Exam 4: Evaluating a Firms Financial Performance

Please refer to Table 4-4 for the following questions. Table 4-4 Wes Donnell, Inc. Balance Sheet -In addition to the information contained in Table 4-4,you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010.What is Wes Donnell's retained earnings balance for 2010?

Borrowing money causes a corporation's return on operating assets to decrease because of the interest that must be paid.

When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry it is called trend analysis.

Which of the following ratios would be the most useful to assess the risk associated with a firm being able to pay off its short-term line of credit?

Denver Systems has total assets of $1,000,000; common equity of $400,000; a gross profit of $800,000; total operating expenses of $620,000; interest expense of $20,000; income taxes of $74,000; and preferred dividends of $30,000.What is Denver Systems' return on equity?

Please refer to Table 4-5 for the following questions. Table 4-5 Yen Inc. Balance Sheet Yen Inc. Income Statement For the year ended December 31, 2010 -Based on the information contained in Tables 4-5,what was Yen's quick ratio at the end of 2010?

An analyst is evaluating two companies,A and B.Company A has a debt ratio of 50% and Company B has a debt ratio of 25%.In his report,the analyst is concerned about Company B's debt level,but not about Company A's debt level.Which of the following would best explain this position?

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the average collection period is

How managers choose to finance the business affects the company's risk,and as a result,the rate of return stockholders receive on their investments.

Which of the following is true if a firm wishes to collect its accounts faster by imposing stricter credit terms on its customers?

The astute financial manager will seek to attain the highest current ratio possible.

Blanton Corporation increased its financial leverage during 2010 by taking out a loan and using the proceeds to buy back common stock.At the end of 2010,the corporation reported higher earnings per share and higher return on equity.However,its stock price declined.Discuss why this may happen.

Common-sized balance sheets

DuPont analysis indicates that the return on equity may be boosted above the return on assets by using leverage (debt).

Rural Hydroponics has total equity of $560,000; sales of $2,250,000; current assets of $700,000; and total liabilities of $435,000.What is Rural Hydroponics' total asset turnover?

Why do differences in the accounting practices of firms limit the usefulness of financial ratios?

A common method of evaluating a firm's financial ratios is to compare the current values of the firm's ratios to its own ratios from prior periods.This is referred to as trend analysis.

Financial ratios are used by personnel in marketing,human resources,and other groups within a firm,not just by the finance and accounting personnel.

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the operating profit margin is

For a retailer with inventory to sell,the acid-test ratio will be