Question 1

A firm has revenue of $60,000, its total operating costs including depreciation and cost of goods sold are $50,620, depreciation is $4,620 and its interest expense on outstanding loans is $2,000.What is the firm's EBIT?

Accepted Answer

A) $55,380 
B) $2,760 
C) $9,380 
D) $12,000

Question 2

Stocks with dividend yield often indicate expected future growth.

Accepted Answer

A) high, high 
B) low, low 
C) low, high 
D) high, low

Question 3

If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must

Accepted Answer

A) decrease its equity multiplier 
B) increase its equity multiplier 
C) increase sales and increase assets 
D) reduce sales and increase assets

Question 4

Financial ratios can be used to analyze a firm's performance from

Accepted Answer

A) day to day 
B) period to period 
C) purchase to purchase 
D) sale to sale

Question 5

In an inflationary period, a firm is likely to show temporary profit increases because

Accepted Answer

A) accounts receivable collections increase 
B) cash balances decline 
C) inventory profits are realized 
D) all of these

Question 6

Asset management ratios indicate

Accepted Answer

A) how well a firm is using its assets to support sales 
B) how efficiently a firm is allocating its liabilities 
C) the return on assets 
D) the profitability of the firm

Question 7

The ratio, sometimes called the "acid test," is a more stringent measure of than the current ratio.

Accepted Answer

A) quick;liquidity 
B) fixed-asset turnover;activity 
C) net profit margin;gross profit margin 
D) equity, activity

Question 8

Successful financial ratio analysis requires all of the following EXCEPT:

Accepted Answer

A) Some industries use special ratios that are unique to each company. 
B) A single ratio is all that is needed to indicate specific areas of weakness that must be addressed. 
C) Ratios are meaningful only when it is compared to a standard. 
D) Ratios must be used in conjunction with other data to obtain meaningful information.

Question 9

When considering the quality of a firm's earnings, high quality earnings tend to be

Accepted Answer

A) cash earnings 
B) earnings derived from regularly recurring transactions 
C) cash earnings and earnings derived from regularly recurring transactions 
D) earnings per share

Question 10

What is the market price per share of Big Whoop, Inc.if the firm had net income of $200,000, earnings per share of $2.70, total equity of $800,000, and a market to book ratio of 1.5?

Accepted Answer

A) $16.20 
B) $10.80 
C) $7.20 
D) $12.40

Question 11

Flash In The Pan Cooking School is considering the issuance of additional long-term debt to finance expansion.At the present time the company has $160 million of 10% debentures outstanding.Its after-tax net income is $48 million, and the company's (marginal) income tax rate is 40%.The company is required by the debenture holders to maintain its coverage ratio at 4.0 or greater.Determine Flash's present coverage ratio.

Accepted Answer

A) 3.33 
B) 2.78 
C) 5.00 
D) 6.00

Question 12

The greater the amount of financial leverage used by a firm, the greater its , all other things being equal.

Accepted Answer

A) profitability 
B) liquidity 
C) risk 
D) size

Question 13

What information can Asset Management Ratios provide?

Accepted Answer

The answer of What information can Asset Management Ratios provide?...

Question 14

A firm with an equity multiplier of 4.0, will have a debt ratio of

Accepted Answer

A) 0.25 
B) 1.00 
C) 0.75 
D) 4.00

Question 15

Market based ratios can be which of the following:

Accepted Answer

A) Statement I only is correct. 
B) Statement II only is correct. 
C) Both statements I and II are correct 
D) Neither statement I nor statement II is correct.

Question 16

All of the following are users of financial information EXCEPT:

Accepted Answer

A) customers 
B) bankers 
C) analysts 
D) unions

Question 17

The following ratio(s) that would probably not be used to assess the profitability of a firm is:

Accepted Answer

A) return on stockholders' equity 
B) return on total assets 
C) times interest earned 
D) both return on stockholders' equity and return on total assets

Question 18

What is the net profit margin for TJX Inc.if the current ratio = 2;total asset turnover =1.5;total assets = $100,000;and EBIT = $30,000? Assume the marginal tax rate for TJX is 40% and that interest expenses are $10,000.

Accepted Answer

A) 20% 
B) 8% 
C) 12% 
D) 6%

Question 19

Last year, Monroe Bro Products had $25,000 net cash provided by its operating activities.Its investing activities used $30,000, and its financing activities provided $10,000.Its cash and cash equivalents balance at the beginning of the year was $15,000.By how much did Monroe's cash and cash equivalents increase?

Accepted Answer

A) -$10,000 
B) $0 
C) $5,000 
D) $15,000

Question 20

Heavily using debt to finance assets results in higher as compared to ROI.

Accepted Answer

A) Return on Sales 
B) Return on Stockholders' Equity 
C) Return on Assets 
D) Times Interest Earned

Exam 3: Evaluation of Financial Performance