Deck 6: Financial Strategy

Question 1

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

A)retained earnings
B)net profit margin
C)inventory turnover
D)current liabilities
E)gross margin

Answer 1

B
Explanation: Net profit margin is the only component of these selections in the strategic profit model.

Question 2

Operating profit margin is also referred to as earnings before interest and taxes.

Answer 2

True
Explanation: Net profit margin is after interest and taxes are considered,but operating profit margin is earnings before interest and taxes are taken into consideration.

Question 3

Operating expenses are costs incurred in the normal course of doing business to generate revenues.

Answer 3

True
Explanation: Retailers evaluate their operating expenses which are costs incurred to run their business.

Question 4

Asset turnover is total assets divided by net sales.

Question 5

Goodwill Industries frequently hires disabled people as part of the community thrift store personnel.Which objective does Goodwill Industries value by this practice?

A)financial
B)personal societal
D)administrative

Question 6

Gross margin measures the profitability of the retailer.

Question 7

Which of the following 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 management path and asset management path.

Question 8

Net operating profit gives the retailer a measure of how much profit it is making on sales of merchandise,without considering the expenses associated with operating its stores.

Question 9

Net profit margin multiplied by asset turnover equals return on assets.

Question 10

Which of the following is NOT a component which enters into the calculation of net sales?

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

Question 11

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 12

What ratio would a retailer utilize to best compare the performance of cashmere sweaters to 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 13

The balance statement summarizes the financial performance of a retailer for a period of time.

Question 14

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

Question 15

What does asset turnover measure?

A)return on assets
B)net profit margin
C)the productivity of the ROA
D)the productivity of the firm's investment in its assets
E)the profit margin management for the entire organization

Question 16

The strategic profit model uses return on assets as the primary criterion for planning and evaluating a firm's financial performance.

Question 17

The amount paid for the merchandise by the retailer is ___________.

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

Question 18

Which of the following 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.

Question 19

Which of the following 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.

Question 20

Buildings,display fixtures,shopping carts,and cash registers would be classified as fixed assets.

Question 21

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 22

Which of the following is an operating expense for Hollister?

A)cost of the merchandise to be paid to the manufacturers
B)shipping expenses from the manufacturer to the distribution center
C)customer returns
D)magazine advertisements
E)employee discounts

Question 23

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 offers.
C)Discount stores traditionally do not profit as well as jewelry stores.
D)Discount stores have a lower priced merchandise strategy.

Question 24

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 only 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 25

Which of the following would have the highest gross margin percent?

A)Lewbob's Fine AntiqueFurniture
B)Walmart
C)Dollar General
D)Sears
E)Kohl's

Question 26

Which of the following refers to the total number of dollars received by a retailer after all refunds have been paid to customers for returned merchandise?

A)net sales
B)gross margin
C)net profit
D)a balanced sheet
E)total assets

Question 27

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 28

Which of the following summarizes a firm's financial performance over a period of time?

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

Question 29

advertising of $500. Calculate the after tax net profit percentage for Country Homes.

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

Question 30

_______________ 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 31

How is gross margin percent calculated?

A)gross margin dollars divided by net sales
B)add operating and interest expenses together and divide by gross sales
C)net sales multiplied by gross margin dollars
D)cost of goods sold divided by gross sales
E)divide net profit by net sales

Question 32

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 33

Which of the following is NOT an example of a retail operating expense?

A)advertising
B)utilities
C)lease payments
D)salaries for sales associates and managers
E)shipping costs from the manufacturer to the retailer

Question 34

Which of the following properly explains why operating expenses percentage in Costco (as a warehouse store)is lower than that of Macy's (as a department store)?

A)Costco has higher selling expenses than Macy's.
B)Costco operates with a larger administrative staff than Macy's.
C)Costco spends less on maintaining the ambiance of its stores than Macy's.
D)Costco advertises less than Macy's.

Question 35

Which of the following would have the lowest gross margin percents?

A)Macy's Department Stores
B)Banana Republic
C)Best Buy
D)Kroger Supermarket
E)Sears

Question 36

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 37

What are net sales?

A)What is remaining after operating and interest expenses.
B)The combination of total customer returns and customer allowances.
C)The revenues received from selling merchandise.
D)The difference between gross profit and gross sales.
E)The difference between cost of goods sold and gross sales.

Question 38

Which of the following calculations leads to gross margin dollars?

A)subtract cost of goods sold from net sales
B)add operating and interest expenses together and subtract the total from gross sales
C)subtract cost of goods sold from gross sales
D)add customer returns and customer allowances,then subtract the total from net sales
E)subtract net profit from net sales

Question 39

Camilla purchased a corn snake as a pet while she was away from home.When she arrived at her dorm,the resident assistant reminded Camilla of the "no pets" policy and Camilla had to bring the snake back to the store.The pet store's accounting department would enter this transaction as a

A)customer allowance
B)fixed cost
C)customer return
D)net cost of doing business
E)gross cost

Question 40

What is net profit?

A)Operating profit less interest and taxes.
B)COGS less operating expenses.
C)Gross sales minus net sales.
D)A measurement of the liquidity of the firm.
E)Net sales minus the cost of goods sold.

Question 41

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 42

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 as well as 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 43

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 44

Of the two types of assets,which one can be converted into cash within one year?

A)current assets
B)fixed assets
C)accrued assets
D)accountable assets
E)substantial assets

Question 45

Why would a retailer offer an in-house credit card to their customers when proceeds of the sales are tied up as accounts receivable?

A)Offering credit is a service for the customers making purchases easier for the consumer.
B)Accounts receivable is not a current asset and has no effect on what is owed to the retailer.
C)By accepting only cash,assets would generate a low ROI.
D)Retailers offer credit to increase their average gross margin.

Question 46

Retailers can ease the financial strain caused by accounts receivable by doing which of the following?

A)Retailers can use third-party credit cards.
B)Retailers can give discounts to customers who pay with credit cards.
C)Retailers can discourage use of cash.
D)Retailers can control the use of markdowns.

Question 47

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 48

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 49

What is inventory turnover used to evaluate?

A)It is used to see how quickly retailers sell their investment in inventory.
B)It is used to calculate net sales.
C)It is used to measure average inventory.
D)It is to see how effectively buyers purchase the right assortments.

Question 50

Barehugs 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.Taxes totaled $61,650.The company's expenses totaled $960,000.Calculate the company's net after tax profit margin percentage.

A)80.7 percent
B)22.2 percent
C)19.3 percent
D)12.5 percent
E)22.9 percent

Question 51

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

A)merchandise inventory
B)accrued liabilities
C)fixed assets
D)notes receivable
E)retained earnings

Question 52

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 53

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)its retained earnings
C)its accounts receivable
D)money owed to vendors

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

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 by average inventory
D)equals net sales minus cost of goods sold divided by average turnover

Question 56

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 57

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 a cost of goods of $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 58

Which of the following can be considered a current asset?

A)net profit percentage
B)accounts receivable
C)selling expenses
D)gross margin
E)operating expenses

Question 59

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 60

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 61

What is wrong with the following performance objective written for a shop specializing in furs: "To earn $1,000,000 in profit during calendar year 2011"?

A)The objective is not qualitative.
B)The objective lacks a specific time frame.
C)The objective does not state the resources needed to accomplish it.
D)The objective is not measurable.
E)The objective is stated appropriately.

Question 62

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 1999,its net sales were $2,100,000,and its net profit 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 63

A store that sells books,magazines and newspapers has an average inventory of $15,000 at cost.Its cost of goods for last 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 64

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 net profit 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 65

What ratio measures the retailer's ability to pay its suppliers with assets such as cash and accounts receivable?

A)cost of goods sold percent
B)gross margin percent
C)operating expense percent
D)current ratio
E)variable expense percent

Question 66

What ratio would an investor use to determine the financial health and risk of bankruptcy of a retailer?

A)stock to sales ratio
B)inventory turnover
C)operating expense percent
D)current ratio
E)debt-to-equity ratio

Question 67

_______________ 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 68

If you had $50,000 and you wanted to invest in either Walgreens or CVS stock,which of the following ratios would best help you to decide what to do?

A)inventory turnover
B)asset turnover
C)return on assets
D)gross profit margin
E)net profit margin

Question 69

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 70

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 71

What ratio would a retailer utilize to best compare the performance of the brand name vendors in their assortment to one another?

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

Question 72

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 73

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

A)sheet music
B)an assortment of music stands
C)a selection of jazz CDs
D)classical and electric guitars
E)a computer that is used to manage the store's inventory

Question 74

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 net profit of $30,000.

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

Question 75

Outstanding invoices that have not yet been paid to the vendor by the retailer,are the retailer's ___________.

A)liabilities
B)current assets
C)fixed assets
D)operating costs
E)variable expenses

Question 76

By knowing the return on assets for his bakery shop,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

Question 77

Operating profit margin,gross margin minus operating and extraordinary nonrecurring expenses,is also known as ___________.

A)earnings before interest and taxes (EBIT)
B)selling,general and administrative expenses (SG & A)
C)stock turnover (S.T.O. )
D)stock to sales ratio (S/S)
E)return on assets (ROA)

Question 78

What is wrong with the following performance objective which was set for a retailer that specializes in advertising collectibles: "To increase sales by three percent on a $400,000 investment in inventory and real estate"?

A)The objective is not qualitative.
B)The objective lacks a specific time frame.
C)The objective does not state the resources needed to accomplish it.
D)The objective is not measurable.
E)The objective is stated appropriately.

Question 79

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)assesses the productivity of the retailer's assets
E)is another term for inventory turnover

Question 80

Which of the following would be a fixed asset?

A)merchandise inventory
B)a hand calculator that is kept near the register
C)the building in which the store is located
D)accounts receivable
E)accounts payable