Exam 4: Evaluating a Firms Financial Performance

An analyst is evaluating two companies,A and B.Company A has a debt ratio of 50% and Company B has a debt ratio of 25%.In his report,the analyst is concerned about Company B's debt level,but not about Company A's debt level.Which of the following would best explain this position?

Lower asset turnover ratios are generally indicative of more efficient asset management.

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the acid-test ratio is

Please refer to Table 4-7 for the following question. Table 4-7 Hokie Corporation Comparative Balance Sheet For the Years Ending December 31,2009 and 2010 (Millions of Dollars) Hokie had net income of $28 million for 2010 and paid total cash dividends of $20 million to their common stockholders. -Calculate the following 2010 financial ratios of Aggie Corporation using the information given in Table 4-7: i.current ratio ii.acid test ratio iii.debt ratio iv.return on total assets v.return on common equity

Smith Corporation has earned a return on capital invested of 10% for the past two years,but an investment analyst reviewing the company has stated the company is not creating shareholder value.This may be due to the fact that

John Box Inc.has an annual interest expense of $30,000 and pays income tax equal to 40 percent of taxable income (EBT).John Box's times-interest-earned ratio is 4.2.What is John Box's net income?

Accounting information is used in financial ratio analysis because it is theoretically the best data to guide financial decision-making.

High Inc.has an accounts receivable turnover ratio of 7.3.Low Company has an accounts receivable turnover ratio of 5.Assuming that High and Low have the same sales level,which of the following statements is correct?

Baker Corp.is required by a debt agreement to maintain a current ratio of at least 2.5,and Baker's current ratio now is 3.Baker wants to purchase additional inventory for its upcoming Christmas season,and will pay for the inventory with short-term debt.How much inventory can Baker purchase without violating its debt agreement if their total current assets equal $15 million?

Seasonality causes comparability problems in ratio analysis.A common solution is to use an average account balance as opposed to an ending account balance.

During the past year the growth corporation increased its sales from $1,000,000 to $2,000,000 and its EBIT from $250,000 to $400,000.The result of this growth will be

How could an analyst determine whether a company's ratio is good or bad?

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the current ratio is

TransSystems Inc.has a total equity of $560,000; sales of $2,250,000; total assets of $995,000; and current liabilities of $310,000.What is TransSystems Inc.'s debt ratio?

Common-sized income statements

If company A has a lower average collection period than company B,then company A will have a higher accounts receivable turnover.

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Please refer to Table 4-2 for the following questions. Table 4-2 Drummond Company Balance Sheet -Based on the information in Table 4-2,the debt ratio is

Return on equity is driven by (1)the spread between the operating return on assets and the interest rate,and (2)changes in the debt ratio.

Please refer to Table 4-5 for the following questions. Table 4-5 Yen Inc. Balance Sheet Yen Inc. Income Statement For the year ended December 31,2010 -Based on the information contained in Tables 4-5,what was Yen's return on common equity for 2010?