Exam 7: Analysis of Financial Statements

The Amer Company has the following characteristics: Sales:$1,000 Total Assets:$1,000 Total Debt/Total Assets:35% EBIT:$200 Tax rate:40% Interest rate on total debt:4.57% What is Amer's ROE?

A firm has total assets of $1,000,000 and a debt ratio of 30 percent.Currently,it has sales of $2,500,000,total fixed costs of $1,000,000,and EBIT of $50,000.If the firm's before-tax cost of debt is 10 percent and the firm's tax rate is 40 percent,what is the firm's ROE?

The inventory turnover and current ratios are related.The combination of a high current ratio and a low inventory turnover ratio relative to the industry norm might indicate that the firm is maintaining too high an inventory level or that part of the inventory is obsolete or damaged.

Which of the following statements is correct?

A firm has a profit margin of 15 percent on sales of $20,000,000.If the firm has debt of $7,500,000,total assets of $22,500,000,and an after-tax interest cost on total debt of 5 percent,what is the firm's ROA?

Recently the M&M Company has been having problems.As a result,its financial situation has deteriorated.M&M approached the First National Bank for a badly needed loan,but the loan officer insisted that the current ratio (now 0.5)be improved to at least 0.8 before the bank would even consider granting the credit.Which of the following actions would do the most to improve the ratio in the short run?

From management's standpoint,financial statement analysis is useful

A fire has destroyed a large percentage of the financial records of the Carter Company.You have the task of piecing together information in order to release a financial report.You have found the return on equity to be 18 percent.If sales were $4 million,the debt ratio was 0.40,and total liabilities were $2 million,what was the return on assets (ROA)?

____ is a residual that represents the amount that stockholders would receive if all of the firm's assets could be sold at their book values and all of their liabilities could be paid at their book values.

Which of the following statements is correct?

Lone Star Plastics has the following data: Assets: $100,000 Profit margin: 6.0% Tax rate: 40% Debt ratio: 40.0% Interest rate: 8.0% Total asset turnover: 3.0 What is Lone Star's EBIT?

A positive number in the retained earnings account indicates that according to GAAP in the past the firm has earned income excess of all dividends paid.

A stock dividend and a stock split should,at least conceptually,have the same effect on shareholders' wealth.

Which of the following statements is most correct?

On its December 31st balance sheet,LCG Company reported gross fixed assets of $6,500,000 and net fixed assets of $5,000,000.Depreciation for the year was $500,000.Net fixed assets a year earlier on December 31st,had been $4,700,000.What figure for "Cash Flows Associated with Long-Term Investments (Fixed Assets)" should LCG report on its Statement of Cash Flows for the current year?

Velcraft Company has 20,000,000 shares of common stock authorized,but to date,has only 12,000,000 shares outstanding,each with a $1.00 par value.The company has $24,000,000 in additional paid-in capital and retained earnings are $96,000,000.What is Velcraft's current book value per share?

The ____ shows the investments made by the firm in the form of assets and the means by which the assets were financed.

A firm whose days sales outstanding is much higher than the industry's average is likely to either be too "tight" in its credit policy or too "loose" in its collection policy.

In order to accurately estimate cash flow from operations,depreciation must be added back to net income.The reason for this is that even though depreciation is deducted from revenue it is really a non-cash charge.

Non-cash assets are expected to produce cash over time but the amount of cash they eventually produce could be higher or lower than the values at which the assets are carried on the books.