The financial statements of Black Barn Company are given below. $\begin{array}{c} \text { Black Barn Company } \\ \text { Income Statement (2009) }\\ \begin{array}{lrr} \hline \text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & \underline {5,260,000} \\ \text { Gross profit } & 2,740,000 \\ \text { Selling \& administrative expenses } & \underline {1,500,000} \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expense } & \underline {140,000 }\\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & \underline {440,000} \\ \text { Net income } & \underline {\$ 660,000} \\ \end{array} \end{array}$ \(\begin{array}{c} \begin{array}{lll} \text { Balance Sheet } &2009\\ \\ \text { Cash } &\$ 200,000 \\ \text { Accounts receivable } & 1,200,000 \\ \text { Inventory } & \underline {1,840,000} \\ \text {Total current assets } &\$ 3,240,000 \\ \text {Fixed assets } & \underline {3,200,000} \\ \text { Total assets } & \underline {\$ 6,440,000} \\ \\ \text { Accounts Payable } &\$ 800,000 \\ \text { Bank loan } & \underline {600,000} \\ \text { Total current liabilities } & \$ 1,400,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 2,300,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 300,000 \\ \text {Retained earnings } & \underline {3,840,000}\\ \text { Total liabilities \& equity } & \underline {\$ 6,440,000} \\ \end{array} \begin{array}{lll} 2008\\ \\ \$ 50,000 \\ 950,000 \\ \underline { 1,500,000 }\\ \$ 2,500,000 \\ \underline { 3,000,000} \\ \underline { \$ 5,500,000 }\\ \\ \$ 720,000 \\ \underline { 100,000} \\ \$ 820,000 \\ \underline {1,000,000} \\ \underline {\$ 1,820,000 }\\ \$ 300,000\\ \underline { 3,380,000} \\ \underline { \$ 5,500,000} \\ \end{array} \end{array}\) Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is

A) 2.04. B) 2.58. C) 2.97. D) 1.58. E) None of the options are correct. A) 2.04. B) 2.58. C) 2.97. D) 1.58. E) None of the options are correct.

The financial statements of Midwest Tours are given below. $\begin{array}{c} \text { Midwest Tours } \\ \text { Income Statement (2009) }\\ \begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\ \text { Cost of goods sold } & \underline {1,260,000} \\ \text { Gross profit } & 1,240,000 \\ \text { Selling \& administrative expenses } & \underline { 700,000} \\ \text { Operating profit } & 540,000 \\ \text { Interest expense } & \underline {160,000 }\\ \text { Income before tax } & 380,000 \\ \text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\ \end{array} \end{array}$ \(\begin{array}{c} \begin{array}{lll} \text { Balance Sheet } &2009\\ \\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\ \\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\ \end{array} \begin{array}{lll} 2008\\ \\ \$ 50,000 \\ 450,000 \\ \underline { 270,000 }\\ \$ 770,000 \\ \underline { 2,000,000} \\ \underline { \$ 2,770,000 }\\ \\ \$ 170,000 \\ \underline { 440,000} \\ \$ 610,000 \\ \underline {860,000} \\ \underline {\$ 1,470,000 }\\ \$ 120,000\\ \underline {1,300,000} \\ \underline { \$ 2,890,000 } \\ \end{array} \end{array}\) Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2009 is

A) 2.86. B) 1.23. C) 5.96. D) 4.42. E) 4.86. A) 2.86. B) 1.23. C) 5.96. D) 4.42. E) 4.86.

The financial statements of Midwest Tours are given below. $\begin{array}{c} \text { Midwest Tours } \\ \text { Income Statement (2009) }\\ \begin{array}{lrr} \hline \text { Sales } & \$ 2,500,000 \\ \text { Cost of goods sold } & \underline {1,260,000} \\ \text { Gross profit } & 1,240,000 \\ \text { Selling \& administrative expenses } & \underline { 700,000} \\ \text { Operating profit } & 540,000 \\ \text { Interest expense } & \underline {160,000 }\\ \text { Income before tax } & 380,000 \\ \text { Tax expense } & \underline {152,000} \\ \text { Net income } & \underline {\$ 228,000} \\ \end{array} \end{array}$ \(\begin{array}{c} \begin{array}{lll} \text { Balance Sheet } &2009\\ \\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 500,000 \\ \text { Inventory } & \underline {300,000} \\ \text {Total current assets } &\$ 860,000 \\ \text {Fixed assets } & \underline {2,180,000} \\ \text { Total assets } & \underline {\$ 3,040,000} \\ \\ \text { Accounts Payable } &\$ 200,000 \\ \text { Bank loan } & \underline {460,000} \\ \text { Total current liabilities } & \$ 660,000 \\ \text {Bond payable } & \underline { 860,000} \\ \text { Total liabilities } & \underline {\$ 1,520,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 120,000 \\ \text {Retained earnings } & \underline {1,400,000}\\ \text { Total liabilities \& equity } & \underline {\$ 3,040,000} \\ \end{array} \begin{array}{lll} 2008\\ \\ \$ 50,000 \\ 450,000 \\ \underline { 270,000 }\\ \$ 770,000 \\ \underline { 2,000,000} \\ \underline { \$ 2,770,000 }\\ \\ \$ 170,000 \\ \underline { 440,000} \\ \$ 610,000 \\ \underline {860,000} \\ \underline {\$ 1,470,000 }\\ \$ 120,000\\ \underline {1,300,000} \\ \underline { \$ 2,890,000 } \\ \end{array} \end{array}\) Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2009 is

A) 1.82. B) 1.03. C) 1.30. D) 1.65. E) None of the options are correct. A) 1.82. B) 1.03. C) 1.30. D) 1.65. E) None of the options are correct.

The financial statements of Snapit Company are given below. $\begin{array}{c} \text { Snapit Company } \\ \text { Income Statement (2009) }\\ \begin{array}{lrr} \hline \text { Sales } & \$ 4,000,000\\ \text { Cost of goods sold } & \underline {3,040,000 } \\ \text { Gross profit } & 960,000 \\ \text { Selling \& administrative expenses } & \underline { 430,000 } \\ \text { Operating profit } & 530,000 \\ \text { Interest expense } & \underline {160,000 }\\ \text { Income before tax } & 370,000 \\ \text { Tax expense } & \underline {148,000} \\ \text { Net income } & \underline {\$ 222,000} \\ \end{array} \end{array}$ \(\begin{array}{c} \begin{array}{lll} \text { Balance Sheet } &2009\\ \\ \text { Cash } &\$ 60,000 \\ \text { Accounts receivable } & 550,000 \\ \text { Inventory } & \underline {690,000} \\ \text {Total current assets } &\$ 1,300,000 \\ \text {Fixed assets } & \underline {1,300,000} \\ \text { Total assets } & \underline {\$ 2,600,000} \\ \\ \text { Accounts Payable } &\$ 270,000 \\ \text { Bank loan } & \underline {580,000} \\ \text { Total current liabilities } & \$ 850,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 1,750,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 250,000 \\ \text {Retained earnings } & \underline {600,000}\\ \text { Total liabilities \& equity } & \underline {\$ 2,600,000} \\ \end{array} \begin{array}{lll} 2008\\ \\ \$ 50,000 \\ 500,000 \\ \underline {620,000} \\ \$ 1,170,000 \\ \underline {1,230,000} \\ \underline {\$ 2,400,000} \\ \\ \$ 250,000 \\ \underline {500,000} \\ \$ 750,000 \\ \underline {1,000,000} \\ \underline {\$ 1,750,000 }\\ \$ 250,000 \\ \underline {400,000 }\\ \underline {\$ 2,400,000} \\ \end{array} \end{array}\) Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's quick ratio for 2009 is

A) 1.68. B) 1.12. C) 0.72. D) 1.92. E) None of the options are correct. A) 1.68. B) 1.12. C) 0.72. D) 1.92. E) None of the options are correct.

The financial statements of Black Barn Company are given below. $\begin{array}{c} \text { Black Barn Company } \\ \text { Income Statement (2009) }\\ \begin{array}{lrr} \hline \text { Sales } & \$ 8,000,000 \\ \text { Cost of goods sold } & \underline {5,260,000} \\ \text { Gross profit } & 2,740,000 \\ \text { Selling \& administrative expenses } & \underline {1,500,000} \\ \text { Operating profit } & 1,240,000 \\ \text { Interest expense } & \underline {140,000 }\\ \text { Income before tax } & 1,100,000 \\ \text { Tax expense } & \underline {\$ 440,000} \\ \text { Net income } & \underline {\$ 660,000} \\ \end{array} \end{array}$ \(\begin{array}{c} \begin{array}{lll} \text { Balance Sheet } &2009\\ \\ \text { Cash } &\$ 200,000 \\ \text { Accounts receivable } & 1,200,000 \\ \text { Inventory } & \underline {1,840,000} \\ \text {Total current assets } &\$ 3,240,000 \\ \text {Fixed assets } & \underline {3,200,000} \\ \text { Total assets } & \underline {\$ 6,440,000} \\ \\ \text { Accounts Payable } &\$ 800,000 \\ \text { Bank loan } & \underline {600,000} \\ \text { Total current liabilities } & \$ 1,400,000 \\ \text {Bond payable } & \underline { 900,000} \\ \text { Total liabilities } & \underline {\$ 2,300,000 }\\ \text { Common stock ( 130,000 shares) } & \$ 300,000 \\ \text {Retained earnings } & \underline {3,840,000}\\ \text { Total liabilities \& equity } & \underline {\$ 6,440,000} \\ \end{array} \begin{array}{lll} 2008\\ \\ \$ 50,000 \\ 950,000 \\ \underline { 1,500,000 }\\ \$ 2,500,000 \\ \underline { 3,000,000} \\ \underline { \$ 5,500,000 }\\ \\ \$ 720,000 \\ \underline { 100,000} \\ \$ 820,000 \\ \underline {1,000,000} \\ \underline {\$ 1,820,000 }\\ \$ 300,000\\ \underline { 3,380,000} \\ \underline { \$ 5,500,000} \\ \end{array} \end{array}\) Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2009 is

A) 1.65. B) 1.89. C) 2.64. D) 1.31. E) 1.56. A) 1.65. B) 1.89. C) 2.64. D) 1.31. E) 1.56.

Exam 19: Financial Statement Analysis

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

(Multiple Choice)

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Question 21

Which of the following are issues when dealing with the financial statements of international firms? I) Many countries allow firms to set aside larger contingency reserves than the amounts allowed for U.S. firms. II) Many firms outside the U.S. use accelerated depreciation methods for reporting purposes, whereas most U.S. firms use straight-line depreciation for reporting purposes. III) Intangibles, such as goodwill, may be amortized over different periods or may be expensed rather than capitalized. IV) There is no way to reconcile the financial statements of non-U.S. firms to GAAP.

(Multiple Choice)

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Question 22

If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be

(Multiple Choice)

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Question 23

A firm has a P/E ratio of 12, an ROE of 13%, and a market-to-book value of

(Multiple Choice)

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(80)

Question 24

To create a common size income statement, all items on the income statement by .

(Multiple Choice)

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Question 25

Ferris Corp. wants to increase its current ratio from the present level of 1.5 when it closes the books next week. The action of __________ will have the desired effect.

(Multiple Choice)

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(92)

Question 26

The financial statements of Black Barn Company are given below. Black Barn Company Income Statement (2009) Sales \ 8,000,000 Cost of goods sold Gross profit 2,740,000 Selling \& administrative expenses Operating profit 1,240,000 Interest expense Income before tax 1,100,000 Tax expense Net income Balance Sheet 2009 Cash \ 200,000 Accounts receivable 1,200,000 Inventory Total current assets \ 3,240,000 Fixed assets Total assets Accounts Payable \ 800,000 Bank loan Total current liabilities \ 1,400,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 300,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 950,000 \ 2,500,000 \ 720,000 \ 820,000 \ 300,000 Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is

(Multiple Choice)

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(63)

Question 27

The financial statements of Midwest Tours are given below. Midwest Tours Income Statement (2009) Sales \ 2,500,000 Cost of goods sold Gross profit 1,240,000 Selling \& administrative expenses Operating profit 540,000 Interest expense Income before tax 380,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 500,000 Inventory Total current assets \ 860,000 Fixed assets Total assets Accounts Payable \ 200,000 Bank loan Total current liabilities \ 660,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 120,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 450,000 \ 770,000 \ 170,000 \ 610,000 \ 120,000 Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2009 is

(Multiple Choice)

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Question 28

Common size financial statements make it easier to compare firms

(Multiple Choice)

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Question 29

Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average?

(Multiple Choice)

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(94)

Question 30

The financial statements of Midwest Tours are given below. Midwest Tours Income Statement (2009) Sales \ 2,500,000 Cost of goods sold Gross profit 1,240,000 Selling \& administrative expenses Operating profit 540,000 Interest expense Income before tax 380,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 500,000 Inventory Total current assets \ 860,000 Fixed assets Total assets Accounts Payable \ 200,000 Bank loan Total current liabilities \ 660,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 120,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 450,000 \ 770,000 \ 170,000 \ 610,000 \ 120,000 Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2009 is

(Multiple Choice)

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(73)

Question 31

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) current ratio than a firm using FIFO, and the difference will tend to __ as time passes.

(Multiple Choice)

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Question 32

If the interest rate on debt is lower than ROA, then a firm will __________ by increasing the use of debt in the capital structurE.

(Multiple Choice)

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Question 33

The financial statements of Snapit Company are given below. Snapit Company Income Statement (2009) Sales \ 4,000,000 Cost of goods sold Gross profit 960,000 Selling \& administrative expenses Operating profit 530,000 Interest expense Income before tax 370,000 Tax expense Net income Balance Sheet 2009 Cash \ 60,000 Accounts receivable 550,000 Inventory Total current assets \ 1,300,000 Fixed assets Total assets Accounts Payable \ 270,000 Bank loan Total current liabilities \ 850,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 250,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 500,000 \ 1,170,000 \ 250,000 \ 750,000 \ 250,000 Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's quick ratio for 2009 is

(Multiple Choice)

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Question 34

A study by Speidell and Bavishi (1992) found that when accounting statements of foreign firms were restated on a common accounting basis,

(Multiple Choice)

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Question 35

__________ is a true statement.

(Multiple Choice)

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Question 36

The financial statements of Black Barn Company are given below. Black Barn Company Income Statement (2009) Sales \ 8,000,000 Cost of goods sold Gross profit 2,740,000 Selling \& administrative expenses Operating profit 1,240,000 Interest expense Income before tax 1,100,000 Tax expense Net income Balance Sheet 2009 Cash \ 200,000 Accounts receivable 1,200,000 Inventory Total current assets \ 3,240,000 Fixed assets Total assets Accounts Payable \ 800,000 Bank loan Total current liabilities \ 1,400,000 Bond payable Total liabilities Common stock ( 130,000 shares) \ 300,000 Retained earnings Total liabilities \& equity 2008 \ 50,000 950,000 \ 2,500,000 \ 720,000 \ 820,000 \ 300,000 Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2009 is

(Multiple Choice)

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(90)

Question 37

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE is

(Multiple Choice)

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Question 38

Common size balance sheets make it easier to compare firms

(Multiple Choice)

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(72)

Question 39

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies

(Multiple Choice)

5.0/5

(80)

Question 40

Exam 19: Financial Statement Analysis

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be

A firm has a P/E ratio of 12, an ROE of 13%, and a market-to-book value of

To create a common size income statement, ____________ all items on the income statement by ____________.

Ferris Corp. wants to increase its current ratio from the present level of 1.5 when it closes the books next week. The action of __________ will have the desired effect.

Common size financial statements make it easier to compare firms

Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average?

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes.

If the interest rate on debt is lower than ROA, then a firm will __________ by increasing the use of debt in the capital structurE.

A study by Speidell and Bavishi (1992) found that when accounting statements of foreign firms were restated on a common accounting basis,

__________ is a true statement.

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE is

Common size balance sheets make it easier to compare firms

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

To create a common size income statement, all items on the income statement by .

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) current ratio than a firm using FIFO, and the difference will tend to __ as time passes.