Exam 4: Financial Analysis-Sizing up Firm Performance

Consolidated Industries has total interest charges of $20,000 per year.Sales of $2 million generated an operating income of $220,000 and an after-tax profit of 6% of sales.The firm has a marginal tax rate of 40%.What is the firm's times-interest-earned ratio?

Dew Point Dynamite,Inc.generated a 1.23 total asset turnover in its latest fiscal year on assets of $2,112,077.The firm has total liabilities of $950,997.The firm's net profit margin was 10.3%.What is Dew Point's return on equity? Round to the nearest 0.1%.

Which of the following statements is FALSE?

Smith Corporation has current assets of $11,400,inventories of $4,000,and a current ratio of 2.6.What is Smith's quick or acid test ratio?

Which of the following transactions does NOT affect the quick ratio?

On a common size balance sheet,total assets are equal to 100%.

Paper Clip Office Supply had $24,000,000 in sales last year.Its total asset turnover was 3.0.Interest expense was $100,000 (5% on its $2,000,000 of debt).The company is financed entirely with debt and common equity.What is Paper Clip's debt ratio?

Use the following information to answer the following question(s). Key Ratios for ABC,Inc.and Its Industry ABC,Inc.2013 Ratios Industry Average Ratios in 2013 Current ratio 1.2 1.4 Acid test ratio 0.89 0.94 Average collection period 30 days 25 days Inventory turnover 18.1 20.3 Fixed assets turnover 4.1 4.8 Total asset turnover 2.78 2.8 Debt ratio 50% 60% Times-interest-earned 5.5% 4.5% Net profit margin 1.15% 1.5% Return on equity 5.21% 7.32% ABC,Inc.Income Statement (in thousands) December 31,2014 Sales (all credit)$200,000 Cost of goods sold 140,000 Gross profit on sales 60,000 Operating expenses 56,000 Operating income 4,000 Interest expense 1,000 Earnings before tax 3,000 Income tax 1,050 Net income available to common stockholders $1,950 ABC,Inc.Balance Sheet (in thousands) December 31,2014 Assets Cash $2,000 Accounts receivable 17,800 Inventories 8,700 Total current assets 28,500 Gross fixed assets 70,000 Accumulated depreciation 26,500 Net fixed assets 43,500 Total assets $72,000 Liabilities and Equity Accounts payable $18,000 Accruals 13,350 Total current liabilities 31,350 Long-term debt 8,250 Total liabilities 39,600 Common stock (par value and paid in capital)2,000 Retained earnings 30,400 Total stockholders' equity 32,400 Total liabilities and equity $72,000 -In 2014,ABC's inventory turnover is

Baker & Co.has applied for a loan from the Trust Us Bank to invest in several potential opportunities.To evaluate the firm as a potential debtor,the bank would like to compare Baker & Co.to the industry.The following are the financial statements given to Trust Us Bank: Balance Sheet 12/31/13 12/31/14 Cash $305 270 Accounts receivable 275 290 Inventory 600 580 Current assets 1,180 1,140 Plant and equipment 1,700 1,940 Less: acc depr (500)(600) Net plant and equipment 1,200 1,340 Total assets $2,380 $2,480 Liabilities and Owners' Equity Accounts payable $150 $200 Notes payable 125 0 Current liabilities 275 200 Bonds 500 500 Owners' equity Common stock 165 305 Paid-in-capital 775 775 Retained earnings 665 700 Total owners' equity 1,605 1,780 Total liabilities and owners' equity $2,380 $2,480 Income Statement Sales (100% credit)$1,100 $1,330 Cost of goods sold 600 760 Gross profit 500 570 Operating expenses 20 30 Depreciation 160 200 Net operating income 320 340 Interest expense 64 57 Net income before taxes 256 283 Taxes 87 96 Net income $169 $187 Compute the following ratios: 2013 2014 Industry Norms Current ratio 5.0 Acid test ratio 3.0 Inventory turnover 2.2 Average collection period 90 days Debt ratio .33 Times interest earned 7.0 Total asset turnover .75 Fixed asset turnover 1.0 Operating profit margin 20% Net profit margin 12% Return on total assets 9.00% Return on equity 10.43%

Common size income statements represent all figures on the income statement

The principal reason for preparing common size statements is

An increase in the current ratio would indicate an increase in

A firm is conducting an analysis of trends over time and discovers that its inventory turnover has declined.This may be due to

Which of the following is NOT a limitation related to the usage of ratios when reviewing a firm's performance?

Financial ratios comprise the principal tool of financial analysis since they can be used to answer a variety of questions regarding a firm's financial condition.

Millers Metalworks,Inc.has a total asset turnover of 2.5 and a net profit margin of 3.5%.The total debt ratio for the firm is 50%.Calculate Millers's return on equity.

Which of the following financial ratios is the best measure of how effectively a firm's management is serving its stockholders?

Billing's Pit Corporation has an accounts receivable turnover ratio of 3.4.What is Billing's Pit Corporation's average collection period?

According to the DuPont Analysis,an increase in net profit margin will decrease return on assets.

A firm's average collection period has decreased significantly from the previous year.Which of the following could possibly explain the results?