Question 1

One important difference between return on assets (ROA)and return on common shareholder's equity (ROCE)is

Accepted Answer

A)  ROA does not differentiate based on how a company finances its assets; ROCE does. 
B)  ROA does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles; ROCE does. 
C)  ROCE does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles; ROA does. 
D)  ROCE does not differentiate based on how a company finances its assets; ROA does. 
A)  ROA does not differentiate based on how a company finances its assets; ROCE does. 
B)  ROA does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles; ROCE does. 
C)  ROCE does not distinguish between the different types of income items, such as income from continuing operations, discontinued operations, extraordinary items and changes in accounting principles; ROA does. 
D)  ROCE does not differentiate based on how a company finances its assets; ROA does.

Question 2

Extreme Sports Company and All Sports Corporation
Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores.
Selected Data for All Sports and Extreme Sports
(amounts in millions)
  
-Refer to the information for Extreme Sports Company and All Sports Corporation. Calculate All Sports' inventory turnover ratio

Accepted Answer

A)  5.3 
B)  1.2 
C)  3.9 
D)  .256 
A)  5.3 
B)  1.2 
C)  3.9 
D)  .256

Question 3

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.
   
Income Statement
For the year ended December 31, 2011
  
-Refer to the information for Orca Industries.Orca's asset turnover is

Accepted Answer

A)  1.31 
B)  1 
C)  1.58 
D)  1.44 
A)  1.31 
B)  1 
C)  1.58 
D)  1.44

Question 4

Firms and industries characterized by heavy fixed capacity costs and lengthy periods required to add new capacity operate under a ___________________________________.

Accepted Answer

The answer of Firms and industries characterized by heavy fixed...

Question 5

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Accepted Answer

The answer of Firms with high operating leverage have a...

Question 6

Inventory turnover is calculated by dividing ________________________________________ by average inventories.

Accepted Answer

The answer of Inventory turnover is calculated by dividing ________________________________________...

Question 7

When an analyst uses measures of past profitability to forecast the firm's future profitability the expectation is that those revenues,gains,expenses and losses will ____________________.

Accepted Answer

The answer of When an analyst uses measures of past...

Question 8

Another term for earnings power is

Accepted Answer

A)  nonrecurrent revenue. 
B)  nonrecurrent gains. 
C)  sustainable earnings. 
D)  net change in equity. 
A)  nonrecurrent revenue. 
B)  nonrecurrent gains. 
C)  sustainable earnings. 
D)  net change in equity.

Question 9

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.
   
Income Statement
For the year ended December 31, 2011
  
-Refer to the information for Orca Industries.The return on assets for Orca Industries is

Accepted Answer

A)  6.8% 
B)  13.5% 
C)  10% 
D)  12.3% 
A)  6.8% 
B)  13.5% 
C)  10% 
D)  12.3%

Question 10

All else being equal,firms with high levels of ________________________________________ incur more risk in their operations and should earn higher rates of return.

Accepted Answer

The answer of All else being equal,firms with high levels...

Question 11

Carridine Company reported net income of $1,903 on revenues of $55,618 for Year4.Interest expense totaled $459,and preferred dividends totaled $13.5.Average total assets for Year 4 were $17,500.The income tax rate is 40 percent.Average preferred shareholders' equity totaled $250,and average common shareholders' equity totaled $7,500.Assume that all the following amounts are in thousands.
REQUIRED:a.Compute the rate of ROA.Disaggregate ROA into profit margin for ROA and assets
turnover components.
b.Compute the rate of ROCE.Disaggregate ROCE into profit margin for ROCE,assets
turnover,and capital leverage ratio components.
c.Calculate the amount of net income to common shareholders derived from the
excess return on creditors' capital,the excess return on preferred shareholders' capital,
and the return on common shareholders' capital.

Accepted Answer

a.Rate of Return on Assets: [$1,903 + (1

Question 12

Freedom Company reported net income for 2010 of $2,031 million on sales of $25,600 million.Interest expense for 2010 was $235 million,and minority interest was $344 million for 2010.The income tax rate is 40 percent.Total assets were $10,800 million at the beginning of 2010 and $14,874 million at the end of 2010.Compute the rate of ROA for 2010 and disaggregate
ROA into profit margin for ROA and asset turnover components.

Accepted Answer

Rate of Return = Profit Margin

Question 13

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.
   
Income Statement
For the year ended December 31, 2011
  
-Refer to the information for Orca Industries.Orca's accounts receivable turnover is (assume that Orca makes all sales on account)

Accepted Answer

A)  7.0 
B)  .53 
C)  11.2 
D)  10 
A)  7.0 
B)  .53 
C)  11.2 
D)  10

Question 14

When calculating Basic earnings per share net income is adjusted by____________

Accepted Answer

The answer of When calculating Basic earnings per share net...

Question 15

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Accepted Answer

The answer of The ____________________ effect of interest expense on...

Question 16

Return on assets can be a misleading ratio when analyzing technology firms because two important assets,______________________________ and ______________________________ do not appear on their balance sheets

Accepted Answer

their empl

Question 17

Krane,Inc.reported net income (amounts in thousands)of $619,700 for Year 4.Included in net income was income tax expense of $10,400.During the year the company paid the preferred shareholders $9,000 in dividends.The weighted average of common shares outstanding during Year 4 was 468,810 shares.Krane Inc.,subtracted interest expense net of tax saving on convertible debt of $4,820.If the convertible debt had been converted into common stock,it would have increased the weighted average common shares outstanding by 20,905 shares.Krane Inc.,has outstanding stock options that,if exercised,would increase the weighted average of common shares outstanding by 7,335 shares.
REQUIRED:
Compute basic and diluted earnings per share for Year 4,showing supporting computations.

Accepted Answer

Basic EPS: ($619,700-9,000)/46

Question 18

Hall and Porter argue that firms have two generic alternative strategies for any particular product.These strategies are

Accepted Answer

A)  low risk focus, low risk focus 
B)  retail customer focus, wholesale customer focus 
C)  product differentiation, low-cost leadership 
D)  low operating leverage, high operating leverage 
A)  low risk focus, low risk focus 
B)  retail customer focus, wholesale customer focus 
C)  product differentiation, low-cost leadership 
D)  low operating leverage, high operating leverage

Question 19

The statutory tax rate differs from a firm's average tax rate due to which of the following reasons

Accepted Answer

A)  the statutory tax rate is a marginal tax rate. 
B)  some expenses are included in book income but do not enter into taxable income. 
C)  the average tax rate is for a period of three years. 
D)  the statutory tax rate does not effect GAAP measures of revenues and expenses. 
A)  the statutory tax rate is a marginal tax rate. 
B)  some expenses are included in book income but do not enter into taxable income. 
C)  the average tax rate is for a period of three years. 
D)  the statutory tax rate does not effect GAAP measures of revenues and expenses.

Question 20

Which of the following would be considered a committed fixed cost ( a cost that is incurred regardless of the level of activity during the period)?

Accepted Answer

A)  depreciation expense 
B)  bad debt expense 
C)  advertising expense 
D)  cost of goods sold 
A)  depreciation expense 
B)  bad debt expense 
C)  advertising expense 
D)  cost of goods sold

One important difference between return on assets (ROA)and return on common shareholder's equity (ROCE)is

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%. Income Statement For the year ended December 31, 2011 -Refer to the information for Orca Industries.Orca's asset turnover is

Firms and industries characterized by heavy fixed capacity costs and lengthy periods required to add new capacity operate under a ___________________________________.

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Inventory turnover is calculated by dividing ________________________________________ by average inventories.

When an analyst uses measures of past profitability to forecast the firm's future profitability the expectation is that those revenues,gains,expenses and losses will ____________________.

Another term for earnings power is

All else being equal,firms with high levels of ________________________________________ incur more risk in their operations and should earn higher rates of return.

When calculating Basic earnings per share net income is adjusted by____________

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Return on assets can be a misleading ratio when analyzing technology firms because two important assets, and do not appear on their balance sheets

Hall and Porter argue that firms have two generic alternative strategies for any particular product.These strategies are

The statutory tax rate differs from a firm's average tax rate due to which of the following reasons

Which of the following would be considered a committed fixed cost ( a cost that is incurred regardless of the level of activity during the period)?

Overview of Financial Reporting, financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 4: Profitability Analysis

One important difference between return on assets (ROA)and return on common shareholder's equity (ROCE)is

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%. Income Statement For the year ended December 31, 2011 -Refer to the information for Orca Industries.Orca's asset turnover is

Firms and industries characterized by heavy fixed capacity costs and lengthy periods required to add new capacity operate under a ___________________________________.

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Inventory turnover is calculated by dividing ________________________________________ by average inventories.

When an analyst uses measures of past profitability to forecast the firm's future profitability the expectation is that those revenues,gains,expenses and losses will ____________________.

Another term for earnings power is

All else being equal,firms with high levels of ________________________________________ incur more risk in their operations and should earn higher rates of return.

When calculating Basic earnings per share net income is adjusted by____________

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Return on assets can be a misleading ratio when analyzing technology firms because two important assets,______________________________ and ______________________________ do not appear on their balance sheets

Hall and Porter argue that firms have two generic alternative strategies for any particular product.These strategies are

The statutory tax rate differs from a firm's average tax rate due to which of the following reasons

Which of the following would be considered a committed fixed cost ( a cost that is incurred regardless of the level of activity during the period)?

Overview of Financial Reporting, financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Return on assets can be a misleading ratio when analyzing technology firms because two important assets, and do not appear on their balance sheets