Question 1

Critics of EPS as a measure of profitability point out that it does not consider:

Accepted Answer

A)  simple capital structures. 
B)  the amount of assets or capital required to generate a particular level of earnings. 
C)  the deduction of preferred stock dividends from net income. 
D)  Adjustments for dilutive securities and the adjustment to weighted average number of
Shares outstanding for complex capital structures.

Question 2

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are operating leverage,___________________________________,and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 3

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are ________________________________________,cyclicality of sales and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 4

Grundig Technologies is a manufacturer.Below are the company's two most recent balance sheets and its most recent income statement.Use this information to answer the following questions:a.Calculate the rate of return on assets (ROA)for 2011.Disaggregate ROA into the profit margin for ROA and total assets turnover components.
b.Calculate the rate of return on common stockholders' equity (ROCE)for 2011.Disaggregate ROCE into the profit margin for ROCE,total assets turnover and capital structure leverage components.
c.Did financial leverage work to the advantage of the common shareholders during 2011? Explain.

Accepted Answer

The answer of Grundig Technologies is a manufacturer.Below are the...

Question 5

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.
  
Income Statement
For the year ended December 31, 2011
 
-Refer to the information for Orca Industries.The return on common shareholders' equity for Orca Industries is

Accepted Answer

A)  15.2% 
B)  13.5% 
C)  10% 
D)  11.9%

Question 6

Operating income is negative in an amount equal to _________________________ when revenues are zero.

Accepted Answer

The answer of Operating income is negative in an amount...

Question 7

Which of the following is the primary objective in most financial statement analysis?

Accepted Answer

A)  to value a firm's equity securities. 
B)  to look for unrecorded liabilities. 
C)  to establish a firm's strategy within the industry. 
D)  to define markets for the firm.

Question 8

Net Devices Inc.
The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%.
BALANCE SHEETS

-Refer to the information for Net Devices Inc.What is Net Devices' earnings per share for 2011?

Accepted Answer

A)  $1.00 
B)  $1.70 
C)  $1.96 
D)  $0

Question 9

Below is financial information for two restaurant retailers.Popper's Company operates an innovative retail bakery-cafe business and franchising business.At the end 2010,Popper's had 132 company-owned and 346 franchise-operated bakery-cafes.Popper's located most of their unique bakery-cafe concept stores in suburban,strip mall,and regional mall locations.As a first mover in this concept,the company operates in 32 states.Simmer Corporation began operations five years earlier than Popper's and purchases and roasts whole bean coffees and sells them,along with numerous coffee drinks and related products at over 2,900 Company-operated retail stores.
Selected Data for Popper's Company and Simmer Corporation
(amounts in millions)
  
Required:
a.Compute the Inventory turnover,fixed asset turnover,and accounts receivable turnover.
b.Describe the likely reasons for the difference in the accounts receivable turnover and the inventory turnover

Accepted Answer

The answer of Below is financial information for two restaurant...

Question 10

To calculate diluted EPS,the accountant does all of the following except:

Accepted Answer

A)  adds back to net income any compensation expense recognized on the employee stock options 
B)  adds back any interest expense (net of taxes) on convertible bonds 
C)  adds back any dividends on convertible preferred stock the firm subtracted in computing net income to common shareholders. 
D)  enters only the net incremental shares issued (shares issued under options minus assumed shares repurchased) in the computation of diluted EPS.

Question 11

Extreme Sports Company and All Sports Corporation
Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores.
Selected Data for All Sports and Extreme Sports
(amounts in millions)
 
-Refer to the information for Extreme Sports Company and All Sports Corporation. Compute the Asset Turnover for All Sports

Accepted Answer

A)  3.2% 
B)  2.15 
C)  8.9% 
D)  1.1%

Question 12

Net Devices Inc.
The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%.
BALANCE SHEETS

-Refer to the information for Net Devices Inc.What is Net Devices' return on common shareholders' equity for 2011?

Accepted Answer

A)  26.54% 
B)  30.89% 
C)  35.81% 
D)  42.16%

Question 13

Which of the following is not a way a company can achieve a low-cost position

Accepted Answer

A)  economies of scale 
B)  production efficiency 
C)  customer service 
D)  outsourcing

Question 14

When calculating the return on fixed assets sales is divided by _________________

Accepted Answer

The answer of When calculating the return on fixed assets...

Question 15

Net Devices Inc.
The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%.
BALANCE SHEETS

-Refer to the information for Net Devices Inc.What is the profit margin for ROA for Net Devices for 2010?

Accepted Answer

A)  7.26% 
B)  4.22% 
C)  5.00% 
D)  3.97%

Question 16

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

Accepted Answer

A)  product life cycles, cyclicality of sales, competitive constraint. 
B)  operating leverage, cyclicality of sales, product life cycles. 
C)  cyclicality of sales, competitive constraint, operating leverage. 
D)  operating leverage, competitive constraint, product life cycles.

Question 17

The ability of a firm to manage the level of investment in assets for a particular level of sales is measured by the ______________________________.

Accepted Answer

The answer of The ability of a firm to manage...

Exam 4: Profitability Analysis

Critics of EPS as a measure of profitability point out that it does not consider:

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are operating leverage,___________________________________,and stage and length of product life cycle.

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are ________________________________________,cyclicality of sales and stage and length of product life cycle.

Operating income is negative in an amount equal to _________________________ when revenues are zero.

Which of the following is the primary objective in most financial statement analysis?

To calculate diluted EPS,the accountant does all of the following except:

Which of the following is not a way a company can achieve a low-cost position

When calculating the return on fixed assets sales is divided by _________________

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

The ability of a firm to manage the level of investment in assets for a particular level of sales is measured by the ______________________________.