Question 1

One problem with comparing financial ratios prepared by different reporting agencies is

Accepted Answer

A)  some agencies receive financial information later than others. 
B)  agencies vary in their policies as to what is included in specific calculations. 
C)  some agencies are careless in their reporting. 
D)  some firms are more conservative in their accounting practices. 
E)  None of the options are correct. 
A)  some agencies receive financial information later than others. 
B)  agencies vary in their policies as to what is included in specific calculations. 
C)  some agencies are careless in their reporting. 
D)  some firms are more conservative in their accounting practices. 
E)  None of the options are correct.

Question 2

A firm has a higher quick (or acid test) ratio than the industry average, which implies

Accepted Answer

A)  the firm has a higher P/E ratio than other firms in the industry. 
B)  the firm is more likely to avoid insolvency in the short run than other firms in the industry. 
C)  the firm may be less profitable than other firms in the industry. 
D)  the firm has a higher P/E ratio than other firms in the industry, and the firm is more likely to avoid insolvency in the short run than other firms in the industry. 
E)  the firm is more likely to avoid insolvency in the short run than other firms in the industry, and the firm may be less profitable than other firms in the industry. 
A)  the firm has a higher P/E ratio than other firms in the industry. 
B)  the firm is more likely to avoid insolvency in the short run than other firms in the industry. 
C)  the firm may be less profitable than other firms in the industry. 
D)  the firm has a higher P/E ratio than other firms in the industry, and the firm is more likely to avoid insolvency in the short run than other firms in the industry. 
E)  the firm is more likely to avoid insolvency in the short run than other firms in the industry, and the firm may be less profitable than other firms in the industry.

Question 3

An example of a liquidity ratio is

Accepted Answer

A)  fixed asset turnover. 
B)  current ratio. 
C)  acid test or quick ratio. 
D)  fixed asset turnover and acid test or quick ratio. 
E)  current ratio and acid test or quick ratio. 
A)  fixed asset turnover. 
B)  current ratio. 
C)  acid test or quick ratio. 
D)  fixed asset turnover and acid test or quick ratio. 
E)  current ratio and acid test or quick ratio.

Question 4

______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities.

Accepted Answer

A)  Net Sales 
B)  Operating Income 
C)  Net Income 
D)  Non-operating Income 
E)  Earnings before interest and taxes 
A)  Net Sales 
B)  Operating Income 
C)  Net Income 
D)  Non-operating Income 
E)  Earnings before interest and taxes

Question 5

A firm has an ROE of 2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%. The firm's ROA is

Accepted Answer

A)  2%. 
B)  4%. 
C)  6%. 
D)  8%. 
E)  None of the options are correct. 
A)  2%. 
B)  4%. 
C)  6%. 
D)  8%. 
E)  None of the options are correct.

Question 6

To create a common size balance sheet, ____________ all items on the balance sheet by ____________.

Accepted Answer

A)  multiply; owners'equity 
B)  multiply; total assets 
C)  divide; owners'equity 
D)  divide; total assets 
E)  multiply; debt 
A)  multiply; owners'equity 
B)  multiply; total assets 
C)  divide; owners'equity 
D)  divide; total assets 
E)  multiply; debt

Question 7

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 market-to-book value for 2009 is

Accepted Answer

A)  1.13. 
B)  1.62. 
C)  1.00. 
D)  1.26. 
A)  1.13. 
B)  1.62. 
C)  1.00. 
D)  1.26.

Question 8

A firm has a lower asset turnover ratio than the industry average, which implies

Accepted Answer

A)  the firm has a lower P/E ratio than other firms in the industry. 
B)  the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
C)  the firm is less profitable than other firms in the industry. 
D)  the firm is utilizing assets less efficiently than other firms in the industry. 
E)  the firm has lower spending on new fixed assets than other firms in the industry. 
A)  the firm has a lower P/E ratio than other firms in the industry. 
B)  the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
C)  the firm is less profitable than other firms in the industry. 
D)  the firm is utilizing assets less efficiently than other firms in the industry. 
E)  the firm has lower spending on new fixed assets than other firms in the industry.

Question 9

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 times interest earned ratio for 2009 is

Accepted Answer

A)  8.86. 
B)  7.17. 
C)  9.66. 
D)  6.86. 
E)  None of the options are correct. $1,240,000/$140,000 = 8.86. 
A)  8.86. 
B)  7.17. 
C)  9.66. 
D)  6.86. 
E)  None of the options are correct. $1,240,000/$140,000 = 8.86.

Question 10

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) } & \$ 2500,000 \
 \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 asset turnover ratio for 2009 is

Accepted Answer

A)  1.60. 
B)  3.16. 
C)  3.31. 
D)  4.64. 
A)  1.60. 
B)  3.16. 
C)  3.31. 
D)  4.64.

Question 11

A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm

Accepted Answer

A)  has relatively more total current assets and even more inventory than other firms in the industry. 
B)  is very efficient at managing inventories. 
C)  has liquidity that is superior to the average firm in the industry. 
D)  is near technical insolvency. 
A)  has relatively more total current assets and even more inventory than other firms in the industry. 
B)  is very efficient at managing inventories. 
C)  has liquidity that is superior to the average firm in the industry. 
D)  is near technical insolvency.

Question 12

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) } & \$ 2500,000 \
 \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 inventory turnover ratio for 2009 is

Accepted Answer

A)  4.64. 
B)  4.16. 
C)  4.41. 
D)  4.87. 
E)  None of the options are correct. 
A)  4.64. 
B)  4.16. 
C)  4.41. 
D)  4.87. 
E)  None of the options are correct.

Question 13

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

Accepted Answer

A)  0.24. 
B)  0.95. 
C)  0.71. 
D)  1.12. 
A)  0.24. 
B)  0.95. 
C)  0.71. 
D)  1.12.

Question 14

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years?

Accepted Answer

A)  Sales/total assets 
B)  Debt/total assets 
C)  Debt/equity 
D)  Retained earnings/total assets 
A)  Sales/total assets 
B)  Debt/total assets 
C)  Debt/equity 
D)  Retained earnings/total assets

Question 15

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 average collection period for 2009 is

Accepted Answer

A)  69.35. 
B)  69.73. 
C)  68.53. 
D)  67.77. 
E)  68.52. 
A)  69.35. 
B)  69.73. 
C)  68.53. 
D)  67.77. 
E)  68.52.

Question 16

__________ is a summary of the profitability of the firm over a period of time, such as a year.

Accepted Answer

A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  The audit report 
E)  None of the options are correct. 
A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  The audit report 
E)  None of the options are correct.

Question 17

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 fixed asset turnover ratio for 2009 is

Accepted Answer

A)  1.45. 
B)  1.63. 
C)  1.20. 
D)  1.58. 
A)  1.45. 
B)  1.63. 
C)  1.20. 
D)  1.58.

Question 18

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) } & \$ 2500,000 \
 \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 leverage ratio for 2009 is

Accepted Answer

A)  2.25. 
B)  3.53. 
C)  2.61. 
D)  3.06. 
E)  None of the options are correct. 
A)  2.25. 
B)  3.53. 
C)  2.61. 
D)  3.06. 
E)  None of the options are correct.

Question 19

Common size income statements make it easier to compare firms

Accepted Answer

A)  that use different inventory valuation methods (FIFO vs. LIFO). 
B)  in different industries. 
C)  with different degrees of leverage. 
D)  of different sizes. 
A)  that use different inventory valuation methods (FIFO vs. LIFO). 
B)  in different industries. 
C)  with different degrees of leverage. 
D)  of different sizes.

Question 20

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is

Accepted Answer

A)  0.3. 
B)  1.3. 
C)  2.3. 
D)  3.3. 
A)  0.3. 
B)  1.3. 
C)  2.3. 
D)  3.3.

One problem with comparing financial ratios prepared by different reporting agencies is

A firm has a higher quick (or acid test) ratio than the industry average, which implies

An example of a liquidity ratio is

______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities.

A firm has an ROE of 2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%. The firm's ROA is

To create a common size balance sheet, all items on the balance sheet by .

A firm has a lower asset turnover ratio than the industry average, which implies

A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years?

__________ is a summary of the profitability of the firm over a period of time, such as a year.

Common size income statements make it easier to compare firms

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is

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

Exam 19: Financial Statement Analysis

One problem with comparing financial ratios prepared by different reporting agencies is

A firm has a higher quick (or acid test) ratio than the industry average, which implies

An example of a liquidity ratio is

______ is a measure of what the firm would have earned if it didn't have any obligations to creditors or tax authorities.

A firm has an ROE of 2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%. The firm's ROA is

To create a common size balance sheet, ____________ all items on the balance sheet by ____________.

A firm has a lower asset turnover ratio than the industry average, which implies

A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years?

__________ is a summary of the profitability of the firm over a period of time, such as a year.

Common size income statements make it easier to compare firms

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is

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 balance sheet, all items on the balance sheet by .