Question 1

Another term for earnings power is:

Accepted Answer

A)   nonrecurrent revenue.
B)   nonrecurrent gains.
C)   sustainable earnings.
D)   net change in equity. C

Question 2

Asset turnover represents:

Accepted Answer

A)   The ability of the firm to generate income from operations for a particular level of sales.
B)   The ability to generate sales from a particular investment in assets.
C)   The ability to manage the level of investment in assets for a particular level of assets.
D)   The number of days,on average,it takes management to turnover assets. B

Question 3

Firms with complex capital structures can use which of the following in calculating EPS?

Accepted Answer

A)   Outstanding convertible bonds.
B)   Stock options exercised
C)   Stock warrants issued
D)   All of these are correct. D

Question 4

Carl Industries
Carl Industries has condensed balance sheets as shown:
 
-Refer to the information for Carl Industries.In a percentage change balance sheet over the period of 2009 to 2011,what is the change in long-term liabilities?

Accepted Answer

A)   94.7%
B)   15.4%
C)   5.3%
D)   5%

Question 5

Rattigan had no minority interest in its equity.Total assets were $1,440,000 at the beginning of Year 4 and $1,550,000 at the end of Year 4.

Accepted Answer

The answer of Rattigan had no minority interest in its...

Question 6

Which of the following is not a way a company can achieve a low-cost position?

Accepted Answer

A)   economies of scale
B)   production efficiency
C)   customer service
D)   outsourcing

Question 7

The ability of a firm to generate income from operations given a particular level of sales is measured by the ______________________________.

Accepted Answer

The answer of The ability of a firm to generate...

Question 8

Which of the following would be considered a committed fixed cost (a cost that is incurred regardless of the level of activity during the period)?

Accepted Answer

A)   depreciation expense
B)   bad debt expense
C)   advertising expense
D)   cost of goods sold

Question 9

Firms with high levels of operating leverage experience which of the following in comparison to firms with low levels of operating leverage?

Accepted Answer

A)   Higher levels of risk in operations.
B)   Lower expected rates of return.
C)   Lower variability in returns on assets.
D)   Higher sales.

Question 10

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are operating leverage,___________________________________,and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 11

Extreme Sports Company and All Sports Corporation
Below is financial information for two sporting goods retailers.Extreme Sports Company operates a retail business and franchising business.At the end 2011,Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores.Extreme's stores are located in suburban,strip mall and regional mall locations,the company operates in 32 states.All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores.
Selected Data for All Sports and Extreme Sports
(amounts in millions)
 
-Refer to the information for Extreme Sports Company and All Sports Corporation. What is the return on assets for All Sports?

Accepted Answer

A)   11.9%
B)   10.8%
C)   9.2%
D)   8.6%

Question 12

Which of the following is the primary objective in most financial statement analysis?

Accepted Answer

A)   To value a firm's equity securities
B)   To look for unrecorded liabilities
C)   To establish a firm's strategy within the industry
D)   To define markets for the firm

Question 13

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries.The company has an effective tax rate of 35%.  Income Statement
For the year ended December 31,2011 
-Refer to the information for Orca Industries.Orca's asset turnover is:

Accepted Answer

A)   1.31
B)   1
C)   1.58
D)   1.44

Question 14

Ramos Company
Ramos Company included the following information in its annual report:
 
-Refer to the information for Ramos Company.In a common size income statement for 2011,the cost of goods sold is expressed as:

Accepted Answer

A)   130%
B)   115%
C)   64.5%
D)   63.1%

Question 15

To reduce the risk inherent in ______________________________ a company should strive for a high proportion of variable costs in its cost structure.

Accepted Answer

The answer of To reduce the risk inherent in ______________________________...

Question 16

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

Accepted Answer

A)   product life cycles,cyclicality of sales,competitive constraint.
B)   operating leverage,cyclicality of sales,product life cycles.
C)   cyclicality of sales,competitive constraint,operating leverage.
D)   operating leverage,competitive constraint,product life cycles.

Question 17

Inventory turnover is calculated by dividing ________________________________________ by average inventories.

Accepted Answer

The answer of Inventory turnover is calculated by dividing ________________________________________...

Question 18

Net Devices Inc.
The following balance sheets and income statements are for Net Devices Inc. ,a manufacturer of small electronic devices,including calculators,personal digital assistants and mp3 players.For purposes of these questions assume that the company has an effective tax rate of 35%.
BALANCE SHEETS   
-Refer to the information for Net Devices Inc.What is Net Devices' earnings per share for 2011?

Accepted Answer

A)   $1.00
B)   $1.70
C)   $1.96
D)   $0

Question 19

One with using EPS as a measure of profitability is that it does not consider the amount of ____________________ or ____________________ required to generate a particular level of earnings.

Accepted Answer

The answer of One with using EPS as a measure...

Question 20

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.

Accepted Answer

The answer of Return on assets can be disaggregated into...

Exam 4: Profitability Analysis