Question 1

Which ratio measures how many days inventory is held before the final product is sold?

Accepted Answer

A)   inventory turnover
B)   days' sales in inventory
C)   total asset turnover
D)   inventory intensity ratio B

Question 2

Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?

Accepted Answer

A)   debt management ratios
B)   equity ratios
C)   financial ratios
D)   liquidity ratios A

Question 3

Which of these statements is true?

Accepted Answer

A)   In general, the lower the total asset turnover and the lower the capital intensity ratio, the more efficient the overall asset management of the firm will be.
B)   In general, the lower the total asset turnover and the higher the capital intensity ratio, the more efficient the overall asset management of the firm will be.
C)   In general, the higher the total asset turnover and the lower the capital intensity ratio, the more efficient the overall asset management of the firm will be.
D)   In general, the higher the total asset turnover and the higher the capital intensity ratio, the more efficient the overall asset management of the firm will be. C

Question 4

Which of the following statements is correct?

Accepted Answer

A)   If a firm has a very high fixed asset turnover, it means that the firm may be nearing its maximum production capacity.
B)   An extremely low average collection period will maximize net income.
C)   In general, a firm should strive for a high average payment period because it wants to pay for its purchases as quickly as possible.
D)   All of these choices are correct.

Question 5

Which statement(s) is/are true of PE ratios?

Accepted Answer

A)   Managers, analysts, and investors expect companies with high PE ratios to experience future growth.
B)   Measures the amount that investors will pay for the firm's stock per dollar of equity used to finance the firm's assets.
C)   Measures how much investors are willing to pay for each dollar the firm earns per share of its stock.
D)   Both A and C are true.

Question 6

What is the debt ratio for a firm with an equity multiplier of 3.5?

Accepted Answer

A)   44.09 percent
B)   58.51 percent
C)   66.25 percent
D)   71.43 percent

Question 7

A corporation has a total asset turnover of 2 times, ROA of 12 percent and EM of 1.17. What is this firm's profit margin and debt ratio?

Accepted Answer

A)   profit margin: 2 percent; debt ratio: 19.45 percent
B)   profit margin: 3 percent; debt ratio: 31.81 percent
C)   profit margin: 4 percent; debt ratio: 12.94 percent
D)   profit margin: 6 percent; debt ratio: 14.53 percent

Question 8

You are thinking of investing in Ski Sports, Inc. You have only the following information on the firm at year-end 2018: net income = $50,000, total debt = $1 million, and debt ratio = 70 percent. What is Ski's ROE for 2018?

Accepted Answer

A)   2.94 percent
B)   3.49 percent
C)   7.14 percent
D)   11.67 percent

Question 9

You are evaluating the balance sheet for Blue Jays Corporation. From the balance sheet you find the following balances: cash and marketable securities = $200,000, accounts receivable = $800,000, inventory = $1,000,000, accrued wages and taxes = $250,000, accounts payable = $400,000, and notes payable = $300,000. What are Blue Jays' current ratio, quick ratio, and cash ratio, respectively?

Accepted Answer

A)   1.05263, 1.05263, 0.21053
B)   2.10526, 1.05263, 0.21053
C)   3.07692, 1.53846, 0.30769
D)   3.07692, 1.05263, 0.30769

Question 10

To interpret financial ratios, managers, analysts, and investors use which of the following type of benchmarks?

Accepted Answer

A)   competitive analysis
B)   cross-industry analysis
C)   time-industry analysis
D)   time series analysis

Question 11

Which of the following statements is correct?

Accepted Answer

A)   A low average payment period and a high accounts payable turnover are a sign of good management.
B)   A high average payment period and a low accounts payable turnover are a sign of good management.
C)   A high average payment period and a high accounts payable turnover are a sign of good management.
D)   A low average payment period and a low accounts payable turnover are a sign of good management.

Question 12

Zoe's Dog Toys, Inc. reported a debt to equity ratio of 0.5 times at the end of 2018. If the firm's total assets at year-end are $50 million, how much of their assets is financed with equity?

Accepted Answer

A)   $16.67m
B)   $25m
C)   $33.33m
D)   $50m

Question 13

Which ratio assesses how efficiently a firm uses its fixed assets?

Accepted Answer

A)   capital intensity ratio
B)   current ratio
C)   average collection period
D)   fixed asset turnover

Question 14

A firm reported working capital of $5.5 million and fixed assets of $20 million. Its fixed asset turnover was 1.2 times. What was the firm's sales to working capital ratio?

Accepted Answer

A)   2.21 times
B)   4.36 times
C)   5.19 times
D)   6.03 times

Question 15

Which ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt?

Accepted Answer

A)   fixed-charge coverage ratio
B)   times interest earned
C)   cash coverage ratio
D)   ROA

Question 16

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Accepted Answer

A)   3.76 times
B)   4.91 times
C)   7.25 times
D)   7.09 times

Question 17

Last year Umbrellas Unlimited Corporation had an ROE of 16.5 percent and a dividend payout ratio of 40 percent. What is the sustainable growth rate?

Accepted Answer

A)   13.17 percent
B)   10.99 percent
C)   27.50 percent
D)   32.93 percent

Question 18

You have located the following information on Rock Company: debt ratio = 40 percent, capital intensity ratio = 2.25 times, profit margin = 8 percent, and dividend payout ratio = 25 percent. What is the sustainable growth rate for Rock?

Accepted Answer

A)   3.56 percent
B)   6.00 percent
C)   4.65 percent
D)   8.00 percent

Question 19

Calculate the times interest earned ratio for Tierre's Ts, Inc. using the following information. Sales = $200,000, cost of goods sold = $50,000, depreciation expense = $13,000, addition to retained earnings = $70,000, dividends per share = $0.50, tax rate = 30 percent, and number of shares of common stock outstanding = 1,000. Tierre's Ts has no preferred stock outstanding.

Accepted Answer

A)   0.1814
B)   0.4854
C)   0.685
D)   3.7756

Question 20

Fancy Paws' year-end price on its common stock is $20. The firm has total assets of $40 million, the debt ratio is 40 percent, there is no preferred stock, and there are 2 million shares of common stock outstanding. Calculate the market-to-book ratio for Fancy Paws.

Accepted Answer

A)   0.47
B)   1.67
C)   8.00
D)   10.00

Exam 3: Analyzing Financial Statements

Which ratio measures how many days inventory is held before the final product is sold?

Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?

Which of these statements is true?

Which of the following statements is correct?

Which statement(s) is/are true of PE ratios?

What is the debt ratio for a firm with an equity multiplier of 3.5?

A corporation has a total asset turnover of 2 times, ROA of 12 percent and EM of 1.17. What is this firm's profit margin and debt ratio?

You are thinking of investing in Ski Sports, Inc. You have only the following information on the firm at year-end 2018: net income = $50,000, total debt = $1 million, and debt ratio = 70 percent. What is Ski's ROE for 2018?

To interpret financial ratios, managers, analysts, and investors use which of the following type of benchmarks?

Which of the following statements is correct?

Zoe's Dog Toys, Inc. reported a debt to equity ratio of 0.5 times at the end of 2018. If the firm's total assets at year-end are $50 million, how much of their assets is financed with equity?

Which ratio assesses how efficiently a firm uses its fixed assets?

A firm reported working capital of $5.5 million and fixed assets of $20 million. Its fixed asset turnover was 1.2 times. What was the firm's sales to working capital ratio?

Which ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt?

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Last year Umbrellas Unlimited Corporation had an ROE of 16.5 percent and a dividend payout ratio of 40 percent. What is the sustainable growth rate?

You have located the following information on Rock Company: debt ratio = 40 percent, capital intensity ratio = 2.25 times, profit margin = 8 percent, and dividend payout ratio = 25 percent. What is the sustainable growth rate for Rock?

Fancy Paws' year-end price on its common stock is $20. The firm has total assets of $40 million, the debt ratio is 40 percent, there is no preferred stock, and there are 2 million shares of common stock outstanding. Calculate the market-to-book ratio for Fancy Paws.