

A)  2.4. 
B)  3.4. 
C)  3.6. 
D)  4.0. 
E)  5.0. 
A)  2.4. 
B)  3.4. 
C)  3.6. 
D)  4.0. 
E)  5.0.

Question 3

A firm's net income as reported on its income statement is known as _____.

Accepted Answer

A)  operating cash flow 
B)  net cash flow 
C)  noncash income 
D)  accounting profit 
E)  net sales 
A)  operating cash flow 
B)  net cash flow 
C)  noncash income 
D)  accounting profit 
E)  net sales

Question 4

The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in:

Accepted Answer

A)  the fixed charge coverage ratio. 
B)  the debt ratio. 
C)  the times-interest-earned ratio. 
D)  the return on equity. 
E)  the profit margin. 
A)  the fixed charge coverage ratio. 
B)  the debt ratio. 
C)  the times-interest-earned ratio. 
D)  the return on equity. 
E)  the profit margin.

Question 5

Helium Brands Ltd. has a beginning balance of retained earnings of $185 million. Helium has a net income of $48 million and has paid a dividend of $15 million in the current year. The ending balance of retained earnings is:

Accepted Answer

A)  $248 million. 
B)  $185 million. 
C)  $170 million. 
D)  $137 million. 
E)  $218 million. 
A)  $248 million. 
B)  $185 million. 
C)  $170 million. 
D)  $137 million. 
E)  $218 million.

Question 6

A comparison of a firm's ratios with those of other firms in the same industry at the same point in time is called:

Accepted Answer

A)  trend analysis. 
B)  benchmarking. 
C)  DuPont analysis. 
D)  sensitivity analysis. 
E)  cash flow analysis. 
A)  trend analysis. 
B)  benchmarking. 
C)  DuPont analysis. 
D)  sensitivity analysis. 
E)  cash flow analysis.

Question 7

How is the net working capital calculated?

Accepted Answer

A)  Net working capital = total liabilities minus retained earnings 
B)  Net working capital = total assets minus current assets 
C)  Net working capital = total liabilities minus current liabilities 
D)  Net working capital = current assets minus current liabilities 
E)  Net working capital = total equity minus retained earnings 
A)  Net working capital = total liabilities minus retained earnings 
B)  Net working capital = total assets minus current assets 
C)  Net working capital = total liabilities minus current liabilities 
D)  Net working capital = current assets minus current liabilities 
E)  Net working capital = total equity minus retained earnings

Question 8

If an analyst's goal is to determine how effectively a firm is managing its assets, which of the following sets of ratios would s/he examine?

Accepted Answer

A)  profit margin, current ratio, fixed charge coverage ratio 
B)  quick ratio, debt ratio, time interest earned 
C)  inventory turnover ratio, days sales outstanding, fixed asset turnover ratio 
D)  total assets turnover ratio, price earnings ratio, return on total assets 
E)  time interest earned, profit margin, fixed asset turnover ratio 
A)  profit margin, current ratio, fixed charge coverage ratio 
B)  quick ratio, debt ratio, time interest earned 
C)  inventory turnover ratio, days sales outstanding, fixed asset turnover ratio 
D)  total assets turnover ratio, price earnings ratio, return on total assets 
E)  time interest earned, profit margin, fixed asset turnover ratio

Question 9

What is the first item in an income statement used to determine the net income of a firm?

Accepted Answer

A)  Earnings before tax 
B)  Operating costs 
C)  Net sales 
D)  Gross profit 
E)  Retained earnings 
A)  Earnings before tax 
B)  Operating costs 
C)  Net sales 
D)  Gross profit 
E)  Retained earnings

Question 10

Which of the statements is true about the values recorded in the balance sheet of a firm?

Accepted Answer

A)  The book values of a firm's assets will be equal to the market values of the firm's assets. 
B)  The book values of a firm's liabilities will be higher than the market values of the firm's liabilities. 
C)  The equity section of a firm's liability represents the difference between the market value of the firm's assets and the market value of the firm's liabilities. 
D)  The book values of a firm's assets will be higher than the market values of the firm's assets. 
E)  The book values of a firm's debt will be very close to the market values of the firm's liabilities. 
A)  The book values of a firm's assets will be equal to the market values of the firm's assets. 
B)  The book values of a firm's liabilities will be higher than the market values of the firm's liabilities. 
C)  The equity section of a firm's liability represents the difference between the market value of the firm's assets and the market value of the firm's liabilities. 
D)  The book values of a firm's assets will be higher than the market values of the firm's assets. 
E)  The book values of a firm's debt will be very close to the market values of the firm's liabilities.

Question 11

Retained earnings is the total amount of:

Accepted Answer

A)  income that is distributed as dividends to the shareholders. 
B)  debt not repaid in the current year. 
C)  depreciation charged on the firm's assets. 
D)  income that is saved and reinvested in assets. 
E)  profit retained by a firm to pay taxes. 
A)  income that is distributed as dividends to the shareholders. 
B)  debt not repaid in the current year. 
C)  depreciation charged on the firm's assets. 
D)  income that is saved and reinvested in assets. 
E)  profit retained by a firm to pay taxes.

Question 12

The book value of shares are often equal to their market value.

Accepted Answer

A) True 
 B)False

Question 13

Assuming that other things are constant, the price earnings (P/E) ratio:

Accepted Answer

A)  is higher for firms with high growth prospects and lower for riskier firms. 
B)  is lower for firms with high growth prospects and higher for riskier firms. 
C)  is not affected by the growth prospects of the firm. 
D)  is equal to the market price of the share of the firm. 
E)  is equal to the earnings per share of the firm. 
A)  is higher for firms with high growth prospects and lower for riskier firms. 
B)  is lower for firms with high growth prospects and higher for riskier firms. 
C)  is not affected by the growth prospects of the firm. 
D)  is equal to the market price of the share of the firm. 
E)  is equal to the earnings per share of the firm.

Question 14

Ratio analysis involves a comparison of the relationships between financial statement accounts to analyze the financial position and strength of a firm.

Accepted Answer

A) True 
 B)False

Question 15

Violet Solutions Ltd. has net sales of $850 million, variable operating costs of $475 million, and fixed operating costs including depreciation of $100 million. What is the net operating income of Violet Solutions?

Accepted Answer

A)  $1,425 million 
B)  $1,325 million 
C)  $750 million 
D)  $375 million 
E)  $275 million 
A)  $1,425 million 
B)  $1,325 million 
C)  $750 million 
D)  $375 million 
E)  $275 million

Question 16

Retained earnings is the amount of cash that has been generated by the firm through its operations but has not been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts and thus, these cash accounts, when added together, will always be equal to the total retained earnings of the firm.

Accepted Answer

A) True 
 B)False

Question 17

How is a firm's retained earnings at the end of the year calculated?

Accepted Answer

A)  Retained earnings = Beginning balance of retained earnings minus net income in the current year plus net loss in the previous year 
B)  Retained earnings = Beginning balance of retained earnings plus net income in the current year plus dividends paid in the current year 
C)  Retained earnings = Beginning balance of retained earnings plus net income in the current year minus dividends paid in the current year 
D)  Retained earnings = Beginning balance of retained earnings minus net loss in the previous year minus dividends paid in the current year 
E)  Retained earnings = Beginning balance of retained earnings minus net income in the current year plus dividends paid in the current year 
A)  Retained earnings = Beginning balance of retained earnings minus net income in the current year plus net loss in the previous year 
B)  Retained earnings = Beginning balance of retained earnings plus net income in the current year plus dividends paid in the current year 
C)  Retained earnings = Beginning balance of retained earnings plus net income in the current year minus dividends paid in the current year 
D)  Retained earnings = Beginning balance of retained earnings minus net loss in the previous year minus dividends paid in the current year 
E)  Retained earnings = Beginning balance of retained earnings minus net income in the current year plus dividends paid in the current year

Question 18

_____ is an example of a long-term investment of a firm.

Accepted Answer

A)  Retained earnings 
B)  Equipment 
C)  Accounts receivable 
D)  Common stock 
E)  Long-term bonds 
A)  Retained earnings 
B)  Equipment 
C)  Accounts receivable 
D)  Common stock 
E)  Long-term bonds

Question 19

The statement of retained earnings for Redwood Systems Ltd. shows a retained earnings balance of $300 million on December 31, 2016. In 2016, Redwood had a net income of $60 million and the firm had paid dividends of $20 million to its stockholders. What was the beginning balance of retained earnings for Redwood on January 1, 2016?

Accepted Answer

A)  $300 million 
B)  $260 million 
C)  $380 million 
D)  $340 million 
E)  $220 million 
A)  $300 million 
B)  $260 million 
C)  $380 million 
D)  $340 million 
E)  $220 million

Question 20

An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called _____.

Accepted Answer

A)  sensitivity analysis 
B)  the DuPont chart 
C)  ratio analysis 
D)  benchmarking analysis 
E)  trend analysis 
A)  sensitivity analysis 
B)  the DuPont chart 
C)  ratio analysis 
D)  benchmarking analysis 
E)  trend analysis

Which of the following ratios recognizes that many firms lease rather than buying a long-term asset?

A firm's net income as reported on its income statement is known as _____.

The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in:

Helium Brands Ltd. has a beginning balance of retained earnings of $185 million. Helium has a net income of $48 million and has paid a dividend of $15 million in the current year. The ending balance of retained earnings is:

A comparison of a firm's ratios with those of other firms in the same industry at the same point in time is called:

How is the net working capital calculated?

If an analyst's goal is to determine how effectively a firm is managing its assets, which of the following sets of ratios would s/he examine?

What is the first item in an income statement used to determine the net income of a firm?

Which of the statements is true about the values recorded in the balance sheet of a firm?

Retained earnings is the total amount of:

The book value of shares are often equal to their market value.

Assuming that other things are constant, the price earnings (P/E) ratio:

Ratio analysis involves a comparison of the relationships between financial statement accounts to analyze the financial position and strength of a firm.

Violet Solutions Ltd. has net sales of $850 million, variable operating costs of $475 million, and fixed operating costs including depreciation of $100 million. What is the net operating income of Violet Solutions?

How is a firm's retained earnings at the end of the year calculated?

_____ is an example of a long-term investment of a firm.

An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called _____.

An Overview of Managerial Finance

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 2: Analysis of Financial Statements

Which of the following ratios recognizes that many firms lease rather than buying a long-term asset?

A firm's net income as reported on its income statement is known as _____.

The extent to which the operating income can decline before a firm is unable to meet its annual interest costs can be found in:

Helium Brands Ltd. has a beginning balance of retained earnings of $185 million. Helium has a net income of $48 million and has paid a dividend of $15 million in the current year. The ending balance of retained earnings is:

A comparison of a firm's ratios with those of other firms in the same industry at the same point in time is called:

How is the net working capital calculated?

If an analyst's goal is to determine how effectively a firm is managing its assets, which of the following sets of ratios would s/he examine?

What is the first item in an income statement used to determine the net income of a firm?

Which of the statements is true about the values recorded in the balance sheet of a firm?

Retained earnings is the total amount of:

The book value of shares are often equal to their market value.

Assuming that other things are constant, the price earnings (P/E) ratio:

Ratio analysis involves a comparison of the relationships between financial statement accounts to analyze the financial position and strength of a firm.

Violet Solutions Ltd. has net sales of $850 million, variable operating costs of $475 million, and fixed operating costs including depreciation of $100 million. What is the net operating income of Violet Solutions?

How is a firm's retained earnings at the end of the year calculated?

_____ is an example of a long-term investment of a firm.

An analysis of a firm's financial ratios over time used to determine the improvement or deterioration in its financial situation is called _____.

An Overview of Managerial Finance

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters