Question 1

The sales-to-inventory ratio:

Accepted Answer

A)  is superior to the inventory turnover ratio. 
B)  as a determination of financial performance, is good comparison tool. 
C)  is technically inferior to other commonly used ratios. 
D)  was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole.

Question 2

The data from ____ is especially useful when analyzing small firms.

Accepted Answer

A)  Prentice-Hall 
B)  Robert Morris Associates 
C)  Dan Bradbury Ltd. 
D)  Securities and Exchange Commission

Question 3

If a firm's total asset turnover ratio is 2.0,

Accepted Answer

A)  its annual sales are less than its total assets 
B)  it is possible that its fixed asset turnover ratio is 1.5 
C)  its total assets are two times its annual sales 
D)  its annual sales are two times its total assets

Question 4

Stepping Out Shoe Mfg. has inventory purchases of $2,200 during the month of June. If the June 1 accounts payables were $1,700 and June 30 accounts payables were $1,900, what was the cash payment?

Accepted Answer

A)  $3,900 
B)  $2,000 
C)  $1,900 
D)  $1,700

Question 5

Deferred taxes may occur due to the use of

Accepted Answer

A)  different tax schedules 
B)  different depreciation methods for taxes and financial reporting 
C)  long-term equipment 
D)  different cash flow methods

Question 6

A firm with a debt ratio of 0.75, will have an equity multiplier of

Accepted Answer

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

Question 7

Firms with a positive economic value added (EVA):

Accepted Answer

A)  have increasing growth in earnings 
B)  have an increasing rate of return on investment 
C)  have a return on capital greater than their cost of capital 
D)  have a high return on book value

Question 8

An increase in the average collection period may suggest all of the following except

Accepted Answer

A)  easing of credit terms 
B)  customers are not paying their bills on time 
C)  sales have decreased 
D)  firm could have a liquidity problem in the future

Question 9

The ____ ratio is a more severe measure of a firm's ability to meet fixed financial obligations than is the times interest earned ratio.

Accepted Answer

A)  acid test 
B)  debt 
C)  fixed charge coverage 
D)  debt to equity

Question 10

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 11

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 12

If Power-On Inc. has a total asset turnover of 1.8, a fixed asset turnover of 3.2, a debt ratio of 0.5 and a total debt of $200,000, then fixed assets are

Accepted Answer

A)  $56,250 
B)  $711,111 
C)  $225,000 
D)  $62,250

Question 13

The earnings per share figure

Accepted Answer

A)  is a comparative ratio 
B)  is the best measure of a firm's profitability 
C)  can only be computed if a firm has no debt 
D)  is only one measure of a firm's profitability

Question 14

A common-size balance sheet shows the firm's assets and liabilities as a percentage of:

Accepted Answer

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

Question 15

If a firm's current ratio is 1.5,

Accepted Answer

A)  its current liabilities exceed its current assets 
B)  it is possible for its quick ratio to be 2.0 
C)  it is possible for its quick ratio to be 1.0 
D)  its current assets equal its current liabilities

Question 16

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 17

Companies can avoid paying income taxes on inventory profits by using the ____ inventory valuation method.

Accepted Answer

A)  LIFO 
B)  FIFO 
C)  Priced out 
D)  Priced in

Question 18

The current ratio would normally be increased by

Accepted Answer

A)  paying off some current liabilities with cash 
B)  selling bonds and investing the proceeds in marketable securities 
C)  buying treasury stock 
D)  paying off some current liabilities with cash and selling bonds and investing the proceeds in marketable securities

Question 19

The type of ratio that indicates the firm's ability to provide adequate returns in the form of dividends and share price appreciation is:

Accepted Answer

A)  Profitability ratios 
B)  Asset management ratios 
C)  Liquidity ratios 
D)  Financial leverage management ratios

Question 20

The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:

Accepted Answer

A)  an accurate picture of the company's market position 
B)  based on the company's accounting information system (AIS) 
C)  constructed in conformity with generally accepted accounting principles 
D)  developed using management's choice of accounting enhancement techniques

Exam 3: Evaluation of Financial Performance