Exam 4: Measuring Corporate Performance

Which one of the following would likely be most detrimental to a firm's current ratio if that ratio is currently 2?

When will ROE equal ROC?

A firm's quick ratio of .49 suggests the firm:

What is the approximate total debt ratio for a firm with a total debt-equity ratio of .65?

If a firm's average collection period is 42 days, and this compares favorably to the industry average, what questions may you want to ask before assuming that the firm is "efficient"?

If a company uses cash to pay off some of its accounts payables, what effect will this have on its liquidity ratios, given that the ratios exceeded 1 before the payoff?

Residual income is another term for economic value added.

Market value added is the difference between the market value of the firm's equity and its book value.

If ROC is less than a firm's cost of capital, which of the following must be true?

What is the ROE for a firm with a times interest earned ratio of 2, a tax liability of $1 million, and interest expense of $1.5 million if equity equals $1.5 million?

High levels of liquidity are most apt to indicate:

Return on assets is always a larger number than the return on equity.

Assume BDS acquired its main supplier, ABC. As a result of the acquisition, BDS finds that its profit margin increased but its ROA remained constant. A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the profit margin?

XYZ Corp. has an operating profit margin of 7%, a debt burden of .8, and has financed two-thirds of its assets through equity. What asset turnover ratio is necessary to achieve an ROE of 18%?

Net working capital is determined from the difference between current assets and current liabilities.

The higher the times interest earned ratio, the higher the interest expense.