Exam 4: Analysis of Financial Statements

Wie Corp's sales last year were $315,000,and its year-end total assets were $355,000.The average firm in the industry has a total assets turnover ratio (TATO)of 2.4.The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales.By how much must the assets be reduced to bring the TATO to the industry average,holding sales constant?

The return on invested capital (ROIC)differs from the return on assets (ROA).First,ROIC is based on total invested capital rather than total assets.Second,the numerator of the ROIC is after-tax operating income rather than net income.

Exhibit 4.1 The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -Refer to Exhibit 4.1.What is the firm's total debt to total capital ratio?

Exhibit 4.1 The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -Refer to Exhibit 4.1.What is the firm's ROA?

Hoagland Corp's stock price at the end of last year was $33.50,and its book value per share was $25.00.What was its market/book ratio?

A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position,i.e.,that it is becoming more liquid.

It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.

Exhibit 4.1 The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -Refer to Exhibit 4.1.What is the firm's ROE?

If a firm sold some inventory for cash and left the funds in its bank account,its current ratio would probably not change much,but its quick ratio would decline.

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Zero Corp's total common equity at the end of last year was $405,000 and its net income was $70,000.What was its ROE?

In general,it's better to have a low inventory turnover ratio than a high one,as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.

Which of the following statements is CORRECT?

One problem with ratio analysis is that relationships can sometimes be manipulated.For example,if our current ratio is greater than 1.5,then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to INCREASE.

Which of the following statements is CORRECT?

Duffert Industries has total assets of $1,000,000 and total current liabilities (consisting only of accounts payable and accruals)of $125,000.Duffert finances using only long-term debt and common equity.The interest rate on its debt is 8% and its tax rate is 40%.The firm's basic earning power ratio is 15% and its debt-to capital rate is 40%.What are Duffert's ROE and ROIC?

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

Chang Corp.has $375,000 of assets,and it uses only common equity capital (zero debt).Its sales for the last year were $595,000,and its net income was $25,000.Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15.0%.What profit margin would the firm need in order to achieve the 15% ROE,holding everything else constant?