Question 1

DuPont Analysis You are considering investing in Totally Tire Services. You have been able to locate the following information on the firm: total assets = $50 million, accounts receivable = $10 million, ACP = 15 days, net income = $4.5 million, and debt-to-equity ratio = 0.75 times. What is the ROE for the firm?

Accepted Answer

A)  1.58% 
B)  9.00% 
C)  15.75% 
D)  28.81%

Question 2

A firm has a debt ratio of 45%, capital intensity ratio is 1.3 times, profit margin is 10%, and dividend payout ratio is 30%. Calculate the sustainable growth rate for the firm.

Accepted Answer

A)  1.56% 
B)  2.96% 
C)  3.05% 
D)  4.79%

Question 3

A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet. Using a 365-day year, how many days did the firm's inventory stay on the premises?

Accepted Answer

A)  127.75 days 
B)  157.75 days 
C)  97.75 days 
D)  87.75 days

Question 4

These ratios measure how efficiently a firm uses its assets, as well as how efficiently the firm manages its accounts payable.

Accepted Answer

A)  asset management 
B)  cash 
C)  internal-growth 
D)  quick or acid test

Question 5

Common-size financial statements:

Accepted Answer

A)  Allow for an easy comparison of balance sheets and income statements across firms in the industry. 
B)  Provide quantitative clues about the direction that the firm is moving. 
C)  Are obtained by dividing all income statement accounts by net sales and all balance sheet accounts by total assets. 
D)  All of these.

Question 6

Profitability Ratios DJ's Soda Fountain has asked you to help piece together financial information on the firm for the most current year. Managers give you the following information: sales = $20 million, total debt = $3 million, debt ratio = 75%, ROE = 27%. Using this information, what is DJ's ROA?

Accepted Answer

A)  .0675% 
B)  6.75% 
C)  25.00% 
D)  27.00%

Question 7

A firm has an ACP of 38 days and its annual sales are $5.3 million. What is its account receivable balance?

Accepted Answer

A)  $551,781 
B)  $619,304 
C)  $692,098 
D)  $759,021

Question 8

DuPont Analysis Last year, PJ's Ice Cream Parlors, Inc. reported an ROE = 12%. The firm's debt ratio was 40%, sales were $25 million, and the capital intensity ratio was 0.75 times. What is the net income for PJ's last year?

Accepted Answer

A)  $1.35m 
B)  $2.40m 
C)  $3.00m 
D)  $18.75m

Question 9

Which of these statements is true?

Accepted Answer

A)  In general, the lower the total asset turnover and the lower the capital intensity ratio, the more efficient the overall asset management of the firm will be. 
B)  In general, the lower the total asset turnover and the higher the capital intensity ratio, the more efficient the overall asset management of the firm will be. 
C)  In general, the higher the total asset turnover and the lower the capital intensity ratio, the more efficient the overall asset management of the firm will be. 
D)  In general, the higher the total asset turnover and the higher the capital intensity ratio, the more efficient the overall asset management of the firm will be.

Question 10

Calculate the times interest earned ratio using the following information. Sales = $1.5 million, cost of goods sold = $800,000, depreciation expense = $100,000, addition to retained earnings = $85,000, dividends per share = $1.2, tax rate = 30%, and number of shares of common stock outstanding = 100,000. Assume the firm has no preferred stock.

Accepted Answer

A)  2.25 times 
B)  1.25 times 
C)  1.95 times 
D)  2.75 times

Question 11

Which of the following statements is correct?

Accepted Answer

A)  The cash ratio measures a firm's ability to pay long-term debt with its available cash and marketable securities. 
B)  Holding extremely high levels of liquidity to guard against liquidity crises is an inappropriate goal for the firm. 
C)  The quick (or acid-test) ratio measures a firm's ability to pay off short-term obligations with long-term debt. 
D)  The current ratio is a more stringent measure of liquidity than the quick (or acid-test) ratio.

Question 12

Sustainable Growth Rate Last year Umbrellas Unlimited Corporation had an ROE of 16.5% and a dividend payout ratio of 40%. What is the sustainable growth rate?

Accepted Answer

A)  13.17% 
B)  10.99% 
C)  27.50% 
D)  32.93%

Question 13

The maximum growth rate that can be achieved financing asset growth with new debt and retained earnings is called the __________.

Accepted Answer

A)  internal growth rate 
B)  retention rate 
C)  sustainable growth rate 
D)  operating expansion rate

Question 14

A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000. Interest expense totals $7,000. What is the firm's cash coverage ratio?

Accepted Answer

A)  3.76 times 
B)  4.91 times 
C)  7.25 times 
D)  7.09 times

Question 15

A firm ended the year with an average collection period of 50 days. The firm's credit sales were $11 million. What is the firm's year-end balance in accounts receivable?

Accepted Answer

A)  $1.27 million 
B)  $0.85 million 
C)  $1.51 million 
D)  $2.05 million

Question 16

Sustainable Growth Rate You have located the following information on Rock Company: debt ratio = 40%, capital intensity ratio = 2.25 times, profit margin = 8%, and dividend payout ratio = 25%. What is the sustainable growth rate for Rock?

Accepted Answer

A)  3.56% 
B)  6.00% 
C)  4.65% 
D)  8.00%

Question 17

Which of the following will increase a firm's quick ratio assuming no other accounts change?

Accepted Answer

A)  A reduction in accounts payable. 
B)  An increase in accounts receivable. 
C)  An increase in inventory. 
D)  All of these statements will increase a firm's quick ratio.

Question 18

This ratio measures the number of dollars of sales produced per dollar of inventory.

Accepted Answer

A)  asset management 
B)  cash 
C)  internal-growth 
D)  inventory turnover

Question 19

Asset Management and Debt Management Ratios Use the following information to calculate current assets: Sales = $12 million, capital intensity ratio = 4 times, debt ratio = 45%, and fixed asset turnover ratio = 2.5 times.

Accepted Answer

A)  $4.8 m 
B)  $21.6 m 
C)  $43.2 m 
D)  $48 m

Question 20

Ratio Analysis Use the following information to complete the balance sheet below.
Current ratio = 1.5
Current liabilities = $80 million
Profit margin = 12%
Credit sales = 200 million
Return on equity = 15%
Debt ratio = 60%

Accepted Answer

The answer of Ratio Analysis Use the following information to...

Exam 3: Analyzing Financial Statements