Question 1

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

Accepted Answer

Two common benchmarks provide comparison

Question 2

Which of the following transactions will increase a corporation's operating return on assets?

Accepted Answer

A)  sell stock and use the money to pay off some long-term debt 
B)  sell 10-year bonds and use the money to pay off current liabilities 
C)  negotiate a new contract that lowers raw material costs by 10% 
D)  increase sales by 10% 
A)  sell stock and use the money to pay off some long-term debt 
B)  sell 10-year bonds and use the money to pay off current liabilities 
C)  negotiate a new contract that lowers raw material costs by 10% 
D)  increase sales by 10%

Question 3

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 4

Anton's Coffee Shop has a return on assets of 12%.Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60.What is Anton's return on equity?

Accepted Answer

A)  18% 
B)  20% 
C)  30% 
D)  12% 
A)  18% 
B)  20% 
C)  30% 
D)  12%

Question 5

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 return on equity is

Accepted Answer

A)  19.33%. 
B)  18.47%. 
C)  16.66%. 
D)  15.65%. 
A)  19.33%. 
B)  18.47%. 
C)  16.66%. 
D)  15.65%.

Question 6

Common-size balance sheets are balance sheets of companies with almost identical total assets (within 2% of each other).

Accepted Answer

A) True 
 B)False

Question 7

Economic value added includes a charge for the cost of equity that is not included on financial statements prepared according to GAAP.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  1.69. 
B)  2.17. 
C)  4.39. 
D)  4.80. 
A)  1.69. 
B)  2.17. 
C)  4.39. 
D)  4.80.

Question 9

A company with a current ratio higher than industry average must also have a quick ratio higher than industry average because both ratios measure liquidity.

Accepted Answer

A) True 
 B)False

Question 10

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,assuming that no preferred dividends were paid,the return on common equity is

Accepted Answer

A)  55.15%. 
B)  44.86%. 
C)  38.83%. 
D)  17.56%. 
A)  55.15%. 
B)  44.86%. 
C)  38.83%. 
D)  17.56%.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Company A has a higher day's sales outstanding ratio than Company B.Therefore,

Accepted Answer

A)  Company A sells more on credit than Company B 
B)  Company A has a higher percentage of cash to credit sales than Company B 
C)  Company A must be collecting its accounts receivable faster than Company B, on average 
D)  Other things being equal, Company B has a cash flow advantage over Company A 
A)  Company A sells more on credit than Company B 
B)  Company A has a higher percentage of cash to credit sales than Company B 
C)  Company A must be collecting its accounts receivable faster than Company B, on average 
D)  Other things being equal, Company B has a cash flow advantage over Company A

Question 13

CPR Corp.has cash of $100,000; short-term notes payable of $75,000,accounts receivable of $125,000; accounts payable of $140,000; inventories of $200,000; and accruals of $55,000.What is CPR's current ratio?

Accepted Answer

A)  1.57 
B)  2.71 
C)  1.42 
D)  0.64 
A)  1.57 
B)  2.71 
C)  1.42 
D)  0.64

Question 14

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

Accepted Answer

A)  79.43%. 
B)  61.89%. 
C)  43.34%. 
D)  33.53%. 
A)  79.43%. 
B)  61.89%. 
C)  43.34%. 
D)  33.53%.

Question 15

Operating return on assets (OROA)is equal to operating profit margin times total asset turnover.

Accepted Answer

A) True 
 B)False

Question 16

How managers choose to finance the business affects the company's risk,and as a result,the rate of return stockholders receive on their investments.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Financial ratios are useful for evaluating performance but should not be used for making financial projections.

Accepted Answer

A) True 
 B)False

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

Please refer to Table 4-3 for the following questions.
Table 4-3
Emery Corporation
  
-Based on the information in Table 4-3,the operating return on total assets is

Accepted Answer

A)  55.62%. 
B)  10.06%. 
C)  44.74%. 
D)  33.33%. 
A)  55.62%. 
B)  10.06%. 
C)  44.74%. 
D)  33.33%.

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

Which of the following transactions will increase a corporation's operating return on assets?

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Anton's Coffee Shop has a return on assets of 12%.Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60.What is Anton's return on equity?

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 return on equity is

Common-size balance sheets are balance sheets of companies with almost identical total assets (within 2% of each other).

Economic value added includes a charge for the cost of equity that is not included on financial statements prepared according to GAAP.

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

A company with a current ratio higher than industry average must also have a quick ratio higher than industry average because both ratios measure liquidity.

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,assuming that no preferred dividends were paid,the return on common equity is

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

Company A has a higher day's sales outstanding ratio than Company B.Therefore,

CPR Corp.has cash of $100,000; short-term notes payable of $75,000,accounts receivable of $125,000; accounts payable of $140,000; inventories of $200,000; and accruals of $55,000.What is CPR's current ratio?

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

Operating return on assets (OROA)is equal to operating profit margin times total asset turnover.

How managers choose to finance the business affects the company's risk,and as a result,the rate of return stockholders receive on their investments.

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.

Financial ratios are useful for evaluating performance but should not be used for making financial projections.

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.

Please refer to Table 4-3 for the following questions. Table 4-3 Emery Corporation -Based on the information in Table 4-3,the operating return on total assets is

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

International Business Finance

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Exam 4: Evaluating a Firms Financial Performance

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

Which of the following transactions will increase a corporation's operating return on assets?

Ratios of almost all companies are easily comparable because all public companies prepare their financial reports based upon generally accepted accounting principles.

Anton's Coffee Shop has a return on assets of 12%.Anton's assets = $100 while Anton's owner's equity = $40 and its debt equals $60.What is Anton's return on equity?

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 return on equity is

Common-size balance sheets are balance sheets of companies with almost identical total assets (within 2% of each other).

Economic value added includes a charge for the cost of equity that is not included on financial statements prepared according to GAAP.

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

A company with a current ratio higher than industry average must also have a quick ratio higher than industry average because both ratios measure liquidity.

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,assuming that no preferred dividends were paid,the return on common equity is

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

Company A has a higher day's sales outstanding ratio than Company B.Therefore,

CPR Corp.has cash of $100,000; short-term notes payable of $75,000,accounts receivable of $125,000; accounts payable of $140,000; inventories of $200,000; and accruals of $55,000.What is CPR's current ratio?

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

Operating return on assets (OROA)is equal to operating profit margin times total asset turnover.

How managers choose to finance the business affects the company's risk,and as a result,the rate of return stockholders receive on their investments.

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.

Financial ratios are useful for evaluating performance but should not be used for making financial projections.

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.

Please refer to Table 4-3 for the following questions. Table 4-3 Emery Corporation -Based on the information in Table 4-3,the operating return on total assets is

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

Current Asset Management

International Business Finance

Filters