Question 1

The price-sales ratio is especially useful when analyzing firms that have:

Accepted Answer

A)  volatile market prices. 
B)  negative earnings. 
C)  positive PEG ratios. 
D)  a high Tobin's Q. 
E)  increasing sales.

Question 2

The Green Fiddle has current liabilities of $28,000, sales of $156,900, and cost of goods sold of $62,400. The current ratio is 1.22 and the quick ratio is .71. How many days on average does it take to sell the inventory?

Accepted Answer

A)  128.13 days 
B)  74.42 days 
C)  199.81 days 
D)  147.46 days 
E)  83.53 days

Question 3

Bernice's has $823,000 in sales. The profit margin is 4.2 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $16.50. What is the price-earnings ratio?

Accepted Answer

A)  3.58 
B)  3.98 
C)  4.32 
D)  3.51 
E)  4.27

Question 4

JK Motors has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 21 percent. What is the value of the cash coverage ratio?

Accepted Answer

A)  15.21 
B)  12.14 
C)  17.27 
D)  23.41 
E)  12.68

Question 5

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

Accepted Answer

A)  Decrease in the inventory turnover rate 
B)  Decrease in the net working capital turnover rate 
C)  Increase in the fixed asset turnover rate 
D)  Decrease in the day's sales in inventory 
E)  Decrease in the total asset turnover rate

Question 6

The sources and uses of cash over a stated period of time are reflected on the:

Accepted Answer

A)  income statement. 
B)  balance sheet. 
C)  tax reconciliation statement. 
D)  statement of cash flows. 
E)  statement of operating position.

Question 7

Which one of the following statements is correct?

Accepted Answer

A)  Book values should always be given precedence over market values. 
B)  Financial statements are rarely used as the basis for performance evaluations. 
C)  Historical information is useful when projecting a company's future performance. 
D)  Potential lenders place little value on financial statement information. 
E)  Reviewing financial information over time has very limited value.

Question 8

Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

Accepted Answer

A)  17.14 percent 
B)  18.63 percent 
C)  19.67 percent 
D)  21.69 percent 
E)  22.30 percent

Question 9

Green Yard Care has net income of $62,300, a tax rate of 21 percent, and a profit margin of 6.7 percent. Total assets are $1,100,500 and current assets are $328,200. How many dollars of sales are being generated from every dollar of net fixed assets?

Accepted Answer

A)  $2.83 
B)  $1.37 
C)  $.84 
D)  $1.20 
E)  $1.23

Question 10

High Mountain Foods has an equity multiplier of 1.72, a total asset turnover of 1.16, and a profit margin of 4.5 percent. What is the return on assets?

Accepted Answer

A)  6.94 percent 
B)  8.98 percent 
C)  2.00 percent 
D)  7.74 percent 
E)  5.22 percent

Question 11

According to the statement of cash flows, an increase in inventory will ________ the cash flow from ________ activities.

Accepted Answer

A)  increase; operating 
B)  decrease; financing 
C)  decrease; operating 
D)  increase; financing 
E)  increase; investment

Question 12

At the beginning of the year, Brick Makers had cash of $183, accounts receivable of $392, accounts payable of $463, and inventory of $714. At year end, cash was $167, accounts payables was $447, inventory was $682, and accounts receivable was $409. What is the amount of the net source or use of cash by working capital accounts for the year?

Accepted Answer

A)  Net use of $16 cash 
B)  Net use of $17 cash 
C)  Net source of $17 cash 
D)  Net source of $15 cash 
E)  Net use of $15 cash

Question 13

SS Stores has total debt of $4,910 and a debt-equity ratio of 0.52. What is the value of the total assets?

Accepted Answer

A)  $16,128.05 
B)  $7,253.40 
C)  $9,571.95 
D)  $11,034.00 
E)  $14,352.31

Question 14

If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm:

Accepted Answer

A)  may have short-term, but not long-term debt. 
B)  is using its assets as efficiently as possible. 
C)  has no net working capital. 
D)  has a debt-equity ratio of 1.0. 
E)  has an equity multiplier of 1.0.

Question 15

Pittsburgh Motors has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?

Accepted Answer

A)  0.89 percent 
B)  1.51 percent 
C)  1.69 percent 
D)  2.03 percent 
E)  1.35 percent

Question 16

Jensen's Shipping has total assets of $694,800 at year's end. The beginning owners' equity was $362,400. During the year, the company had sales of $711,000, a profit margin of 5.2 percent, a tax rate of 21 percent, and paid $12,500 in dividends. What is the equity multiplier at year-end?

Accepted Answer

A)  1.67 
B)  1.72 
C)  1.93 
D)  1.80 
E)  1.86

Question 17

The cash coverage ratio directly measures the ability of a company to meet its obligation to pay:

Accepted Answer

A)  an invoice to a supplier. 
B)  wages to an employee. 
C)  interest to a lender. 
D)  principal to a lender. 
E)  a dividend to a shareholder.

Question 18

A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?

Accepted Answer

A)  2.12 
B)  1.84 
C)  1.39 
D)  2.45 
E)  2.69

Question 19

Gem Jewelers has current assets of $687,600, total assets of $1,711,000, net working capital of $223,700, and long-term debt of $450,000. What is the debt-equity ratio?

Accepted Answer

A)  0.87 
B)  0.94 
C)  1.21 
D)  1.15 
E)  1.06

Question 20

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

Accepted Answer

A)  Accounts payable 
B)  Cash 
C)  Inventory 
D)  Accounts receivable 
E)  Fixed assets

Exam 3: Working with Financial Statements