Question 1

A firm's return on equity is a function of its net profit margin, ____ and equity multiplier.

Accepted Answer

A)  current ratio 
B)  cost of goods 
C)  total asset turnover 
D)  fixed asset turnover

Question 2

What are the main purposes of financial analysis and what does it identify?

Accepted Answer

The answer of What are the main purposes of financial...

Question 3

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 4

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

Question 5

The best accounting-based measure of a firm's profitability is

Accepted Answer

A)  gross profit margin 
B)  net profit margin 
C)  return on fixed assets 
D)  return on total assets

Question 6

What is the cost of sales for a firm with a gross profit margin of 30 percent, a net profit margin of 4 percent, and earnings after taxes of $20,000?

Accepted Answer

A)  $200,000 
B)  $350,000 
C)  $150,000 
D)  $125,000

Question 7

The ratio group most likely to be used to indicate a firm's ability to meet short-term financial obligations would be

Accepted Answer

A)  liquidity ratios 
B)  financial leverage ratios 
C)  activity ratios 
D)  profitability ratios

Question 8

Wall Mart Pictures and Decor Company has a net profit margin of 10% and its inventory turnover is 9, what is its annual cost of sales? You also know that Wall Mart's average inventory is $96,700 and its annual sales are $1,000,000.

Accepted Answer

A)  $870,000 
B)  $850,000 
C)  $870,300 
D)  $790,000

Question 9

Firms with ____ growth rates would be expected to have ____ payout ratios.

Accepted Answer

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

Question 10

Given the following information, calculate the inventory for Big Show Videos: Quick ratio = 1.2; Current assets = $12,000; Current ratio = 2.5

Accepted Answer

A)  $4,800 
B)  $6,240 
C)  $7,200 
D)  $5,660

Question 11

Christy would like to improve the current ratio of her firm, which is now 0.5, so that she will have a better chance of obtaining a working capital loan. Which of the following options would improve her current ratio?

Accepted Answer

A)  use cash to pay off notes payable 
B)  collect some of her accounts receivables 
C)  purchase additional inventory on credit 
D)  borrow short-term funds to pay off some payables

Question 12

Economic value added (EVA) is a measure of operating performance that indicates how successful a firm has been at:

Accepted Answer

A)  increasing the growth in earnings 
B)  increasing the MVA of the enterprise in any given year 
C)  increasing the rate of return on investment 
D)  all of the above

Question 13

What information can Asset Management Ratios provide?

Accepted Answer

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

Question 14

List the major financial ratio groups and briefly indicate what they analyze.

Accepted Answer

The answer of List the major financial ratio groups and...

Question 15

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 16

____ indicate the ability of the firm to meet its short-term financial obligations

Accepted Answer

A)  Activity ratios 
B)  Liquidity ratios 
C)  Leverage ratios 
D)  Profitability ratios

Question 17

If a firm wanted to report high profits, it would choose which method of inventory accounting in inflationary times?

Accepted Answer

A)  FIFO 
B)  LIFO 
C)  FILO 
D)  GIGO

Question 18

A fresh fruit wholesaler would normally be expected to have

Accepted Answer

A)  high profit margin and high asset turnover 
B)  low profit margin and low asset turnover 
C)  low profit margin and high asset turnover 
D)  high profit margin and low asset turnover

Question 19

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 20

Given the following information, determine Taylor Company's cash balance.
Sales = $10,000,000 (all on credit)
Current ratio = 3.0
Current liabilities = $800,000
Average collection period = 36.5 days (Assume 365 days/year)
Quick ratio = 1.50
Current assets = cash + accounts receivable + inventory

Accepted Answer

A)  $200,000 
B)  $1,400,000 
C)  $2,400,000 
D)  $500,000

Exam 3: Evaluation of Financial Performance