Question 1

The analysis of the financial performance and condition of a firm with sizable international operations is generally more complicated than analyzing a firm whose operations are largely domestic for all of the following reasons except:

Accepted Answer

A)  problems with the translation of foreign operating results 
B)  problems with definition of capital 
C)  fluctuating exchange rates 
D)  all of the above are correct reasons

Question 2

Given the following information, calculate the return on equity for Regrets Only Dating Services, Inc.:
Net Profit margin = 5%
Total asset turnover = 2
Debt ratio = 0.73

Accepted Answer

A)  14% 
B)  7.3% 
C)  37% 
D)  21%

Question 3

Which of the following financial ratios are market-based ratios?

Accepted Answer

A)  debt-to-equity 
B)  price-to-earnings 
C)  return on investment 
D)  gross profit margin

Question 4

If a firm's common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:

Accepted Answer

A)  on total assets as a percentage of long-term liabilities. 
B)  on expenses as a percentage of current assets. 
C)  on cost of goods sold as a percentage of sales. 
D)  on taxes paid as a percentage of stockholders' equity.

Question 5

Given the following information, determine Salem Company's fixed assets.
Sales = $10,000,000
Total asset turnover = 4 times
Current ratio = 2.40
Current liabilities = $500,000
Total assets = current assets + fixed assets

Accepted Answer

A)  $1,200,000 
B)  $4,800,000 
C)  $1,300,000 
D)  Cannot be determined

Question 6

A common-size income statement shows the firm's income and expense items as a percentage of ____.

Accepted Answer

A)  stockholders' equity 
B)  net sales 
C)  industry averages 
D)  total assets

Question 7

The fixed asset turnover ratio is influenced by

Accepted Answer

A)  the age of the assets employed 
B)  the depreciation method used by the firm 
C)  the firm's choice of a production technology 
D)  all of the above

Question 8

Nukin' Gnats Pest Control is trying to determine its cash flow per share. It has revenue of $50,000, $35,000 of expenses, $4,000 of depreciation and $3,000 of interest expense. The firm is in the 40% tax bracket. The firm has 75,000 shares of common stock outstanding. The firm has a $15 price per share. Its price to cash flow is:

Accepted Answer

A)  .0057 
B)  .0098 
C)  .0076 
D)  .0029

Question 9

Financial ratio analysis is most often performed as a

Accepted Answer

A)  comparative analysis 
B)  trend analysis 
C)  point in time analysis 
D)  comparative analysis and a trend analysis

Question 10

If a firm's price to earnings (P/E) ratio is 10,

Accepted Answer

A)  it is not possible for it to be paying dividends also 
B)  its market to book ratio has to be at least 2.0 
C)  its net profit margin is positive 
D)  its return on stockholders' equity is negative

Question 11

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 the above

Question 12

Nuking Gnats Pest Service, Inc. has a debt ratio of 50% and an equity multiplier of 2. What is Nuking Gnats' stockholders' equity if total debt is $100,000?

Accepted Answer

A)  $100,000 
B)  $150,000 
C)  $200,000 
D)  $50,000

Question 13

Which ratio is frequently used in conjunction with the analysis of a bond's quality?

Accepted Answer

A)  times interest earned 
B)  deferred liability ratio 
C)  receivables turnover 
D)  dividend coverage ratio

Question 14

Return on stockholders' equity is equal to ____ times ____ times ____.

Accepted Answer

A)  net profit margin; fixed asset turnover; equity multiplier ratio 
B)  gross profit margin; total asset turnover; equity multiplier ratio 
C)  net profit margin; total asset turnover; equity multiplier ratio 
D)  net profit margin; total asset turnover; debt-to-equity ratio

Question 15

Primary sources of comparative financial data include

Accepted Answer

A)  Dun and Bradstreet 
B)  New York Times 
C)  Richard Moore, Inc. 
D)  Framingham Financial Library

Question 16

If a firm's return on investment, i.e., earnings after taxes divided by total assets, is 7%, and the firm has no preferred stock financing, it is

Accepted Answer

A)  possible that its return on stockholders' equity is 10%. 
B)  possible that its return on stockholders' equity is 5%. 
C)  not possible for its debt-to-equity ratio to be 1.0. 
D)  not possible for its net profit margin to be 7%.

Question 17

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 18

A firm's price to earnings ratio is 8 and its market to book ratio is 2. If its earnings per share are $4.00, what is the book value per share?

Accepted Answer

A)  $ 8.00 
B)  $32.00 
C)  $64.00 
D)  $16.00

Question 19

Stocks with ____ dividend yield often indicate ____ expected future growth.

Accepted Answer

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

Question 20

Your current assets consist of cash, accounts receivable, and inventory. Total current liabilities equal $200,000. The average collection period is 20 days on average daily credit sales of $2,500. The current ratio is 1.3 and the quick ratio is 0.625. What is the balance in the cash account?

Accepted Answer

A)  $ 75,000 
B)  $ 65,000 
C)  $135,000 
D)  $ 50,000

Exam 3: Evaluation of Financial Performance