Exam 4: Analysis of Financial Statements

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 operating margin?

Firms A and B have the same current ratio,0.75,the same amount of sales,and the same amount of current liabilities.However,Firm A has a higher inventory turnover ratio than B.Therefore,we can conclude that A's quick ratio must be smaller than B's.

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

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 BEP?

Jordan Inc has the following balance sheet and income statement data: ​ The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average,2.75,without affecting either sales or net income.Assuming that inventories are sold off and not replaced to get the current ratio to the target level,and that the funds generated are used to buy back common stock at book value,by how much would the ROE change?

Other things held constant,the more debt a firm uses,the lower its return on total assets will be.

Companies HD and LD have the same tax rate,sales,total assets,and basic earning power.Both companies have positive net incomes.Both firms finance using only debt and common equity and total assets equal total invested capital.Company HD has a higher total debt to total invested capital ratio and,therefore,a higher interest expense.Which of the following statements is CORRECT?

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable.This action had no effect on the company's total assets or operating income.Which of the following effects would occur as a result of this action?

The more conservative a firm's management is,the higher its total debt to total capital ratio [measured as (Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)] is likely to be.

Precision Aviation had a profit margin of 6.25%,a total assets turnover of 1.5,and an equity multiplier of 1.8.What was the firm's ROE?

Which of the following statements is CORRECT?

A firm's new president wants to strengthen the company's financial position.Which of the following actions would make it financially stronger?

Companies HD and LD have the same total assets,sales,operating costs,and tax rates,and they pay the same interest rate on their debt.Both firms finance using only debt and common equity and total assets equal total invested capital.However,company HD has a higher total debt to total capital ratio.Which of the following statements is CORRECT?