Deck 6: Financial Strategy

Question 1

By knowing the return on assets for his bakery, Chuck will know

A) how much profit was generated from his investment in assets.
B) information found only on his balance sheet.
C) information found only on his income statement.
D) total assets divided by net profits.
E) total assets divided by owners' equity.

Answer 1

A
Return on assets is an important performance measure for a firm and its stockholders because it measures the profits that a firm makes relative to the assets it possesses.

Question 2

What does asset turnover measure?

A) It is the retailer's gross sales divided by its net sales.
B) It is the retailer's total productivity divided by its net sales.
C) It is the retailer's average productivity divided by gross sales.
D) It is the retailer's net sales divided by its assets.
E) It is the retailer's total productivity divided by gross sales.

Answer 2

D
Asset turnover is the retailer's net sales divided by its assets.

Question 3

A formula for calculating inventory turnover is: Cost of goods sold (COGS)/Average inventory at cost.

Answer 3

True
The formula for calculating inventory turnover is: Cost of goods sold (GOGS)/Average inventory at cost or Net sales (at Retail)/Average inventory (at retail).

Question 4

The strategic profit model decomposes ROA into two components

A) operating profit margin percentage and asset turnover.
B) net sales and average organizational turnover.
C) gross sales and average employee productivity.
D) total number of employees and total sales volume.
E) average number of employees and average productivity.

Question 5

Which of the following statements does not describe asset turnover?

A) It is the retailer's net sales divided by its assets.
B) It assesses the productivity of a firm's investments in its assets.
C) It indicates how many sales dollars are generated by each dollar of asset.
D) It suggests the profit management path.
E) It helps determine the retailer's ROA.

Question 6

Which of the following is an integral part of the strategic profit model?

A) Retained earnings
B) Asset turnover
C) Inventory turnover
D) Current liabilities
E) Gross margin

Question 7

Charging for space in stores is referred to as a slotting allowance.

Question 8

Same-store sales is the same as comparable-store sales growth.

Question 9

Calculate the return on assets for a gun shop that has total assets of $410,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and operating profit margin of $30,000.

A) 18.3 percent
B) 8.2 percent
C) 7.3 percent
D) 25.0 percent
E) 26.5 percent

Question 10

If you had $50,000 and you wanted to invest in stocks, you have two options. Which of the following ratios would best help you to decide on your investment?

A) Inventory turnover
B) Asset turnover
C) Return on assets
D) Gross profit margin
E) Net profit margin

Question 11

Which of the following statements is not True about the strategic profit model?

A) It is a method for summarizing the factors that affect a firm's financial performance.
B) It indicates the impacts of factors affecting a firm's return on assets (ROA).
C) It decomposes return on assets (ROA) into net profit and operating expenses.
D) It illustrates the different approaches for achieving a high return on assets (ROA).
E) It suggests profit margin management path and asset turnover management path.

Question 12

Return on assets (ROA) is the profit generated by the assets possessed by the firm.

Question 13

Cost of goods sold (COGS) includes what the retailer pays to suppliers for the merchandise the retailer sells.

Question 14

Output measures assess the results of a retailer's investment decisions.

Question 15

Gross margin is the total revenues received by a retailer that are related to selling merchandise during a given time period minus returns, discounts, and credits for damaged merchandise.

Question 16

Self-gratification for the retailer is classified as a societal objective.

Question 17

Jake, who runs a health food store, finds it is rewarding to interact with customers who like to eat organic and health food. Hence, he is recognized in the local community. Which objective of retailing does Jake emphasize by this practice?

A) Financial objective
B) Personal objective
C) Societal objective
D) Environmental objective
E) Administrational objective

Question 18

Top-down planning means that goals get set at the top of the organization and are passed down to the lower operating levels.

Question 19

The formula for calculating asset turnover is: Asset turnover = Cost of goods/Total assets.

Question 20

Operating profit margin is

A) Gross margin minus operating expenses.
B) Cost of goods sold minus gross margin.
C) Net sales minus gross margin
D) Operating expenses minus gross margin.
E) Operating expenses divided by net sales.

Question 21

What measures the profitability of products that are sold?

A) Accounts receivable
B) Asset turnover
C) Gross margin
D) Owner's equity
E) Shrinkage

Question 22

Country Homes is a store for people who collect country arts and crafts and use them to decorate their homes. Last year, its net sales totaled $120,500. The cost value of the items it sold was $72,300. Taxes for the year were $7,680. The only expenses that the operation had were (1) rent for $3000, (2) salaries to the owner and one part-time assistant for $27,000, (3) utilities at $1,200, and (4) advertising of $500. Calculate the gross margin percentage for Country Homes.

A) 40 percent
B) 26.3 percent
C) 9.6 percent
D) 60.2 percent
E) 7.3 percent

Question 23

The amount paid for the merchandise by the retailer is the

A) cost of goods sold.
B) gross margin.
C) operating expense.
D) fixed expense.
E) variable expense.

Question 24

The hosting of a website for the purpose of online retailing would be classified as a(n)

A) cost of goods sold.
B) operating expense.
C) promotional allowance.
D) profit center.
E) asset productivity center.

Question 25

Melanie's Bead Shoppe has total assets of $45,000, accounts receivable of $2,000, accounts payable of $3,100, and inventory valued at $20,000. Last year, her net sales were $29,000, and her operating profit margin equaled $14,000. What is her return on assets?

A) 31.1 percent
B) 12.5 percent
C) 7.0 percent
D) 22.0 percent
E) 48.3 percent

Question 26

________ gives the retailer a measure of how much profit it is making on merchandise sales without considering the expense associated with operating the store.

A) Gross margin
B) Financial leverage
C) General expenses
D) Expenses
E) Net profit

Question 27

In response to a growing trend of workers eating at their work stations, OfficeEase, an Internet retailer, offers a line of products that can be used to protect office equipment and furniture, including a plastic sheath for a computer keyboard and a spill-proof cup. Last year, its net sales were $1,450,000 with cost of goods sold for $353,000. The company's expenses last year totaled $960,000. Calculate the company's net profit percentage.

A) 9.4 percent
B) 24.3 percent
C) 66.2 percent
D) 75.6 percent
E) 8.0 percent

Question 28

The information used to analyze a firm's profit path comes from the

A) balance sheet.
B) profitability statement.
C) income statement.
D) strategic profit model.
E) financial leverage statement.

Question 29

How is gross margin percent calculated?

A) Gross margin divided by net sales
B) Add operating and interest expenses together and divide by gross sales
C) Net sales multiplied by gross margin
D) Cost of goods sold divided by gross sales
E) Divide net profit by net sales

Question 30

Second Chance is a paperback book exchange. For each book trade, the buyer pays a $1 trade fee. Books that are sold and not traded cost half of their original purchase price. The store has total assets of $126,000 and current assets of $40,200. Its net sales equaled $35,000, and its net profit after taxes was $9,000. Calculate the store's net profit percentage.

A) 7.1%
B) 21.7%
C) 22.4%
D) 25.7%
E) 27.7%

Question 31

Candle in the Wind is a store for people who enjoy and collect candles to decorate their homes. Last year, its net sales totaled $125,000 with $13,700 in taxes. The cost value of the candles it sold was $42,300. The expenses that the operation has are salaries to the owner and one part-time assistant for $52,000, administrative expenses of $400, and utilities at $900. Calculate the net profit after tax for Candle in the Wind.

A) $29,400
B) $17,000
C) $53,300
D) $15,700
E) $16,100

Question 32

________ are the total revenues received by a retailer that are related to selling merchandise during a given time period.

A) Gross assets
B) Net profits
C) Gross sales
D) Total profits
E) Net sales

Question 33

Tony wanted to know what the net sales and the net profit after tax were last year for his nephew's business, The Big Guy Shop. Tony should look at the store's

A) balance sheet.
B) financial leverage statements.
C) strategic profit model.
D) profitability statement.
E) income statement.

Question 34

An appliance store has total assets of $2,800,000, accounts receivable of $900,000, accounts payable of $700,000, inventory valued at $1,500,000, and total liabilities of $2,500,000. In 2016, its net sales were $2,100,000, and its operating profit margin equaled $42,000. Calculate the store's return on assets.

A) 71.4 percent
B) 2.8 percent
C) 7.5 percent
D) 1.5 percent
E) 75 percent

Question 35

Which of the following statements does not describe gross margin?

A) It can be expressed as a percentage of net sales.
B) It is the profit on the goods sold excluding the operating expenses.
C) It is also referred to as gross profit.
D) It is a performance measurement.
E) It is a measure of return on assets.

Question 36

Which of the following is expressed as a percentage of net sales?

A) Accounts receivable
B) Net profit margin
C) Gross sales
D) Operating expenses
E) Total assets

Question 37

What ratio should a retailer use to best compare the performance of cashmere sweaters versus cotton sweaters?

A) Cost of goods sold percent
B) Gross margin percent
C) Operating expense percent
D) Fixed expense percent
E) Variable expense percent

Question 38

Which of the following is not a component in the calculation of net sales?

A) Gross sales
B) Customer returns
C) Promotional allowances
D) Interest

Question 39

How is operating profit margin percent calculated?

A) Gross margin divided by net sales
B) Add operating and interest expenses together and divide by gross sales
C) Net sales multiplied by gross margin
D) Cost of goods sold divided by gross sales
E) Divide operating profit by net sales

Question 40

The formula for calculating gross margin is

A) net sales minus the cost of the goods sold.
B) gross sales plus the cost of goods sold.
C) net sales minus gross sales plus the cost of goods sold.
D) gross sales minus the cost of goods sold.
E) net sales plus the cost of goods sold.

Question 41

What is inventory turnover used to evaluate?

A) It is used to see the speed of the inventory sold.
B) It is used to calculate net sales.
C) It is used to measure average inventory.
D) It is used to see how effectively buyers purchase the right assortments.
E) It is used to calculate gross margin.

Question 42

When Erica calculates the current assets for her picture framing business, she should not include which of the following?

A) Her accounts payable
B) The money in her cash register
C) Office supplies
D) Her accounts receivable
E) The store's inventory of matting

Question 43

Of the following, which can be converted into cash within one year?

A) Current assets
B) Fixed assets
C) Accrued assets
D) Accountable assets
E) Substantial assets

Question 44

A store that sells books, magazines, and newspapers has an average inventory of $15,000 at cost. Its cost of goods for the previous year was $62,000, and its net profit was $9,000. Calculate the retailer's inventory turnover.

A) 1.67
B) 2.14
C) 6.89
D) 4.13
E) 14.5

Question 45

Which of the following is classified as an asset?

A) Debts
B) Buildings
C) Accrued wages
D) Deferred revenue
E) Interest payable

Question 46

Which of the following can be considered as a current asset?

A) Net profit percentage
B) Accounts receivable
C) Selling expenses
D) Gross margin
E) Operating expenses

Question 47

When Chris charges a gallon of chlorine for his pool at Pinch-A-Penny to his store account, he creates a(n) ________ for the retailer.

A) long-term liability
B) accounts payable
C) notes receivable
D) notes payable
E) accounts receivable

Question 48

Which of the following would not be listed as an asset on the balance sheet of a hardware store?

A) Nuts and bolts
B) A set of metric wrenches
C) Display cabinets
D) A $55 credit card charge from a store patron
E) Accounts payable

Question 49

The Bookstore Café is a small restaurant located in a downtown business district. It is opened for breakfast and lunch and serves simple yet nutritious meals and also sells books from the New York Times bestseller list. How would you categorize the book inventory, cooking equipment, tables, chairs, and the register?

A) As retained earnings
B) As assets
C) As current liabilities
D) As investor capital
E) As owners' equity

Question 50

Harriet's Wimsey is a bookstore for people who love mysteries. How would a complete set of P. D. James mystery novels, a first edition copy of The Maltese Falcon, the money in the cash register, and an IOU from a loyal customer who forgot her wallet one day when she came to purchase the newest Dorothy Cannell book be listed on the store's balance sheet?

A) As owners' equity
B) As current liabilities
C) As fixed assets
D) As long-term liabilities
E) As current assets

Question 51

Which of the following would be listed as an asset on the balance sheet for a children's clothing shop?

A) Interest due on startup loan
B) Retained earnings
C) Accounts receivable
D) Money owed to vendors
E) Cost of goods sold

Question 52

If Mohammed wanted to examine the assets and liabilities of the Silver Exchange Coin Shop for the end of the year, he should look at its

A) balance sheet.
B) financial leverage statements.
C) income statement.
D) profitability statement.
E) strategic profit model.

Question 53

Why would a discount store have a lower gross margin percent than a jewelry store?

A) Discount stores are only beginning to explore gross margin in pricing decisions.
B) Jewelry stores cannot offer the variety that discount stores offer.
C) Discount stores traditionally do not profit as well as jewelry stores.
D) Discount stores have a lower priced merchandise strategy.
E) Discount stores have a higher cost of goods sold.

Question 54

When Nick is figuring the current assets for his nail salon, he should be certain to include ________ in his calculations.

A) the cash in the drawer
B) accrued liabilities
C) fixed assets
D) notes receivable
E) retained earnings

Question 55

Alpha is popular loungewear that prides itself on its versatility. Last year, its net sales were $1,750,000 with cost of goods of $390,000. The company's operating expenses totaled $960,000. Calculate the company's net operating profit margin percentage.

A) 77.1 percent
B) 22.2 percent
C) 22.9 percent
D) 12.5 percent
E) 19.3 percent

Question 56

The information used to analyze a retailer's asset management path primarily comes from the

A) strategic profit model.
B) financial leverage statement.
C) income statement.
D) profitability statement.
E) balance sheet.

Question 57

Billie Jean's Bridals has total assets of $350,000, current assets of $74,000, total liabilities of $280,000, accounts receivable of $12,000, net sales of $64,000, and net profit after taxes of $23,000. Calculate the retailer's net profit percentage.

A) 18.75 percent
B) 20 percent
C) 25 percent
D) 31.1 percent
E) 35.9 percent

Question 58

Why is it important for department stores to achieve a high gross margin?

A) Their operating expenses are higher than other retail formats.
B) It is stated in the store's financial objectives.
C) Without a high gross margin, department stores will be unable to achieve a high asset turnover.
D) The strategic profit model will otherwise change the strategy of the retailer.
E) A low gross margin will turn it into a discounter.

Question 59

The formula for calculating operating expenses percentage is

A) total sales/operating expenses.
B) gross sales/operating expenses.
C) operating expenses/net sales.
D) average sales/gross sales.
E) total sales/average sales.

Question 60

As Dean calculates his current assets for his used video game store, he is sure to include which of the following?

A) Merchandise inventory
B) Accrued liabilities
C) Fixed assets
D) Notes receivable
E) Retained earnings

Question 61

Which of the following is not an example of a fixed asset for a lawn care service?

A) The trailer used to haul away debris
B) The plant nursery owned by the service
C) The bucket truck it uses to trim trees
D) A computer which is used to manage the store's inventory
E) Its accounts receivable

Question 62

Which of the following would be a fixed asset?

A) Merchandise inventory
B) A hand calculator
C) The store building
D) Accounts receivable
E) Accounts payable

Question 63

Which of the following would be the best example of an input measure?

A) Inventory
B) Gross margin
C) Net profits
D) Return on assets
E) Sales revenue

Question 64

Which of the following is an example of a fixed asset for a music store?

A) Sheet music that is played in the store
B) An assortment of music displayed in the store
C) A selection of jazz CDs owned by the store employees
D) A wide range of classical and electric guitars
E) A computer that is used to manage the store's inventory

Question 65

If a retailer's gross margin percent is on plan, however the retailer is tracking below plan for net operating profit margin plan, which of these options would help improve their situation?

A) increase cost of goods
B) increase markdowns
C) increase payroll
D) decrease selling, general and administrative expenses
E) borrowing money from a lender

Question 66

Which of the following is used to assess overall performance at a corporate level?

A) Asset
B) Square foot of selling space
C) The number of full-time employees
D) Comparable-store sales growth
E) Inventory

Question 67

________ is a method entrepreneurs use to raise money from various individuals to support a particular project.

A) Chargebacks
B) Crowdfunding
C) Vouchsafing
D) Stocking fee
E) Oddity allowance

Question 68

If the executives for OfficeMax developed the chain's objectives by asking buyers and store managers to forecast sales and merchandise for the next year, and then transmitted those estimates up the organization to the top level, it would be an example of ________ planning.

A) accountable
B) bottom-up
C) conventional
D) direct
E) functional

Question 69

________ equals a company's net sales divided by its total assets.

A) Asset turnover
B) Current ratio
C) Gross margin
D) Net sales margin
E) Return on assets

Question 70

The strategic profit model is useful to retailers because it

A) is derived from the income statement.
B) uses owner's equity as its primary criterion.
C) uses inventory turnover as its primary criterion.
D) is derived from the balance sheet from the last day of the year.
E) combines profit margin management and asset management.

Question 71

Grocery stores charging their vendors for space in their stores is referred to as a

A) Charge back
B) Shelf space allocation
C) Vertical variance
D) Save space
E) Slotting allowance

Question 72

Michael's sets goals at the top of the organization. Then, it breaks down these objectives for merchandise categories and regions. When these objectives reach the buyers, each objective is personalized. What does this process demonstrate?

A) Accountable design planning
B) Decentralized planning
C) Functional development
D) Indirect planning
E) Top-down planning

Question 73

Which of the following would be the best example of an output measure?

A) Square feet of shelf space allocated to a particular item
B) The expense of running a magazine advertisement
C) The purchase of new inventory
D) The cost of paying overtime to a clerk who worked late
E) Monthly net profits for the entire store

Question 74

Which of the following assesses the results of a retailer's investments?

A) Balance sheets
B) Input measures
C) Owners' equity
D) Output measures
E) Revenue assessments

Question 75

Inventory turnover

A) is calculated by dividing accounts receivable by net sales.
B) equals total assets minus current assets divided by average inventory.
C) is calculated by dividing cost of goods sold by average inventory.
D) equals net sales minus cost of goods sold divided by average turnover.
E) is calculated by dividing accounts receivable by average inventory.

Question 76

Which of the following is an example of a productivity measure?

A) Cost of merchandise
B) Inventory turnover
C) Gross margin
D) Net sales
E) Advertising expenses

Question 77

The executives for New Haus set the retail objective for the company. These objectives are broken down in order to create the objectives for each merchandise category, as well as for each region of the country. Further breakdowns of the objectives occur when the executives' objectives reach the buyers who must personalize those objectives. This is an example of ________ planning.

A) accountable design
B) decentralized
C) functional development
D) indirect
E) top-down

Question 78

Which of the following would be the best example of an output measure?

A) The square feet of shelf space allocated to a particular item
B) The expense of utilities
C) The purchase of new inventory
D) The number of employees it takes to run a store
E) Net profits for the store for the year

Question 79

If a retailer's gross margin is tracking below plan, which of these options would increase their gross margin?

A) Negotiate better prices with vendors to decrease cost of goods sold
B) Increase payroll
C) Increase markdowns
D) Decrease utilities
E) Defer paying taxes

Question 80

Asset turnover

A) is calculated from information found on a firm's income statement.
B) is calculated by dividing total assets by net sales.
C) reveals how profitable a company is.
D) is net sales divided by total assets.
E) is another term for inventory turnover.