Question 1

The total asset turnover is computed as total assets divided by net sales.

Accepted Answer

A) True 
 B)False

Question 2

Bond ratios are one of the five basic categories of ratios.

Accepted Answer

A) True 
 B)False

Question 3

The interest coverage ratio is a stricter measure of a firm's ability to meet its fixed payment obligations than the fixed charge coverage ratio.

Accepted Answer

A) True 
 B)False

Question 4

Total assets / Total equity

Accepted Answer

A)  Total debt to total assets 
B)  Equity multiplier 
C)  Interest coverage 
D)  Fixed charge coverage

Question 5

The profitability ratio that measures the return that shareholders earned on their investment in the firm is the:

Accepted Answer

A)  operating profit margin 
B)  return on equity 
C)  net profit margin 
D)  return on assets

Question 6

The net profit margin is calculated as the firms earnings before interest and taxes divided by net sales.

Accepted Answer

A) True 
 B)False

Question 7

It is possible that the results of financial statement analysis could reflect the non-financial operations of a firm.

Accepted Answer

A) True 
 B)False

Question 8

A firm with total asset turnover lower than the industry average may have

Accepted Answer

A)  excessive debt. 
B)  excessive cost of goods sold. 
C)  insufficient sales. 
D)  insufficient fixed assets.

Question 9

Current assets ∕ Current liabilities

Accepted Answer

A)  Current ratio 
B)  Quick ratio 
C)  Average payment period 
D)  Fast ratio

Question 10

The degree of operating leverage (DOL) can be measured by the percent change in operating income (EBIT) divided by percent change in:

Accepted Answer

A)  fixed costs 
B)  variable costs 
C)  unit sales 
D)  total costs

Question 11

________ evidence of the existence of a problem or outstanding management performance is provided by ratio analysis.

Accepted Answer

A)  Conclusive 
B)  Inconclusive 
C)  Complete 
D)  Definitive

Question 12

The break-even quantity occurs where the total revenues line crosses the fixed costs line.

Accepted Answer

A) True 
 B)False

Question 13

A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs of $1,275,000. With this data, the firm's operating breakeven point during the year, in dollars, is

Accepted Answer

A)  $150,000 
B)  $176,471 
C)  $1,000,000 
D)  $1,425,000

Question 14

Asset management ratios indicate the ability to meet short-term obligations to creditors as they come due.

Accepted Answer

A) True 
 B)False

Question 15

All other things being equal, an increase in the amount of debt for a firm would:

Accepted Answer

A)  increase the degree of operating leverage 
B)  decrease the degree of operating leverage 
C)  have no impact on degree of operating leverage 
D)  reduce owners equity

Question 16

The primary purpose of the liquidity ratios is to determine:

Accepted Answer

A)  the extent to which borrowed funds are used to finance assets 
B)  the ability of the firm to meet short-term obligations to creditors 
C)  the extent to which assets are used to support sales 
D)  none of the above

Question 17

Financial leverage ratios are one of the five basic categories of ratios.

Accepted Answer

A) True 
 B)False

Question 18

If a firm has an after-tax profit margin of 5%, an asset turnover of 2.5 times, and no debt, the return on equity is:

Accepted Answer

A)  2% 
B)  8.5% 
C)  12.5% 
D)  14.8%

Question 19

The extent to which assets are financed by borrowed funds and other liabilities is indicated by:

Accepted Answer

A)  liquidity ratios 
B)  asset utilization ratios 
C)  financial leverage ratios 
D)  profitability ratios

Question 20

Using the DuPont system of analysis and holding other factors constant, an increase in financial leverage will result in ________ in the return on equity.

Accepted Answer

A)  an increase 
B)  a decrease 
C)  no change 
D)  an undetermined change

Exam 14: Financial Analysis and Long-Term Financial Planning

The total asset turnover is computed as total assets divided by net sales.

Bond ratios are one of the five basic categories of ratios.

The interest coverage ratio is a stricter measure of a firm's ability to meet its fixed payment obligations than the fixed charge coverage ratio.

Total assets / Total equity

The profitability ratio that measures the return that shareholders earned on their investment in the firm is the:

The net profit margin is calculated as the firms earnings before interest and taxes divided by net sales.

It is possible that the results of financial statement analysis could reflect the non-financial operations of a firm.

A firm with total asset turnover lower than the industry average may have

Current assets ∕ Current liabilities

The degree of operating leverage (DOL) can be measured by the percent change in operating income (EBIT) divided by percent change in:

________ evidence of the existence of a problem or outstanding management performance is provided by ratio analysis.

The break-even quantity occurs where the total revenues line crosses the fixed costs line.

A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs of $1,275,000. With this data, the firm's operating breakeven point during the year, in dollars, is

Asset management ratios indicate the ability to meet short-term obligations to creditors as they come due.

All other things being equal, an increase in the amount of debt for a firm would:

The primary purpose of the liquidity ratios is to determine:

Financial leverage ratios are one of the five basic categories of ratios.

If a firm has an after-tax profit margin of 5%, an asset turnover of 2.5 times, and no debt, the return on equity is:

The extent to which assets are financed by borrowed funds and other liabilities is indicated by:

Using the DuPont system of analysis and holding other factors constant, an increase in financial leverage will result in ________ in the return on equity.