Exam 4: Evaluating a Firms Financial Performance

Please refer to Table 4-3 for the following questions. Table 4-3 Emery Corporation -Based on the information in Table 4-3,assuming that the firm has no preferred stock,and paid $300,000 in common dividends,the firm's return on equity was

Company A and Company B have the same gross profit margin and the same total asset turnover,but company A has a higher return on equity.This may result from

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 inventory turnover ratio is

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 fixed asset turnover ratio is

The current ratio and the acid test ratio both measure financial leverage.

Seasonality is introduced into financial ratios by averaging monthly account balances,and thus it is recommended that ending account balances be used.

Apollo Corp.reported the following balance sheet: Apollo Corp.'s current ratio is

The astute financial manager will seek to attain the highest current ratio possible.

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 total asset turnover ratio is

Financial ratios are useful for measuring performance because maximizing the return on equity for common shareholders is the primary goal of financial managers.

The acid-test ratio of a firm would be unaffected by which of the following?

Discuss five limitations to ratio analysis.

Financial ratios cannot be used to evaluate the creation of shareholder wealth because they are based on accounting numbers that reflect historical cost and not current market values.

A high debt ratio can be favorable because higher leverage may result in a higher return on equity.

Operating return on assets is equal to the operating profit margin times total asset turnover.

Theoretically,market values of assets are better for evaluating the creation of shareholder wealth than accounting numbers,but accounting numbers are used because they are more readily available.

Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

Please refer to Table 4-4 for the following questions. Table 4-4 Wes Donnell,Inc. Balance Sheet Wes Donnell,Inc. Income Statement For the year ended December 31,2010 -In addition to the information contained in Table 4-4,you know that the current ratio for 2010 is 4 and that the corporation paid $11,600 in dividends in 2010.What is Wes Donnell's retained earnings balance for 2010?

When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry it is called trend analysis.

Economic Value Added attempts to measure a firm's economic profit rather than its accounting profit.