Question 1

Which of the following has the most significant influence on return on equity?

Accepted Answer

A)  common dividends
B)  principal payments
C)  accruals
D)  operating income D

Question 2

Jones,Inc.has a current ratio equal to 1.40.Which of the following transactions will increase the company's current ratio?

Accepted Answer

A)  The company collects $500,000 of its accounts receivable.
B)  The company sells $1 million of inventory on credit.
C)  The company pays back $50,000 of its long-term debt.
D)  The company writes a $30,000 check to pay off some existing accounts payable. D

Question 3

Acme Incorporated has a debt ratio of .42,noncurrent liabilities of $20,000 and total assets of $70,000.What is Acme's level of current liabilities?

Accepted Answer

A)  $8,400
B)  $9,400
C)  $12,348
D)  $10,600 B

Question 4

RBW Corp.has cash of $48,000; short-term notes payable of $35,000,accounts receivable of $100,000; accounts payable of $120,000; inventories of $200,000; and accruals of $90,000.What is RBW's current ratio?

Accepted Answer

A)  1.57
B)  2.71
C)  1.42
D)  0.64

Question 5

Borrowing money causes a corporation's return on operating assets to decrease because of the interest that must be paid.

Accepted Answer

A) True 
 B)False

Question 6

The current ratio of a firm would be increased by which of the following?

Accepted Answer

A)  Land held for investment is sold for cash.
B)  Equipment is purchased,financed by a long-term debt issue.
C)  Inventories are sold for cash.
D)  Inventories are sold on a credit basis.

Question 7

a.Using the financial statements for GMT Enterprises for 2010 (given below),calculate the return on equity,the debt ratio,and the times interest earned ratio. b.Suppose the industry average debt ratio is 50%.Give one reason why the debt ratio for GMT Enterprises may be considered favorable,and give one reason why the debt ratio for GMT Enterprises may be considered unfavorable. GMT Enterprises 2010 Financial Statements

Accepted Answer

The answer of a.Using the financial statements for GMT Enterprises...

Question 8

Please refer to Table 4-1 for the following questions.
Table 4-1
Stewart Company
Balance Sheet
 
-Based on the information in Table 4-1,the operating profit margin is

Accepted Answer

A)  47.5%.
B)  37.5%.
C)  26.4%.
D)  32.8%.

Question 9

Trend analysis is the forecasting of the firm's financial ratios for a future time period by using its own ratios from previous periods.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following transactions will increase a corporation's operating return on assets?

Accepted Answer

A)  sell stock and use the money to pay off some long-term debt
B)  sell 10-year bonds and use the money to pay off current liabilities
C)  negotiate a new contract that lowers raw material costs by 10%
D)  increase sales by 10%

Question 11

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Accepted Answer

The answer of Complete the following balance sheet using the...

Question 12

Asset efficiency ratios for Fischer,Inc.are given in the table below.Based on this information,Fischer,Inc.'s fixed asset turnover ratio is likely to be ________.

Accepted Answer

A)  equal to 3.50 
B)  less than 3.50
C)  greater than 3.50
D)  negative

Question 13

DuPont analysis indicates that the return on equity may be boosted above the return on assets by using leverage (debt).

Accepted Answer

A) True 
 B)False

Question 14

SNL has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; total assets of $995,000; and interest expense of $18,000.What is SNL's times interest earned ratio?

Accepted Answer

A)  1.3
B)  11.4
C)  8.1
D)  45.8

Question 15

Please refer to Table 4-2 for the following questions.
Table 4-2
Drummond Company
Balance Sheet
 
-Based on the information in Table 4-2,the return on equity is

Accepted Answer

A)  19.33%.
B)  18.47%.
C)  16.66%.
D)  15.65%.

Question 16

WPM,Inc.has current assets of $8,000,000,current liabilities of $4,000,000,inventory of $1,320,000,and sales of $12,000,000.What is the acid test ratio?

Accepted Answer

A)  2.0
B)  1.67
C)  0.22
D)  0.1

Question 17

Common-size balance sheets are balance sheets of companies with almost identical total assets (within 2% of each other).

Accepted Answer

A) True 
 B)False

Question 18

Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?

Accepted Answer

A)  times interest earned
B)  average collection period
C)  accounts receivable turnover ratio
D)  cash conversion cycle

Question 19

The goal of most financial managers is to reduce the amount of long-term debt to zero,thus maximizing shareholder wealth.

Accepted Answer

A) True 
 B)False

Question 20

Operating return on assets (OROA)is equal to operating profit margin times total asset turnover.

Accepted Answer

A) True 
 B)False

Exam 4: Evaluating a Firms Financial Performance

Which of the following has the most significant influence on return on equity?

Jones,Inc.has a current ratio equal to 1.40.Which of the following transactions will increase the company's current ratio?

Acme Incorporated has a debt ratio of .42,noncurrent liabilities of $20,000 and total assets of $70,000.What is Acme's level of current liabilities?

RBW Corp.has cash of $48,000; short-term notes payable of $35,000,accounts receivable of $100,000; accounts payable of $120,000; inventories of $200,000; and accruals of $90,000.What is RBW's current ratio?

Borrowing money causes a corporation's return on operating assets to decrease because of the interest that must be paid.

The current ratio of a firm would be increased by which of the following?

Please refer to Table 4-1 for the following questions. Table 4-1 Stewart Company Balance Sheet -Based on the information in Table 4-1,the operating profit margin is

Trend analysis is the forecasting of the firm's financial ratios for a future time period by using its own ratios from previous periods.

Which of the following transactions will increase a corporation's operating return on assets?

Complete the following balance sheet using the information given.Round account balances to the nearest dollar.

Asset efficiency ratios for Fischer,Inc.are given in the table below.Based on this information,Fischer,Inc.'s fixed asset turnover ratio is likely to be ________.

DuPont analysis indicates that the return on equity may be boosted above the return on assets by using leverage (debt).

SNL has sales of $2,250,000; a gross profit of $825,000; total operating costs of $620,000; income taxes of $74,800; total assets of $995,000; and interest expense of $18,000.What is SNL's times interest earned ratio?

Please refer to Table 4-2 for the following questions. Table 4-2 Drummond Company Balance Sheet -Based on the information in Table 4-2,the return on equity is

WPM,Inc.has current assets of $8,000,000,current liabilities of $4,000,000,inventory of $1,320,000,and sales of $12,000,000.What is the acid test ratio?

Common-size balance sheets are balance sheets of companies with almost identical total assets (within 2% of each other).

Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?

The goal of most financial managers is to reduce the amount of long-term debt to zero,thus maximizing shareholder wealth.

Operating return on assets (OROA)is equal to operating profit margin times total asset turnover.