Deck 3: Analyzing Financial Statements

Question 1

Which ratio measures a firm's ability to pay short-term obligations with its available cash and market securities?

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

Answer 1

cash

Question 2

According to the Tax Cuts and Jobs Act (TCJA) of 2017, which of the following statements are true?

A) The act contains a new limitation on the deductibility of net interest expense that exceeds 30% of a firm's adjusted taxable income starting in 2018.
B) For tax years beginning before January 1, 2022, adjusted taxable income is measured as a businesses' EBITDA.
C) Both A and B are true.
D) Neither A or B are true.

Answer 2

Both A and B are true.

Question 3

Which ratio measures the number of dollars of sales produced per dollar of inventory?

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

Answer 3

inventory turnover

Question 4

Which of the following refers to the amount of debt versus equity a firm has on its balance sheet?

A) capital coverage
B) capital structure
C) debt structure
D) financial structure

Question 5

Which of the following measures the number of days that the firm holds accounts payable before it has to extend cash to buy raw materials?

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

Question 6

Select the most commonly used liquidity ratios

A) Current ratio
B) Quick ratio
C) Cash ratio
D) All of the above are considered commonly used liquidity ratios.

Question 7

Select the major debt management ratios.

A) Debt ratio and debt-to-equity.
B) The equity multiplier and the times interest earned.
C) The fixed-charge coverage and the cash coverage.
D) All of the above.

Question 8

Which of these statements is true?

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 9

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

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

Question 10

Which of the following refer to ratios that measure the relationship between a firm's liquid (or current) assets and its current liabilities?

A) cross-section
B) internal-growth
C) liquidity
D) market value

Question 11

Which of the following measures the number of dollars of sales produced per dollar of fixed assets?

A) fixed asset to working capital ratio
B) fixed asset turnover ratio
C) fixed asset management ratio
D) sales to working capital ratio

Question 12

Which of the following ratios measure how efficiently a firm uses its assets, as well as how efficiently the firm manages its accounts payable?

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

Question 13

Which of these statements is true?

A) A low inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management.
B) A high inventory turnover ratio or a low days' sales in inventory is a sign of good inventory management.
C) A low inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management.
D) A high inventory turnover ratio or a high days' sales in inventory is a sign of good inventory management.

Question 14

Which type of ratio measures the dollars of current assets available to pay each dollar of current liabilities

A) cross-section
B) current
C) internal-growth
D) quick or acid-test

Question 15

Which ratio measures the percentage of total assets financed by debt?

A) debt
B) debt-to-equity
C) equity multiplier
D) liquidity

Question 16

Which statement is true?

A) The less liquid assets a firm holds, the less likely it is that the firm will experience financial distress.
B) The lower the liquidity ratios, the less liquidity risk a firm has.
C) Liquid assets generate profits for the firm.
D) Extremely high levels of liquidity guard against liquidity crises, but at the cost of lower returns on assets.

Question 17

Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus equity to finance its assets?

A) debt management ratios
B) equity ratios
C) financial ratios
D) liquidity ratios

Question 18

Which of these is NOT considered a coverage ratio?

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

Question 19

Which of these statements is true?

A) The age of a firm's cash will affect the current ratio level.
B) The age of a firm's accounts receivable will affect the current ratio level.
C) The age of a firm's fixed assets will affect the fixed asset turnover ratio level.
D) The age of a firm's fixed assets will affect the current ratio level.

Question 20

Which type of ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales?

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

Question 21

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?

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

Question 22

Tops N Bottoms Corp. reported sales for 2018 of $50 million. Tops N Bottoms listed $4 million of inventory on its balance sheet. Using a 365-day year, how many days did Tops N Bottoms' inventory stay on the premises? How many times per year did Tops N Bottoms' inventory turnover?

A) 29.2 days, 12.5 times, respectively
B) 12.5 days, 29.2 times, respectively
C) 0.08 days, 12.5 times, respectively
D) 29.2 days, 0.0345 times, respectively

Question 23

Which of these can be used by interested parties to identify changes in corporate performance?

A) common-size financial statements
B) industrialized financial statements
C) sanitized financial statements

Question 24

You are evaluating the balance sheet for Blue Jays Corporation. From the balance sheet you find the following balances: cash and marketable securities = $200,000, accounts receivable = $800,000, inventory = $1,000,000, accrued wages and taxes = $250,000, accounts payable = $400,000, and notes payable = $300,000. What are Blue Jays' current ratio, quick ratio, and cash ratio, respectively?

A) 1.05263, 1.05263, 0.21053
B) 2.10526, 1.05263, 0.21053
C) 3.07692, 1.53846, 0.30769
D) 3.07692, 1.05263, 0.30769

Question 25

Bree's Tennis Supply's market-to-book ratio is currently 9.4 times and PE ratio is 20 times. If Bree's Tennis Supply's common stock is currently selling at $20.50 per share, what is the book value per share and earnings per share?

A) $1.025, $2.1809, respectively
B) $2.1809, $1.025, respectively
C) $410.00, $192.70, respectively
D) $192.70, $410.00, respectively

Question 26

The top part of Mars, Inc.'s 2018 balance sheet is listed as follows (in millions of dollars).
$$\begin{array} { l r l r } \text { Current assets: } & & \text { Curreat liabilities: } & \\\text { Cash ard marketable securities } & \$ 10 & \text { Accrued wages and taxes } & \mathbf { 2 0 } \\\text { Accounts receivable } & 40 & \text { Accounts payable } & 30 \\\text { Irventory } & 160 & \text { Notes payable } & 40 \\\text { Total } & \$ 210 & \text { Total } &\$ 90\end{array}$$
What are Mars, Inc.'s current ratio, quick ratio, and cash ratio for 2018?

A) 0.1111, 0.5556, 0.2
B) 2.3333, 0.5556, 0.1111
C) 4.2, 1.0, 0.2
D) 10.5, 6.0, 1.0

Question 27

The top part of Rammy's Inc.'s 2018 balance sheet is listed as follows (in millions of dollars).
$$\begin{array} { l r l l r } \text { Current assets: } & & \text { Curreat liabilities: } & \\\text { Cash ard marketable securities } & \$ 5 & \text { Accrued wages and taxes } & \$6\\\text { Accounts receivable } & 15 & \text { Accounts payable } & 10 \\\text { Irventory } & 95 & \text { Notes payable } & 50 \\\text { Total } & \$ 115 & \text { Total } & \$ 66\end{array}$$
What are Mars, Inc.'s current ratio, quick ratio, and cash ratio for 2018?

A) 1.74242, 0.30303, 0.07576
B) 7.1875, 1.25, 0.3125
C) 1.43939, 0.30303, 0.07576
D) 19.16667, 3.33333, 0.83333

Question 28

Will's Wheels, Inc. reported a debt-to-equity ratio of 0.65 times at the end of 2018. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have?

A) $0.65 million
B) $3.25 million
C) $5 million
D) $7.69 million

Question 29

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

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

Question 30

The key to cross-sectional analysis comparison of firm ratios include:

A) Identifying similar firms that compete in the same markets.
B) Identifying similar firms that have similar asset sizes.
C) Identifying firms that operate in a similar manner.
D) All of the above.

Question 31

Return on Equity….

A) Measures the return on the common stockholder's investment in the assets of the firm.
B) Measures the overall return on the firm's assets, including financial leverage and taxes.
C) Measures the operating return on the firm's assets regardless of financial leverage and taxes.
D) Is the percent of sales left after all operating expenses are deducted.

Question 32

Which statement(s) is/are true of PE ratios?

A) Managers, analysts, and investors expect companies with high PE ratios to experience future growth.
B) Measures the amount that investors will pay for the firm's stock per dollar of equity used to finance the firm's assets.
C) Measures how much investors are willing to pay for each dollar the firm earns per share of its stock.
D) Both A and C are true.

Question 33

Which statement is true of ratio analysis:

A) can provide useful information on a firm's current position but should never be used to forecast future performance.
B) can provide useful information on a firm's current position and hint at future performance.
C) can provide useful information on a firm's past but not current position.
D) can provide useful information on a firm's past and current position, but should never be used to forecast future performance.

Question 34

CornProducts Corp. ended the year 2018 with an average collection period of 40 days. The firm's credit sales for 2018 were $9 million. What is the approximate year-end 2018 balance in accounts receivable for Corn Products?

A) $225,000
B) $986,300
C) $4,444,400
D) $360,000,000

Question 35

Which of these ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm?

A) liquidity
B) coverage
C) financial
D) profitability

Question 36

Which of the following is the maximum growth rate that can be achieved by financing asset growth with new debt and retained earnings?

A) internal growth rate
B) retained earnings growth rate
C) sustainable growth rate
D) weighted growth rate

Question 37

To interpret financial ratios, managers, analysts, and investors use which of the following type of benchmarks?

A) competitive analysis
B) cross-industry analysis
C) time-industry analysis
D) time series analysis

Question 38

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?

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 39

Which of the following measures the operating return on the firm's assets, irrespective of financial leverage and taxes?

A) basic earnings power ratio
B) profit margin
C) return on assets
D) return on equity

Question 40

You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry. LotsofDebt, Inc. finances its $100 million in assets with $90 million in debt and $10 million in equity. LotsofEquity, Inc. finances its $100 million in assets with $10 million in debt and $90 million in equity. What are the debt ratio, equity multiplier, and debt-to-equity ratio for the two firms?

A) LotsofDebt: 90 percent, 10 times, 9 times, respectively; and LotsofEquity: 10 percent, 1.11 times, 0.1111 times, respectively
B) LotsofDebt: 10 percent, 1.11 times, 0.1111 times, respectively; and LotsofEquity: 90 percent, 10 times, 9 times, respectively
C) LotsofDebt: 90 percent, 1.11 times, 0.1111 times, respectively; and LotsofEquity: 10 percent, 10 times, 9 times, respectively
D) LotsofDebt: 10 percent, 10 times, 9 times, respectively; and LotsofEquity: 90 percent, 1.11 times, 0.1111 times, respectively

Question 41

Use the following information to calculate current assets: sales = $12 million, capital intensity ratio = 4 times, debt ratio = 45 percent, and fixed asset turnover ratio = 2.5 times.

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

Question 42

You have the following information on Olivia's Bridle Shop: total liabilities and equity = $65 million, current liabilities = $10 million, inventory = $15 million, and quick ratio = 3 times. Using this information, what is the balance for fixed assets on Olivia's balance sheet?

A) $20m.
B) $40m.
C) $45m.
D) $135m.

Question 43

Green Products, Inc. has current liabilities = $40 million, current ratio = 2.4 times, inventory turnover ratio = 8 times, average collection period = 40 days, and sales = $320 million. What is the value of their cash and marketable securities?

A) $20.93m.
B) $56.00m.
C) $75.07m.
D) $96.00m.

Question 44

Last year Rain Repel Corporation had an ROE of 10 percent and a dividend payout ratio of 80 percent. What is the sustainable growth rate?

A) 1.11 percent
B) 2.04 percent
C) 44.44 percent
D) 50.00 percent

Question 45

You have the following information on Universe It Ts, Inc.: sales to working capital = 10 times, profit margin = 25 percent, net income available to common stockholders = $3 million, and current liabilities = $1 million. What is the firm's balance of current assets?

A) $1.075m
B) $1.2m
C) $2.2m
D) $5m

Question 46

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?

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

Question 47

If Epic, Inc. has an ROE = 25 percent, equity multiplier = 4, a profit margin of 12 percent, what is the total asset turnover ratio?

A) 0.0833
B) 0.192
C) 0.5208
D) 0.75

Question 48

If Apex, Inc. has an ROE = 10 percent, equity multiplier = 3, and profit margin of 5 percent, what is the total asset turnover ratio?

A) 0.0600
B) 0.0667
C) 0.1667
D) 0.6667

Question 49

You have the following information on Marco's Polo Shop: total liabilities and equity = $205 million, current liabilities = $45 million, inventory = $60 million, and quick ratio = 2.4 times. Using this information, what is the balance for fixed assets on Marco's Polo balance sheet?

A) $37m.
B) $97m.
C) $145m.
D) $157m.

Question 50

Ernie's Mufflers has current liabilities of $45 million. Cash makes up 5 percent of the current assets and accounts receivable makes up another 50 percent of current assets. Ernie's current ratio = 1.5 times. What is the value of inventory listed on the firm's balance sheet?

A) $13.75m.
B) $20.25m.
C) $30.375m.
D) $33.75m.

Question 51

Last year Mocha Java, Inc. had an ROA of 10 percent, a profit margin of 5 percent, and sales of $25 million. What is Mocha Java's total assets?

A) $0.125m.
B) $1.25m.
C) $12.5m.
D) $12m.

Question 52

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

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

Question 53

You have the following information on Zip's Diner, Inc.: sales to working capital = 8 times, profit margin = 5 percent, net income available to common stockholders = $20 million, and current liabilities = $4 million. What is the firm's balance of current assets?

A) $4.125m
B) $6.5m
C) $46m
D) $54m

Question 54

Last year Café Creations, Inc. had an ROA of 25 percent, a profit margin of 12 percent, and sales of $4 million. What is Café Creations' total assets?

A) $0.12m.
B) $0.48m.
C) $1.00m.
D) $1.92m.

Question 55

Last year Poncho Villa Corporation had an ROA of 16 percent and a dividend payout ratio of 25 percent. What is the internal growth rate?

A) 1.19 percent
B) 13.64 percent
C) 25.40 percent
D) 33.33 percent

Question 56

Oasis Products, Inc. has current liabilities = $10 million, current ratio = 1.5 times, inventory turnover ratio = 12 times, average collection period = 20 days, and sales = $100 million. What is the value of their cash and marketable securities?

A) $1,187,215
B) $8,333,333
C) $15,000,000
D) $17,146,188

Question 57

Burt's TVs has current liabilities of $25 million. Cash makes up 40 percent of the current assets and accounts receivable makes up another 20 percent of current assets. Burt's current ratio = 0.85 times. What is the value of inventory listed on the firm's balance sheet?

A) $4.25m.
B) $8.5m.
C) $10m.
D) $40m.

Question 58

Last year Umbrellas Unlimited Corporation had an ROA of 10 percent and a dividend payout ratio of 50 percent. What is the internal growth rate?

A) 1.00 percent
B) 2.25 percent
C) 5.26 percent
D) 100.00 percent

Question 59

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?

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

Question 60

Use the following information to calculate current assets: sales = $100 million, capital intensity ratio = 0.5 times, debt ratio = 30 percent, and fixed asset turnover ratio = 5 times.

A) $10m
B) $15m
C) $30m
D) $50m

Question 61

You are considering investing in Lenny's Lube, Inc. You have been able to locate the following information on the firm: total assets = $20 million, accounts receivable = $6 million, ACP = 20 days, net income = $5 million, and debt-to-equity ratio = 2.5 times. What is the ROE for the firm?

A) 2.5000 percent
B) 13.9882 percent
C) 35.0000 percent
D) 87.50 percent

Question 62

Calculate the times interest earned ratio for Tierre's Ts, Inc. using the following information. Sales = $200,000, cost of goods sold = $50,000, depreciation expense = $13,000, addition to retained earnings = $70,000, dividends per share = $0.50, tax rate = 30 percent, and number of shares of common stock outstanding = 1,000. Tierre's Ts has no preferred stock outstanding.

A) 0.1814
B) 0.4854
C) 0.685
D) 3.7756

Question 63

PJ's Ice Cream Parlour has asked you to help piece together financial information on the firm for the most current year. Managers give you the following information: sales = $50 million, total debt = $20 million, debt ratio = 50 percent, and ROE = 12 percent. Using this information, what is PJ's ROA?

A) 4 percent
B) 6 percent
C) 10 percent
D) 12 percent

Question 64

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?

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

Question 65

Lab R Doors' year-end price on its common stock is $40. The firm has total assets of $75 million, the debt ratio is 60 percent, there is no preferred stock, and there are 4 million shares of common stock outstanding. Calculate the market-to-book ratio for Lab R Doors.

A) 2.13
B) 3.20
C) 5.33
D) 10.00

Question 66

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

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

Question 67

Calculate the times interest earned ratio for Paige's Purses, Inc. using the following information: sales = $50,000,000, cost of goods sold = $15,000,000, depreciation expense = $2,000,000, addition to retained earnings = $10,000,000, dividends per share = $1.10, tax rate = 30 percent, and number of shares of common stock outstanding = 10,000,000. Paige's Purses has no preferred stock outstanding.

A) 0.27
B) 3.30
C) 11.00
D) 16.67

Question 68

Paige's Purses, Inc. reported a debt to equity ratio of 2.4 times at the end of 2018. If the firm's total assets at year-end are $27 million, how much of their assets is financed with equity?

A) $7.94m
B) $11.25m
C) $19.06m
D) $64.8m

Question 69

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?

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

Question 70

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?

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

Question 71

Lab R Doors' year-end price on its common stock is $40. The firm has a profit margin of 10 percent, total assets of $30 million, a total asset turnover ratio of 2, no preferred stock, and there are 4 million shares of common stock outstanding. What is the PE ratio for Lab R Doors?

A) 0.375
B) 0.750
C) 6.667
D) 26.667

Question 72

Zoe's Dog Toys, Inc. reported a debt to equity ratio of 0.5 times at the end of 2018. If the firm's total assets at year-end are $50 million, how much of their assets is financed with equity?

A) $16.67m
B) $25m
C) $33.33m
D) $50m

Question 73

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?

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

Question 74

You are thinking of investing in Wave Runnerz, Inc. You have only the following information on the firm at year-end 2013: net income = $10 million, total debt = $65 million, and debt ratio = 35 percent. What is Wave Runnerz's ROE for 2018?

A) 8.28 percent
B) 15.38 percent
C) 28.57 percent
D) 43.96 percent

Question 75

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 percent, ROE = 27 percent. Using this information, what is DJ's ROA?

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

Question 76

Tierre's Ts, Inc. reported a debt to equity ratio of 3 times at the end of 2018. If the firm's total assets at year-end are $15 million, how much of their assets is financed with equity?

A) $3.75m
B) $5m
C) $11.25m
D) $45m

Question 77

Fancy Paws' year-end price on its common stock is $20. The firm has total assets of $40 million, the debt ratio is 40 percent, there is no preferred stock, and there are 2 million shares of common stock outstanding. Calculate the market-to-book ratio for Fancy Paws.

A) 0.47
B) 1.67
C) 8.00
D) 10.00

Question 78

Nicole's Neon Signs, Inc. reported a debt to equity ratio of 1.9 times at the end of 2018. If the firm's total assets at year-end are $100 million, how much of their assets is financed with equity?

A) $34.48m
B) $65.52m
C) $52.63m
D) $100m

Question 79

You are thinking of investing in Tikki's Torches, Inc. You have only the following information on the firm at year-end 2018: net income = $500,000, total debt = $12 million, and debt ratio = 40 percent. What is Tikki's ROE for 2018?

A) 1.67 percent
B) 2.78 percent
C) 4.17 percent
D) 10.42 percent

Question 80

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?

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