Question 1

Using the percentage of sales technique,the remaining dollar amount of asset investments determines the external financing needs (EFN).

Accepted Answer

A) True 
 B)False

Question 2

Because debt obligations are paid with cash,the firm's cash flows ultimately determine solvency.

Accepted Answer

A) True 
 B)False

Question 3

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 4

A firm with total debt to total assets of 50% and an interest coverage ratio of 0.5 times would appear to be safely utilizing financial leverage.

Accepted Answer

A) True 
 B)False

Question 5

Sacramento Sandals (SS)has fixed annual operating costs of $75,000.SS retails each pair of sandals for $14.99 each and the variable cost per pair is $4.99.Based on this information,the breakeven sales level in dollars is

Accepted Answer

A) $25,495 
B) $12,425 
C) $8,995 
D) none of the above

Question 6

If a firm has a receivables turnover of 12,on average,which of the following would be the firm's average collection period?

Accepted Answer

A) 12 months 
B) 1 month 
C) 8.67 
D) not enough information given

Question 7

Earnings before interest and taxes (EBIT)is another way of describing:

Accepted Answer

A) operating profits 
B) net profits before taxes 
C) gross profits 
D) earnings per share

Question 8

A financial technique that involves dividing various financial statement numbers into one another is called:

Accepted Answer

A) trend analysis 
B) cross sectional analysis 
C) ratio analysis 
D) percent of sales analysis

Question 9

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 10

The degree of operating leverage measures the sensitivity of operating income to changes in the level of output.

Accepted Answer

A) True 
 B)False

Question 11

Market value ratios indicate the willingness of investors to value a firm in the marketplace relative to financial statement values.

Accepted Answer

A) True 
 B)False

Question 12

Financial planning begins with a sales forecast for one or more years.

Accepted Answer

A) True 
 B)False

Question 13

An analyst should be careful when conducting ratio analysis to ensure that

Accepted Answer

A) the overall performance of the firm is not judged on a single ratio. 
B) the dates of the financial statements being compared are different. 
C) audited statements are not being used. 
D) different accounting procedures are used. 
E) none of the above

Question 14

Net working capital indicates the percentage of current liabilities to current assets.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Asset management ratios do not measure which of the following:

Accepted Answer

A) productivity of fixed assets in terms of sales 
B) how current assets are used in the generation of sales 
C) how efficiently inventory is being managed 
D) all of the above are measured by asset management ratios

Question 17

The ________ method of developing a pro forma income statement forecasts sales and values for the cost of goods sold,operating expenses,and interest expense that are expressed as a ratio of projected sales.

Accepted Answer

A) percent of sales 
B) accrual 
C) judgmental 
D) cash

Question 18

Using the DuPont system of analysis and holding other factors constant,decrease in total asset turnover will result in ________ in the return on equity.

Accepted Answer

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

Question 19

The price/earnings ratio shows how much investors are willing to pay for each dollar of the firm's current earnings per share.

Accepted Answer

A) True 
 B)False

Question 20

All other things being equal,an increase in the amount fixed operating costs for a firm would:

Accepted Answer

A) increase the degree of financial leverage 
B) decrease the degree of financial leverage 
C) have no impact on degree of financial leverage 
D) not enough information given

Exam 14: Financial Analysis and Long-Term Financial Planning

Using the percentage of sales technique,the remaining dollar amount of asset investments determines the external financing needs (EFN).

Because debt obligations are paid with cash,the firm's cash flows ultimately determine solvency.

The primary purpose of the liquidity ratios is to determine:

A firm with total debt to total assets of 50% and an interest coverage ratio of 0.5 times would appear to be safely utilizing financial leverage.

Sacramento Sandals (SS) has fixed annual operating costs of $75,000.SS retails each pair of sandals for $14.99 each and the variable cost per pair is $4.99.Based on this information,the breakeven sales level in dollars is

If a firm has a receivables turnover of 12,on average,which of the following would be the firm's average collection period?

Earnings before interest and taxes (EBIT) is another way of describing:

A financial technique that involves dividing various financial statement numbers into one another is called:

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

The degree of operating leverage measures the sensitivity of operating income to changes in the level of output.

Market value ratios indicate the willingness of investors to value a firm in the marketplace relative to financial statement values.

Financial planning begins with a sales forecast for one or more years.

An analyst should be careful when conducting ratio analysis to ensure that

Net working capital indicates the percentage of current liabilities to current assets.

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

Asset management ratios do not measure which of the following:

The ________ method of developing a pro forma income statement forecasts sales and values for the cost of goods sold,operating expenses,and interest expense that are expressed as a ratio of projected sales.

Using the DuPont system of analysis and holding other factors constant,decrease in total asset turnover will result in ________ in the return on equity.

The price/earnings ratio shows how much investors are willing to pay for each dollar of the firm's current earnings per share.

All other things being equal,an increase in the amount fixed operating costs for a firm would: