Question 1

A firm obtains the funds needed to pay its current bills primarily from its:

Accepted Answer

A) current liabilities. 
B) long-term assets. 
C) long-term liabilities. 
D) equity. 
E) liquid assets. 
A) current liabilities. 
B) long-term assets. 
C) long-term liabilities. 
D) equity. 
E) liquid assets.

Question 2

Which of the following financial statements summarizes the revenue generated and the expenses incurred by a firm during the accounting period?

Accepted Answer

A) Balance sheet 
B) Statement of cash flows 
C) Statement of retained earnings 
D) Income statement 
E) Proxy statement 
A) Balance sheet 
B) Statement of cash flows 
C) Statement of retained earnings 
D) Income statement 
E) Proxy statement

Question 3

_____ is an example of cash flow from an investing activity in a cash flow statement.

Accepted Answer

A) Payment of dividends 
B) Repurchase of stock 
C) Purchase of equipment 
D) Purchase of inventory 
E) Repayment of debt 
A) Payment of dividends 
B) Repurchase of stock 
C) Purchase of equipment 
D) Purchase of inventory 
E) Repayment of debt

Question 4

All firms that are publicly traded in the United States will be required to adopt the _____ in the near future.

Accepted Answer

A) Generally Accepted Accounting Principles (GAAP) 
B) Financial Accounting Standards Rules (FASR) 
C) Governmental Accounting Standards Principles (GASP) 
D) International Financial Reporting Standards (IFRS) 
E) National Advisory Accounting Standards (NAAS) 
A) Generally Accepted Accounting Principles (GAAP) 
B) Financial Accounting Standards Rules (FASR) 
C) Governmental Accounting Standards Principles (GASP) 
D) International Financial Reporting Standards (IFRS) 
E) National Advisory Accounting Standards (NAAS)

Question 5

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

Accepted Answer

A) 48.2 days. 
B) 52.7 days. 
C) 39.6 days. 
D) 82.1 days. 
E) 66.5 days. 
A) 48.2 days. 
B) 52.7 days. 
C) 39.6 days. 
D) 82.1 days. 
E) 66.5 days.

Question 6

In 2010, the Securities and Exchange Commission (SEC) announced its support for Generally Accepted Accounting Principles (GAAP).

Accepted Answer

A) True 
 B)False

Question 7

A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. The firm's times interest earned ratio is:

Accepted Answer

A) 16 times. 
B) 10 times. 
C) 7 times. 
D) 11 times. 
E) 20 times. 
A) 16 times. 
B) 10 times. 
C) 7 times. 
D) 11 times. 
E) 20 times.

Question 8

Which of the following mathematical expressions is used to compute the book value per share?

Accepted Answer

A) Book value per share = Common equity ÷ Total number of shares outstanding 
B) Book value per share = Total shares issued × Per share par value 
C) Book value per share = Current assets - Current liabilities 
D) Book value per share = Total assets ÷ Total number of shares outstanding 
E) Book value per share = Earnings available to common stockholders ÷ Total number of shares outstanding 
A) Book value per share = Common equity ÷ Total number of shares outstanding 
B) Book value per share = Total shares issued × Per share par value 
C) Book value per share = Current assets - Current liabilities 
D) Book value per share = Total assets ÷ Total number of shares outstanding 
E) Book value per share = Earnings available to common stockholders ÷ Total number of shares outstanding

Question 9

Which of the following items appears at the top of an income statement when determining 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

The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules.

Accepted Answer

A) True 
 B)False

Question 11

The days sales outstanding (DSO) ratio of a firm identifies:

Accepted Answer

A) the average length of time a firm must wait after making a credit sale before receiving cash. 
B) how effectively the firm uses its plant and equipment to help generate sales. 
C) the extent to which a firm's net operating income can safely decline. 
D) the profit (earnings) per dollar of sales. 
E) how much investors are willing to pay for the firm's stock for each dollar of reported profits. 
A) the average length of time a firm must wait after making a credit sale before receiving cash. 
B) how effectively the firm uses its plant and equipment to help generate sales. 
C) the extent to which a firm's net operating income can safely decline. 
D) the profit (earnings) per dollar of sales. 
E) how much investors are willing to pay for the firm's stock for each dollar of reported profits.

Question 12

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 13

A firm's net income is the most appropriate measure to determine whether the management is maximizing the firm's stock price.

Accepted Answer

A) True 
 B)False

Question 14

The balance sheet includes historical values that can impact the validity of a firm's financial ratios.

Accepted Answer

A) True 
 B)False

Question 15

Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio.

Accepted Answer

A) 6.0 
B) 6.7 
C) 4.0 
D) 10.0 
E) 3.3 
A) 6.0 
B) 6.7 
C) 4.0 
D) 10.0 
E) 3.3

Question 16

Which of the following mathematical expressions is used to compute the net working capital of a firm?

Accepted Answer

A) Net working capital = Total liabilities − Retained earnings 
B) Net working capital = Total assets − Current assets 
C) Net working capital = Total liabilities − Current liabilities 
D) Net working capital = Current assets − Current liabilities 
E) Net working capital = Total equity − Retained earnings 
A) Net working capital = Total liabilities − Retained earnings 
B) Net working capital = Total assets − Current assets 
C) Net working capital = Total liabilities − Current liabilities 
D) Net working capital = Current assets − Current liabilities 
E) Net working capital = Total equity − Retained earnings

Question 17

A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 18

A limitation of ratio analysis is that:

Accepted Answer

A) it is useful only for large, multidivisional firms. 
B) inflation, which distorts a firm's balance sheet, is considered when calculating ratios. 
C) seasonal factors, which distort a firm's balance sheet, are taken into account when calculating ratios. 
D) firms can employ window-dressing techniques to make their financial statements look better. 
E) only statistical procedures are considered while analyzing the net effects of a set of ratios. 
A) it is useful only for large, multidivisional firms. 
B) inflation, which distorts a firm's balance sheet, is considered when calculating ratios. 
C) seasonal factors, which distort a firm's balance sheet, are taken into account when calculating ratios. 
D) firms can employ window-dressing techniques to make their financial statements look better. 
E) only statistical procedures are considered while analyzing the net effects of a set of ratios.

Question 19

A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?

Accepted Answer

A) The firm's fixed assets turnover has improved. 
B) The firm's liquidity position has improved. 
C) The firm's stock price has increased. 
D) The firm's financial leverage has improved. 
E) The firm's market value has decreased. 
A) The firm's fixed assets turnover has improved. 
B) The firm's liquidity position has improved. 
C) The firm's stock price has increased. 
D) The firm's financial leverage has improved. 
E) The firm's market value has decreased.

Question 20

Ruby Enterprises Ltd. has long-term bonds worth $20 million, retained earnings of $45 million, accounts payable of $10 million, notes payable of $12 million, and inventory worth $18 million. What is the value of total liabilities of Ruby Enterprises?

Accepted Answer

A) $42 million 
B) $105 million 
C) $87 million 
D) $60 million 
E) $85 million 
A) $42 million 
B) $105 million 
C) $87 million 
D) $60 million 
E) $85 million

A firm obtains the funds needed to pay its current bills primarily from its:

Which of the following financial statements summarizes the revenue generated and the expenses incurred by a firm during the accounting period?

_____ is an example of cash flow from an investing activity in a cash flow statement.

All firms that are publicly traded in the United States will be required to adopt the _____ in the near future.

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

In 2010, the Securities and Exchange Commission (SEC) announced its support for Generally Accepted Accounting Principles (GAAP).

A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. The firm's times interest earned ratio is:

Which of the following mathematical expressions is used to compute the book value per share?

Which of the following items appears at the top of an income statement when determining the net income of a firm?

The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules.

The days sales outstanding (DSO) ratio of a firm identifies:

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

A firm's net income is the most appropriate measure to determine whether the management is maximizing the firm's stock price.

The balance sheet includes historical values that can impact the validity of a firm's financial ratios.

Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio.

Which of the following mathematical expressions is used to compute the net working capital of a firm?

A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows.

A limitation of ratio analysis is that:

A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?

Ruby Enterprises Ltd. has long-term bonds worth $20 million, retained earnings of $45 million, accounts payable of $10 million, notes payable of $12 million, and inventory worth $18 million. What is the value of total liabilities of Ruby Enterprises?

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

A firm obtains the funds needed to pay its current bills primarily from its:

Which of the following financial statements summarizes the revenue generated and the expenses incurred by a firm during the accounting period?

_____ is an example of cash flow from an investing activity in a cash flow statement.

All firms that are publicly traded in the United States will be required to adopt the _____ in the near future.

A firm has total assets of $500 million, including its accounts receivable, which is worth $120 million. The annual sales of the firm is $650 million. The days sales outstanding (DSO) ratio of the firm is:

In 2010, the Securities and Exchange Commission (SEC) announced its support for Generally Accepted Accounting Principles (GAAP).

A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. The firm's times interest earned ratio is:

Which of the following mathematical expressions is used to compute the book value per share?

Which of the following items appears at the top of an income statement when determining the net income of a firm?

The Securities and Exchange Commission (SEC) was created to develop and approve a set of common international accounting rules.

The days sales outstanding (DSO) ratio of a firm identifies:

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

A firm's net income is the most appropriate measure to determine whether the management is maximizing the firm's stock price.

The balance sheet includes historical values that can impact the validity of a firm's financial ratios.

Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio.

Which of the following mathematical expressions is used to compute the net working capital of a firm?

A firm's net income reported on its income statement must equal the operating cash flows on the statement of cash flows.

A limitation of ratio analysis is that:

A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?

Ruby Enterprises Ltd. has long-term bonds worth $20 million, retained earnings of $45 million, accounts payable of $10 million, notes payable of $12 million, and inventory worth $18 million. What is the value of total liabilities of Ruby Enterprises?

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