Exam 4: Financial Analysis-Sizing up Firm Performance

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 -Since 2013,ABC's efficiency at using its assets has

A firm has a return on equity of 20% and a total asset turnover of 4.Assuming a debt ratio of 50% and sales of $1,000,000,calculate net income.

A serious pitfall in the interpretation of financial ratios arises when a company,whose business is seasonal,ends its accounting year on March 31,while most companies in the same industry end their accounting period on December 31.

Corbin,Inc.had net income of $150,000 on sales of $5,000,000 during 1995.In addition,the firm's total assets were $2,500,000,and its capital structure is comprised of 40% debt and 60% equity.What was Corbin's return on equity in 1995?

There is no such thing as a liquidity ratio being too high.

Snort and Smiley Incorporated has a debt ratio of .42,noncurrent liabilities of $20,000,and total assets of $70,000.What is Snort and Smiley's level of current liabilities?

Which of the following is NOT a driving force of the operating profit margin?

Discuss the limitations of ratio analysis.

Assume that a particular firm has a total asset turnover ratio lower than the industry norm.In addition,this firm's current ratio and acid test ratio also meet industry standards.Based on this information,we can conclude that this firm must have excessive

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

Which of the following would be most responsible for a company's average collection period being higher than the industry average?

Which of the following is a limitation related to the usage of ratios when reviewing a firm's performance?

An increase in ________ will decrease the times-interest-earned ratio.

Sharky's Loan Co.has an annual interest expense of $30,000.If Sharky's times-interest-earned ratio is 2.9,what is Sharky's Earnings Before Taxes (EBT)?

On a common size income statement,EBIT is equal to 100%.

Individuals who do not work for a company rarely have enough information to perform a detailed financial analysis of the company.

McKinny Enterprises must raise $580,000 to pay off a bank loan at the end of the year.The firm expects sales of $5,200,000 for the year.Depreciation for the year is $315,000.The company's net profit margin is 5%.Can the company pay off its loan through the retention of earnings?

Smart and Smiley Incorporated has an average collection period of 74 days.What is the accounts receivable turnover ratio for Smart and Smiley?

Which of the following parties would perform an external financial analysis?

Calculate the following financial ratios for the Hokie Corporation using the information given in Table 4 and 2014 information. current ratio acid test ratio debt ratio long-term debt to total capitalization return on total assets return on common equity