Question 1

A firm reported a profit margin of 8.5 percent, total asset turnover of 0.85 times, debt-to-equity ratio of 0.90 times, net income of $550,000, and dividends paid to common stockholders of $100,000. The firm has no preferred stock outstanding. What is the firm's internal growth rate?

Accepted Answer

A)  3.61 percent 
B)  6.29 percent 
C)  5.91 percent 
D)  11.04 percent

Question 2

A firm reported sales of $10 million. It had a debt ratio of 40 percent and total debt amounted to $3 million. What was the firm's capital intensity ratio?

Accepted Answer

A)  1.25 times 
B)  2.02 times 
C)  0.40 times 
D)  0.75 times

Question 3

Which of the following will increase a firm's quick ratio assuming no other accounts change?

Accepted Answer

A)  a reduction in accounts payable 
B)  an increase in accounts receivable 
C)  an increase in marketable securities 
D)  all of these choices are correct.

Question 4

Saddle and Bridle reported a profit margin of 12 percent, total asset turnover ratio of 2 times, debt-to-equity ratio of 1.9 times, net income of $1 million, and dividends paid to common stockholders of $250,000. The firm has no preferred stock outstanding. What is Saddle and Bridle's internal growth rate?

Accepted Answer

A)  13.64 percent 
B)  18.00 percent 
C)  24.00 percent 
D)  21.95 percent

Question 5

Which of these statements is true?

Accepted Answer

A)  The age of a firm's cash will affect the current ratio level. 
B)  The age of a firm's accounts receivable will affect the current ratio level. 
C)  The age of a firm's fixed assets will affect the fixed asset turnover ratio level. 
D)  The age of a firm's fixed assets will affect the current ratio level.

Question 6

A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm's inventory stay on the premises?

Accepted Answer

A)  127.75 days 
B)  157.75 days 
C)  97.75 days 
D)  87.75 days

Question 7

Last year, PJ's Ice Cream Parlours, Inc. reported an ROE = 12 percent. The firm's debt ratio was 40 percent, sales were $25 million, and the capital intensity ratio was 0.75 times. What is the net income for PJ's last year?

Accepted Answer

A)  $1.35m 
B)  $2.40m 
C)  $3.00m 
D)  $18.75m

Question 8

Which of the following ratios measure how efficiently a firm uses its assets, as well as how efficiently the firm manages its accounts payable?

Accepted Answer

A)  asset management 
B)  cash 
C)  internal-growth 
D)  quick or acid-test

Question 9

A firm reported an ROE of 19 percent. The firm's debt ratio was 45 percent, sales were $12 million, and the capital intensity ratio was 1.1 times. Calculate the net income for the firm.

Accepted Answer

A)  0.34 million 
B)  1.38 million 
C)  1.93 million 
D)  2.06 million

Question 10

Select the most commonly used liquidity ratios

Accepted Answer

A)  Current ratio 
B)  Quick ratio 
C)  Cash ratio 
D)  All of the above are considered commonly used liquidity ratios.

Question 11

Which of the following measures the number of days accounts receivable are held before the firm collects cash from the sale?

Accepted Answer

A)  accounts receivable turnover 
B)  average collection period 
C)  average payment period 
D)  accounts payable turnover

Question 12

The top part of Rammy's Inc.'s 2018 balance sheet is listed as follows (in millions of dollars).
$$\begin{array} { l r l l r } 
\text { Current assets: } & & \text { Curreat liabilities: } & \
\text { Cash ard marketable securities } & \$  5 & \text { Accrued wages and taxes } &  \$6\
\text { Accounts receivable } & 15 & \text { Accounts payable } & 10 \
\text { Irventory } & 95 & \text { Notes payable } & 50 \
\text { Total } & \$ 115 & \text { Total } & \$ 66
\end{array}$$
What are Mars, Inc.'s current ratio, quick ratio, and cash ratio for 2018?

Accepted Answer

A)  1.74242, 0.30303, 0.07576 
B)  7.1875, 1.25, 0.3125 
C)  1.43939, 0.30303, 0.07576 
D)  19.16667, 3.33333, 0.83333

Question 13

Which of the following statements is false regarding inventory management?

Accepted Answer

A)  In general, a firm wants to produce a low level of sales per dollar of inventory. 
B)  In general, a firm wants to produce a high level of sales per dollar of inventory. 
C)  A high inventory turnover ratio or a low days' sales in inventory is generally a sign of good management. 
D)  Extremely high levels for inventory turnover ratio and low levels for days' sales in inventory ratio may actually be a sign of bad firm or production management.

Question 14

A firm reported year-end cost of goods sold of $10 million. It listed $2 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm's inventory stay on the premises?

Accepted Answer

A)  73 days 
B)  20 days 
C)  18.25 days 
D)  2 days

Question 15

Use the following information to calculate current assets: sales = $12 million, capital intensity ratio = 4 times, debt ratio = 45 percent, and fixed asset turnover ratio = 2.5 times.

Accepted Answer

A)  $4.8m 
B)  $21.6m 
C)  $43.2m 
D)  $48m

Question 16

Nicole's Neon Signs, Inc. reported a debt to equity ratio of 1.9 times at the end of 2018. If the firm's total assets at year-end are $100 million, how much of their assets is financed with equity?

Accepted Answer

A)  $34.48m 
B)  $65.52m 
C)  $52.63m 
D)  $100m

Question 17

You have the following information on Universe It Ts, Inc.: sales to working capital = 10 times, profit margin = 25 percent, net income available to common stockholders = $3 million, and current liabilities = $1 million. What is the firm's balance of current assets?

Accepted Answer

A)  $1.075m 
B)  $1.2m 
C)  $2.2m 
D)  $5m

Question 18

A firm has a ROE of 14 percent and a debt-to-equity ratio of 40 percent. If the total asset turnover is 3.4, what is the firm's profit margin?

Accepted Answer

A)  2.94 percent 
B)  3.86 percent 
C)  4.29 percent 
D)  5.67 percent

Question 19

Which of the following statements is true about return on equity (ROE)?

Accepted Answer

A)  It measures the return on common stockholders' investment in the assets of the firm. 
B)  The value of the firm's ROE is affected by net income. 
C)  The value of the firm's ROE is affected by the amount of financial leverage or debt that the firm uses. 
D)  All of these choices are correct.

Question 20

PJ's Ice Cream Parlour has asked you to help piece together financial information on the firm for the most current year. Managers give you the following information: sales = $50 million, total debt = $20 million, debt ratio = 50 percent, and ROE = 12 percent. Using this information, what is PJ's ROA?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  10 percent 
D)  12 percent

Exam 3: Analyzing Financial Statements