Question 1

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Accepted Answer

A) True 
 B)False  True

Question 2

Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?

Accepted Answer

A) $750,000 
B) $1,000,000 
C) $450,000 
D) $262,500 
E) $153,200 
A) $750,000 
B) $1,000,000 
C) $450,000 
D) $262,500 
E) $153,200 D

Question 3

A simple approach to trend analysis is to construct graphs.

Accepted Answer

A) True 
 B)False  True

Question 4

Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant?

Accepted Answer

A) Selling of inventory on credit 
B) Purchase of inventory on credit 
C) Collecting accounts receivable 
D) Purchase of fixed assets for cash 
E) Repayment of short-term loan 
A) Selling of inventory on credit 
B) Purchase of inventory on credit 
C) Collecting accounts receivable 
D) Purchase of fixed assets for cash 
E) Repayment of short-term loan

Question 5

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

Accepted Answer

A) Profit margin, current ratio, and fixed charge coverage ratio 
B) Quick ratio, debt ratio, and times interest earned 
C) Inventory turnover ratio, days sales outstanding, and fixed asset turnover ratio 
D) Total assets turnover ratio, price earnings ratio, and return on total assets 
E) Time interest earned, profit margin, and fixed asset turnover ratio 
A) Profit margin, current ratio, and fixed charge coverage ratio 
B) Quick ratio, debt ratio, and times interest earned 
C) Inventory turnover ratio, days sales outstanding, and fixed asset turnover ratio 
D) Total assets turnover ratio, price earnings ratio, and return on total assets 
E) Time interest earned, profit margin, and fixed asset turnover ratio

Question 6

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 price-earnings ratio. 
B) the debt ratio. 
C) the times interest earned ratio. 
D) the return on equity. 
E) the profit margin. 
A) the price-earnings ratio. 
B) the debt ratio. 
C) the times interest earned ratio. 
D) the return on equity. 
E) the profit margin.

Question 7

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 8

The balance sheet of Crimpson Solutions Ltd. has cash of $125 million, accounts receivable of $245 million, inventory of $160 million, and equipment worth $450 million. The company also has accounts payable of $120 million, notes payable of $280 million, and corporate bonds of $365 million. Crimpson's current ratio is:

Accepted Answer

A) 2.5 times. 
B) 1.56 times. 
C) 1.325 times. 
D) 0.565 times. 
E) 1.855 times. 
A) 2.5 times. 
B) 1.56 times. 
C) 1.325 times. 
D) 0.565 times. 
E) 1.855 times.

Question 9

Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time.

Accepted Answer

A) True 
 B)False

Question 10

Market value ratios indicate:

Accepted Answer

A) the effect of liquidity, asset management, and debt management on operating results. 
B) how much debt the firm has and whether it can take on more debt. 
C) the firm's ability to meet its current obligations. 
D) how effectively a firm is managing its assets. 
E) what investors think of the company's future prospects based on its past performance. 
A) the effect of liquidity, asset management, and debt management on operating results. 
B) how much debt the firm has and whether it can take on more debt. 
C) the firm's ability to meet its current obligations. 
D) how effectively a firm is managing its assets. 
E) what investors think of the company's future prospects based on its past performance.

Question 11

Which of the following is an example of a current asset?

Accepted Answer

A) Inventory 
B) Retained earnings 
C) Accounts payable 
D) Plant and equipment 
E) Common stock 
A) Inventory 
B) Retained earnings 
C) Accounts payable 
D) Plant and equipment 
E) Common stock

Question 12

Which of the following is the formula to calculate a firm's inventory turnover ratio?

Accepted Answer

A) Inventory Turnover = Sales ÷ Inventory 
B) Inventory Turnover = Cost of goods sold ÷ Inventory 
C) Inventory Turnover = Inventory ÷ Current assets 
D) Inventory Turnover = Inventory ÷ Accounts receivables 
E) Inventory Turnover = (Sales - Cost of goods sold) ÷ Inventory 
A) Inventory Turnover = Sales ÷ Inventory 
B) Inventory Turnover = Cost of goods sold ÷ Inventory 
C) Inventory Turnover = Inventory ÷ Current assets 
D) Inventory Turnover = Inventory ÷ Accounts receivables 
E) Inventory Turnover = (Sales - Cost of goods sold) ÷ Inventory

Question 13

A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has a debt of $7,500,000, total assets of $22,500,000, and an interest cost on a total debt of 5 percent, what is the firm's return on total assets (ROA)? (Round answer to two decimal places.)

Accepted Answer

A) 8.47% 
B) 10.94% 
C) 12.02% 
D) 13.33% 
E) 15.18% 
A) 8.47% 
B) 10.94% 
C) 12.02% 
D) 13.33% 
E) 15.18%

Question 14

The statement of retained earnings for Redwood Systems Ltd. shows a retained earnings balance of $300 million on December 31. During the year, Redwood generated net income of $60 million and paid dividends of $20 million to its stockholders. What was the beginning balance of retained earnings at the start of this year?

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 15

Which of the following ratios measures how effectively a firm is managing its assets?

Accepted Answer

A) Quick ratio 
B) Times interest earned ratio 
C) Profit margin ratio 
D) Inventory turnover ratio 
E) Price earnings ratio 
A) Quick ratio 
B) Times interest earned ratio 
C) Profit margin ratio 
D) Inventory turnover ratio 
E) Price earnings ratio

Question 16

Which of the following is considered a part of cash flow from a financing activity in a statement of cash flows?

Accepted Answer

A) Increase in corporate bonds 
B) Decrease in accrued wages 
C) Increase in inventories 
D) Decrease in accounts payable 
E) Increase in fixed assets 
A) Increase in corporate bonds 
B) Decrease in accrued wages 
C) Increase in inventories 
D) Decrease in accounts payable 
E) Increase in fixed assets

Question 17

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

Question 18

Assume that Meyer Corporation is 100 percent equity financed, and has the following information:
(1) Earnings before taxes = $1,500;
(2) Sales = $5,000;
(3) Dividend payout ratio = 60%;
(4) Total assets turnover = 2.0;
(5) Applicable tax rate = 30%
The firm's return on equity is:

Accepted Answer

A) 25%. 
B) 30%. 
C) 35%. 
D) 42%. 
E) 50%. 
A) 25%. 
B) 30%. 
C) 35%. 
D) 42%. 
E) 50%.

Question 19

Which of the following is the most appropriate measure to examine whether management of a firm is pursuing the goal of maximizing the firm's stock price?

Accepted Answer

A) Retained earnings 
B) Net income 
C) Cash flows 
D) Earnings per share 
E) Accounting profits 
A) Retained earnings 
B) Net income 
C) Cash flows 
D) Earnings per share 
E) Accounting profits

Question 20

Which of the following is considered as a liability in the balance sheet of a firm?

Accepted Answer

A) Accounts receivable 
B) Corporate bonds 
C) Retained earnings 
D) Common stock 
E) Plant and equipment 
A) Accounts receivable 
B) Corporate bonds 
C) Retained earnings 
D) Common stock 
E) Plant and equipment

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?

A simple approach to trend analysis is to construct graphs.

Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant?

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

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:

Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time.

Market value ratios indicate:

Which of the following is an example of a current asset?

Which of the following is the formula to calculate a firm's inventory turnover ratio?

A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has a debt of $7,500,000, total assets of $22,500,000, and an interest cost on a total debt of 5 percent, what is the firm's return on total assets (ROA)? (Round answer to two decimal places.)

Which of the following ratios measures how effectively a firm is managing its assets?

Which of the following is considered a part of cash flow from a financing activity in a statement of cash flows?

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

Assume that Meyer Corporation is 100 percent equity financed, and has the following information: (1) Earnings before taxes = $1,500; (2) Sales = $5,000; (3) Dividend payout ratio = 60%; (4) Total assets turnover = 2.0; (5) Applicable tax rate = 30% The firm's return on equity is:

Which of the following is the most appropriate measure to examine whether management of a firm is pursuing the goal of maximizing the firm's stock price?

Which of the following is considered as a liability in the balance sheet of a firm?

An Overview of Managerial Finance

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics 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

The information contained in the annual report is used by investors to form expectations about future earnings and dividends.

Greenwood Builders Ltd. has a debt ratio of 35 percent and it has total assets of $750,000. What is the value of their total liabilities?

A simple approach to trend analysis is to construct graphs.

Pearl Automotive Ltd. has a current ratio of 2. The company wants to window dress its financial statements. Which of the following transactions will increase the current ratio of Pearl Automotive, assuming all other variables remain constant?

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

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:

Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method of measuring a firm's performance over time.

Market value ratios indicate:

Which of the following is an example of a current asset?

Which of the following is the formula to calculate a firm's inventory turnover ratio?

A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has a debt of $7,500,000, total assets of $22,500,000, and an interest cost on a total debt of 5 percent, what is the firm's return on total assets (ROA)? (Round answer to two decimal places.)

Which of the following ratios measures how effectively a firm is managing its assets?

Which of the following is considered a part of cash flow from a financing activity in a statement of cash flows?

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

Assume that Meyer Corporation is 100 percent equity financed, and has the following information: (1) Earnings before taxes = $1,500; (2) Sales = $5,000; (3) Dividend payout ratio = 60%; (4) Total assets turnover = 2.0; (5) Applicable tax rate = 30% The firm's return on equity is:

Which of the following is the most appropriate measure to examine whether management of a firm is pursuing the goal of maximizing the firm's stock price?

Which of the following is considered as a liability in the balance sheet of a firm?

An Overview of Managerial Finance

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics 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