Deck 3: Working With Financial Statements

Question 1

Which one of the following is a measure of long-term solvency?

A)Price-earnings ratio
B)Profit margin
C)Cash coverage ratio
D)Receivables turnover
E)Quick ratio

Answer 1

Cash coverage ratio

Question 2

The ratios that are based on financial statement values and used for comparison purposes are called:

A)financial ratios.
B)industrial statistics.
C)equity standards.
D)accounting returns.
E)analytical standards.

Answer 2

financial ratios.

Question 3

The cash ratio is used to evaluate the:

A)liquidity of a firm.
B)speed at which a firm generates cash.
C)length of time that a firm can pay its bills if no additional cash becomes available.
D)ability of a firm to pay the interest on its debt.
E)relationship between the firm's cash balance and its current liabilities.

Answer 3

length of time that a firm can pay its bills if no additional cash becomes available.

Question 4

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

A)No new external financing of any kind
B)No new debt but additional external equity equal to the increase in retained earnings
C)New debt and external equity in equal proportions
D)New debt and external equity, provided the debt-equity ratio remains constant
E)No new external equity and a constant debt-equity ratio

Question 5

Which one of these transactions will increase the liquidity of a firm?

A)Cash purchase of new production equipment
B)Payment of an account payable
C)Cash purchase of inventory
D)Credit sale of inventory at cost
E)Cash payment of employee wages

Question 6

The DuPont identity can be accurately defined as:

A)Return on equity × Total asset turnover × Equity multiplier.
B)Equity multiplier × Return on assets.
C)Profit margin × Return on equity.
D)Total asset turnover × Profit margin × Debt-equity ratio.
E)Equity multiplier × Return on assets × Profit margin.

Question 7

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0.

A)Cash purchase of inventory
B)Cash payment on an account receivable
C)Cash payment of an account payable
D)Credit sale of inventory at cost
E)Cash sale of inventory at a loss

Question 8

The Wood Shop generates $.97 in sales for every $1 invested in total assets.Which one of the following ratios would reflect this relationship?

A)Receivables turnover
B)Equity multiplier
C)Profit margin
D)Return on assets
E)Total asset turnover

Question 9

Common-size financial statements present all balance sheet account values as a percentage of:

A)the forecasted budget.
B)sales.
C)total equity.
D)total assets.
E)last year's account value.

Question 10

Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends.Given this, the percentage shown on a common-size income statement for the dividend account will:

A)remain constant over time.
B)be equal to the dividend amount divided by the net income.
C)vary in direct relation to the net profit percentage.
D)vary in direct relation to changes in the sales level.
E)vary but not in direct relation to any other variable.

Question 11

If a firm has an inventory turnover of 15, the firm:

A)sells its entire inventory every 15 days.
B)stocks its inventory only once every 15 days.
C)delivers inventory to its customers every 15 days.
D)sells its inventory by granting customers 15 days' of free credit.
E)sells its entire inventory an average of 15 times each year.

Question 12

Builder's Outlet just hired a new chief financial officer.To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes.Which one of the following statements will best suit her purposes?

A)Income statement
B)Balance sheet
C)Common-size income statement
D)Common-size balance sheet
E)Statement of cash flows

Question 13

A firm has a current ratio of 1.4 and a quick ratio of .9.Given this, you know for certain that the firm:

A)pays cash for its inventory.
B)has more than half its current assets invested in inventory.
C)has more cash than inventory.
D)has more current liabilities than it does current assets.
E)has positive net working capital.

Question 14

The equity multiplier is equal to:

A)one plus the debt-equity ratio.
B)one plus the total asset turnover.
C)total debt divided by total equity.
D)total equity divided by total assets.
E)one divided by the total asset turnover.

Question 15

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

A)DuPont rate
B)External growth rate
C)Sustainable growth rate
D)Internal growth rate
E)Cash flow rate

Question 16

Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past?

A)A decrease in the total asset turnover
B)A decrease in the capital intensity ratio
C)An increase in days' sales in receivables
D)A decrease in the profit margin
E)A decrease in the inventory turnover rate

Question 17

Which one of the following is the abbreviation for the U.S.government coding system that classifies a firm by its specific type of business operations?

A)BEC
B)SED
C)BID
D)SIC
E)SBC

Question 18

Which one of the following will increase the profit margin of a firm, all else held constant?

A)Increase in interest paid
B)Increase in fixed costs
C)Increase in depreciation expense
D)Decrease in the tax rate
E)Decrease in sales

Question 19

Leon is the owner of a corner store.Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

A)Current ratio
B)Debt ratio
C)Cash coverage ratio
D)Cash ratio
E)Quick ratio

Question 20

A common-size balance sheet helps financial managers determine:

A)which customers are paying on a timely basis.
B)if costs are increasing faster or slower than sales.
C)if changes are occurring in a firm's mix of assets.
D)if a firm is generating more or less sales per dollar of assets than in prior years.
E)the rate at which the firm's dividend payout is changing.

Question 21

Saki Kale Farms has net income of $96,320, total assets of $975,200, total equity of $555,280, and total sales of $1,141,275.What is the common-size percentage for the net income?

A)7.90 percent
B)8.44 percent
C)13.88 percent
D)48.65 percent
E)74.57 percent

Question 22

A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600.What is the common-size percentage of the equity?

A)70.60 percent
B)70.12 percent
C)66.87 percent
D)42.08 percent
E)68.75 percent

Question 23

A firm can increase its sustainable rate of growth by decreasing its:

A)profit margin.
B)dividends.
C)total asset turnover.
D)target debt-equity ratio.
E)equity multiplier.

Question 24

The sustainable growth rate is based on the premise that:

A)an additional dollar of debt will be acquired only if an additional dollar in equity shares is issued.
B)no additional equity will be added to the firm.
C)the debt-equity ratio will be held constant.
D)the dividend payout ratio will be zero.
E)the dividend payout ratio will increase at a steady rate.

Question 25

All else held constant, which one of the following will decrease if a firm increases its net income?

A)Return on assets
B)Profit margin
C)Return on equity
D)Price-sales ratio
E)Price-earnings ratio

Question 26

A firm has sales of $811,000 for the year.The profit margin is 5.1 percent and the retention ratio is 56 percent.What is the common-size percentage for the dividends paid?

A)1.99 percent
B)2.86 percent
C)1.21 percent
D)2.24 percent
E)1.42 percent

Question 27

Wilberton's has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700.If inventory is $173,900, what is the current ratio?

A)2.01
B).52
C).84
D)1.18
E)1.94

Question 28

You would like to borrow money three years from now to build a new building.In preparation for applying for that loan, you are in the process of developing target ratios for your firm.Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?

A)Times interest earned = 1.7; debt-equity ratio = 1.6
B)Times interest earned = 1.5; debt-equity ratio = 1.2
C)Cash coverage ratio = .8; debt-equity ratio = .8
D)Cash coverage ratio = 2.6; debt-equity ratio = .3
E)Cash coverage ratio = .5; total debt ratio = .2

Question 29

The DuPont identity can be used to help a financial manager determine the:
I.degree of financial leverage used by a firm.
II.operating efficiency of a firm.
III.utilization rate of a firm's assets.
IV.rate of return on a firm's assets.

A)II and III only
B)I and III only
C)II, III, and IV only
D)I, II, and III only
E)I, II, III, and IV

Question 30

Philippe Organic Farms has total assets of $689,400, long-term debt of $198,375, total equity of $364.182, net fixed assets of $512,100, and sales of $1,021,500.The profit margin is 6.2 percent.What is the current ratio?

A)..95
B).1.12
C)1.26
D)1.40
E)1.50

Question 31

Financial statement analysis:

A)is primarily used to identify account values that meet the normal standards.
B)is limited to internal use by a firm's managers.
C)provides useful information that can serve as a basis for forecasting future performance.
D)provides useful information to shareholders but not to debt holders.
E)is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods.

Question 32

Prisqua Rentals has inventory of $147,500, equity of $320,000, total assets of $658,800, and sales of $800,780.What is the common-size percentage for the inventory account?

A)15.07 percent
B)18.42 percent
C)20.36 percent
D)22.39 percent
E)39.96 percent

Question 33

Which one of these statements is true concerning the price-earnings (PE) ratio?

A)A high PE ratio may indicate that a firm is expected to grow significantly.
B)A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.
C)PE ratios are unaffected by the accounting methods employed by a firm.
D)The PE ratio is classified as a profitability ratio.
E)The PE ratio is a constant value for each firm.

Question 34

Donovan's would like to increase its internal rate of growth.Decreasing which one of the following will help the firm achieve its goal?

A)Return on assets
B)Net income
C)Retention ratio
D)Dividend payout ratio
E)Return on equity

Question 35

Outdoor Gear reduced its general and administrative costs this year.This cost improvement will increase which of the following ratios?
I.Profit margin
II.Return on assets
III.Total asset turnover
IV.Return on equity

A)I and II only
B)I and III only
C)II, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question 36

Delmont Movers has a profit margin of 7.1 percent and net income of $63,700.What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year?

A)12.19 percent
B)23.50 percent
C)53.25 percent
D)61.06 percent
E)58.25 percent

Question 37

Which ratio was primarily designed to monitor firms with negative earnings?

A)Price-sales ratio
B)Market-to-book ratio
C)Profit margin
D)ROE
E)ROA

Question 38

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

A)zero percent.
B)100 percent.
C)equal to the ROA.
D)negative.
E)infinite.

Question 39

Sweet Candies reduced its fixed assets this year without affecting the shop's operations, sales, or equity.This reduction will increase which of the following ratios?
I.Capital intensity ratio
II.Return on assets
III.Total asset turnover
IV.Return on equity

A)I and II only
B)II and III only
C)II, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question 40

Which one of the following statements is correct?

A)Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business.
B)Peer group analysis is easier when seasonal firms have different fiscal years.
C)Peer group analysis is simplified when firms use varying methods of depreciation.
D)Comparing results across geographic locations is easier since all countries now use a common set of accounting standards.
E)Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory.

Question 41

Gorilla Movers has sales of $645,560, cost of goods sold of $425,890, depreciation of $32,450, and interest expense of $12,500.The tax rate is 30 percent.What is the times interest earned ratio?

A)14.98
B)12.75
C)11.63
D)6.25
E)2.75

Question 42

A firm has net working capital of $8,200 and current assets of $37,500.What is the current ratio?

A).69
B)..78
C)1.28 0.
D)1.45
E).1.67

Question 43

The Dry Dock has inventory of $431,700, accounts payable of $94,200, cash of $51,950, and accounts receivable of $103,680.What is the cash ratio?

A).64
B).55
C).53
D).98
E)1.34

Question 44

Skylar's Bed and Breakfast has $126,500 in total assets, depreciation of 3,500, and interest of $1,850.The total asset turnover rate is 1.02.Earnings before interest and taxes are equal to 24 percent of sales.What is the cash coverage ratio?

A) 9.37
B)16.74
C)18.63
D)20.72
E)22.82

Question 45

A firm has net income of $4,238 and interest expense of $898.The tax rate is 35 percent.What is the firm's times interest earned ratio?

A)7.33
B)7.26
C)5.38
D)8.26
E)9.33

Question 46

Fresh Foods has sales of $213,600, total assets of $198,700, a debt-equity ratio of 1.43, and a profit margin of 4.8 percent.What is the equity multiplier?

A).30
B).43
C)1.93
D)2.43
E)2.30

Question 47

Tony's Machinery has total equity of $815,280, long-term debt of $391,900, net working capital of $49,500, and total assets of $1,292,485.What is the total debt ratio?

A)..50
B).37
C)..64
D)..46
E)..60

Question 48

The Conference Center has cash of $7800, accounts receivable of $15600, inventory of $48,850, and net working capital of $ 5,000.What is the cash ratio?

A)..08
B)..12
C).15
D).42
E).45

Question 49

SRC, Inc., sells its inventory in an average of 43 days and collects its receivables in 3.6 days, on average.What is the inventory turnover rate? Assume a 365-day year.

A)8.49
B)7.29
C)8.68
D)10.18
E)7.13

Question 50

The Bike Shoppe has total assets of $536,712 and an equity multiplier of 1.36.What is the debt-equity ratio?

A).68
B).24
C)1.24
D)..36
E).1.36

Question 51

Allyba Dance Supply has total assets of $550,000 and total debt of $295,000.What is the equity multiplier?

A).46
B)1.0
C)1.075
D)1.86
E)2.16

Question 52

Galaxy Sales has sales of $938,300, cost of goods sold of $764,500, and inventory of $123,600.How long on average does it take the firm to sell its inventory?

A)6.40 days
B)7.23 days
C)48.68 days
D)59.01 days
E)61.10 days

Question 53

Assume earnings before interest and taxes of $56,850 and net income of $23,954.The tax rate is 30 percent.What is the times interest earned ratio?

A)1.51
B)1.73
C)2.37
D)2.47
E)2.51

Question 54

A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092.What is the debt-equity ratio?

A)1.03
B)1.20
C)1.31
D)1.43
E).87

Question 55

UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315.What is the inventory turnover rate?

A)7.33 times
B)6.90 times
C)5.70 times
D)7.14 times
E)8.47 times

Question 56

Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860, accounts payable of $11,900, and accounts receivable of $4,660.What is the cash ratio?

A).08
B).25
C).30
D).46
E).51

Question 57

You are analyzing a company that has cash of $8,800, accounts receivable of $15,800, fixed assets of $87,600, accounts payable of $40,300, and inventory of $46,900.What is the quick ratio?

A)1.20
B).67
C).83
D).61
E)1.64

Question 58

Gaspares Agricultural Cooperative has current liabilities of $162,500, net working capital of $28,560, inventory of $175,800, and sales of $1,941,840.What is the quick ratio?

A).07
B).16
C).09
D)1.08
E)1.18

Question 59

A firm has net income of $28,740, depreciation of 6,170, taxes of $13,420, and interest paid of $2,605.What is the cash coverage ratio?

A)8.78
B)20.10
C)14.14
D)16.32
E)19.55

Question 60

Southern Style Realty has total assets of $485,390, net fixed assets of $250,000, current liabilities of $23,456, and long-term liabilities of $148,000.What is the total debt ratio?

A)..30
B)..35
C)..69
D)..53
E)..68

Question 61

BR Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit margin of 5.87 percent.Currently, the firm has 18,500 shares outstanding.What are the earnings per share?

A)$2.92
B)$2.97
C)$2.86
D)$2.58
E)$2.89

Question 62

Steve's Music Supply has a return on equity of 19.3 percent, a profit margin of 10.1 percent, and total equity of $645,685. What is the net income?

A)$65,214.19
B)$123,383.71
C)$124,617.21
D)$65,214.19.
E)$125,863.40

Question 63

The Kids' Mart has a market-to-book ratio of 3.3, net income of $87,100, a book value per share of $18.50, and 7,500 shares of stock outstanding.What is the price-earnings ratio?

A)4.34
B)8.16
C)5.61
D)6.25
E)5.26

Question 64

If sales are $211,000, the profit margin is 6.3 percent, and the capital intensity ratio is .94, what is the return on assets?

A)4.42 percent
B)6.08 percent
C)6.39 percent
D)6.92 percent
E)6.70 percent

Question 65

Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent.What is the capital intensity ratio?

A).33
B).67
C)1.49
D)1.34
E)3.07

Question 66

Spring Falls Gifts has sales of $680,300, total assets of $589,100, and a profit margin of 4.3 percent.What is the return on assets?

A)4.30 percent
B)6.54 percent
C)3.83 percent
D)7.01 percent
E)4.97 percent

Question 67

Bed Bug Inn has annual sales of $137,000.Earnings before interest and taxes are equal to 5.8 percent of sales.For the period, the firm paid $4,700 in interest.What is the profit margin if the tax rate is 34 percent?

A)−2.43 percent
B)1.56 percent
C)3.33 percent
D)−5.29 percent
E)−6.11 percent

Question 68

Whitt's BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78.What is the total asset turnover rate?

A)1.04
B)1.08
C)1.13
D)1.43
E)1.28

Question 69

It takes K's Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable.The firm has sales of $942,300 and costs of goods sold of $692,800.What is the accounts receivable turnover rate? Assume a 365-day year.

A)23.69
B)11.41
C)21.73
D)24.23
E)19.55

Question 70

Gracie Human Resource Consulting has total revenue of $285,400, cost of goods sold equal to 68 percent of sales, and a profit margin of 9.2 percent.Net fixed assets are $126,400 and current assets are $65,880.What is the total asset turnover rate?

A)1.01
B)1.30
C)1.48
D)1.84
E)4.81

Question 71

Phil's Carvings sells its inventory in 93 days, on average.Costs of goods sold for the year are $187,200.What is the average value of the firm's inventory? Assume a 365-day year.

A)$20,129
B)$47,698
C)$57,132
D)$61,096
E)$32,513

Question 72

Andras Technology has accounts receivable of $35,680, total assets of $538,500, cost of goods sold of $325,400, and a capital intensity ratio of ..90.What is the accounts receivable turnover rate?

A)15.56
B)16.77
C)9.12
D)10.13
E)10.31

Question 73

Healthy Foods has a book value per share of $32.68, earnings per share of $3.09, and a price-earnings ratio of 16.8.What is the market-to-book ratio?

A)1.08
B)1.59
C)1.99
D)2.47
E)2.16

Question 74

A firm has sales of $311,000 and net income of $31,600.The price-sales ratio is 3.24 and market price is $36 per share.How many shares are outstanding?

A)20,608
B)27,990
C)28,356
D)30,515
E)31,011

Question 75

Jessica's Sports Wear has $38,100 in receivables and $523,700 in total assets.The total asset turnover rate is 1.17 and the profit margin is 7.3 percent.How long on average does it take to collect the receivables? Assume a 365-day year.

A)26.91 days
B)19.45 days
C)11.68 days
D)31.07 days
E)22.70 days

Question 76

ABD common stock is selling for $36.08 a share.The company has earnings per share of $.34 and a book value per share of $12.19.What is the market-to-book ratio?

A)8.71
B)7.69
C)2.96
D)3.97
E)5.92

Question 77

Jaminda's Holistic Healing has sales of $980,000, cost of goods sold of $765,250, and accounts receivable of $88,640.How long on average does it take the firm's customers to pay for their purchases? Assume a 365-day year.

A)8.63 days
B)15.5 days
C)32.56 days
D)33.01 days
E)42.56 days

Question 78

KBJ has total assets of $613,000.There are 21,000 shares of stock outstanding with a market value of $13 a share.The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08.What is the price-earnings ratio?

A)6.38
B)7.99
C)6.65
D)5.12
E)7.41

Question 79

Maren's House of Pancakes has sales of $635,400, total equity of $268,000, and a debt-equity ratio of ..6.What is the capital intensity ratio?

A)..67
B).59
C).72
D).89
E)1.67

Question 80

Dellf's has a profit margin of 3.8 percent on sales of $287,200.The firm currently has 5,000 shares of stock outstanding at a market price of $7.11 per share.What is the price-earnings ratio?

A)3.26
B)8.02
C)11.50
D)5.93
E)12.84