Question 1

Which ratio measures the overall return on the firm's assets including financial leverage and taxes?

Accepted Answer

A) ROA 
B) ROE 
C) basic earning power 
D) profit margin

Question 2

Fancy Paws' year-end price on its common stock is $20. The firm has a profit margin of 12 percent, total assets of $20 million, a total asset turnover ratio of 0.5, no preferred stock, and there are 2 million shares of common stock outstanding. What is the PE ratio for Fancy Paws?

Accepted Answer

A) 3.33 
B) 8.33 
C) 10.00 
D) 33.33

Question 3

Leash N Collar reported a profit margin of 8 percent, total asset turnover ratio of 1.5 times, debt-to-equity ratio of 0.75 times, net income of $400,000, and dividends paid to common stockholders of $200,000. The firm has no preferred stock outstanding. What is Leash N Collar's internal growth rate?

Accepted Answer

A) 5.2632 percent 
B) 7.3333 percent 
C) 8.6956 percent 
D) 6.383 percent

Question 4

Which of the following measures the number of days accounts receivable are held before the firm collects cash from the sale?

Accepted Answer

A) accounts receivable turnover 
B) average collection period 
C) average payment period 
D) accounts payable turnover

Question 5

Which of these is NOT considered a coverage ratio?

Accepted Answer

A) cash coverage ratio 
B) current ratio 
C) fixed-charge coverage ratio 
D) times interest earned

Question 6

Rachets R Us Corp. reported sales for 2013 of $200,000. Rachets R Us listed $25,000 of inventory on its balance sheet. Using a 365-day year, how many days did Rachets R Us's inventory stay on the premises? How many times per year did Rachets R Us's inventory turnover?

Accepted Answer

A) 0.125 days, 8 times, respectively 
B) 0.125 days, 5 times, respectively 
C) 45.625 days, 8 times, respectively 
D) 45.625 days, 5 times respectively

Question 7

You have located the following information on Tyler Company: debt ratio = 50 percent, capital intensity ratio = 1.5 times, profit margin = 9 percent, and dividend payout ratio = 40 percent. What is the sustainable growth rate for Tyler?

Accepted Answer

A) 12.00 percent 
B) 7.76 percent 
C) 20.00 percent 
D) 30.00 percent

Question 8

Which of the following activities will increase a firm's current ratio?

Accepted Answer

A) sale of inventory for a profit 
B) buy equipment with a long-term bank loan 
C) pay the current month's rent

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

Last year, DJ's Soda Fountains, Inc. reported an ROE = 27 percent. The firm's debt ratio was 50 percent, sales were $9 million, and the capital intensity ratio was 1.5 times. What is the net income for DJ's last year?

Accepted Answer

A) $1.22m 
B) $1.82m 
C) $2.43m 
D) $2.84m

Question 11

Trina'sTrikes, Inc. reported a debt-to-equity ratio of 2 times at the end of 2018. If the firm's total debt at year-end was $10 million, how much equity does Trina's Trikes have?

Accepted Answer

A) $2 million 
B) $5 million 
C) $10 million 
D) $20 million

Question 12

The term "capital structure" refers to

Accepted Answer

A) the amount of current versus long-term debt on the balance sheet. 
B) the amount of current versus fixed assets on the balance sheet. 
C) the amount of long-term debt versus equity on the balance sheet.

Question 13

A firm's year-end price on its common stock is $55. The firm has a profit margin of 6 percent, total assets of $75 million, a total asset turnover ratio of 0.9, no preferred stock, and 2.5 million shares of common stock outstanding. Calculate the PE ratio for the firm.

Accepted Answer

A) 16.94 times 
B) 17.98 times 
C) 24.16 times 
D) 33.95 times

Question 14

Last year Rain Repel Corporation had an ROA of 5 percent and a dividend payout ratio of 90 percent. What is the internal growth rate?

Accepted Answer

A) 4.75 percent 
B) 0.50 percent 
C) 50.00 percent 
D) 52.63 percent

Question 15

The maximum growth rate that can be achieved by 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 16

Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value per share and earnings per share?

Accepted Answer

A) $450, $1,050, respectively 
B) $1,050, $450, respectively 
C) $22.2222, $9.5238, respectively 
D) $9.5238, $22.2222, respectively

Question 17

You are thinking of investing in Ski Sports, Inc. You have only the following information on the firm at year-end 2018: net income = $50,000, total debt = $1 million, and debt ratio = 70 percent. What is Ski's ROE for 2018?

Accepted Answer

A) 2.94 percent 
B) 3.49 percent 
C) 7.14 percent 
D) 11.67 percent

Question 18

Which ratio measures the number of dollars of operating cash available to meet each dollar of interest and other fixed charges that the firm owes?

Accepted Answer

A) times interest earned 
B) fixed-charge coverage ratio 
C) cash coverage ratio 
D) operating coverage ratio

Question 19

For publicly traded firms, which of these ratios measure what investors think of the company's future performance and risk?

Accepted Answer

A) liquidity ratios 
B) market value ratios 
C) price value ratios 
D) profitability ratios

Question 20

Which ratio measures the number of dollars of operating earnings available to meet each dollar of interest obligations on the firm's debt?

Accepted Answer

A) fixed-charge coverage ratio 
B) times interest earned 
C) cash coverage ratio 
D) ROA

Exam 3: Analyzing Financial Statements