Question 1

__________ best explains a ratio of sales/average net fixed assets that exceeds the industry average.

Accepted Answer

If the firm has a substantial amount of old plant and equipment, the denominator of the ratio (average net fixed assets) is lower than it would be if the company had newer assets, thus producing a higher ratio than the industry average.

Question 2

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's times interest earned ratio for 2009 is

Accepted Answer

The times interest earned ratio is calculated as follows:
Times Interest Earned Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense

From the income statement given, EBIT for 2009 is $1,900 and interest expense is $563. Therefore, the times interest earned ratio can be calculated as:
Times Interest Earned Ratio = $1,900 / $563 = 3.375

Therefore, the best choice is C.

Question 3

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's asset turnover ratio for 2009 is

Accepted Answer

The asset turnover ratio is calculated by dividing the total revenue by the total assets. In 2009, Midwest Tours had total revenue of $264,000 and total assets of $318,000, so the asset turnover ratio is 264,000/318,000 = 0.83.

Question 4

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's inventory turnover ratio for 2009 is

Accepted Answer

The answer of The financial statements of Midwest Tours are...

Question 5

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's P/E ratio for 2009 is

Accepted Answer

The answer of The financial statements of Midwest Tours are...

Question 6

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's market-to-book value for 2009 is

Accepted Answer

The answer of The financial statements of Midwest Tours are...

Question 7

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's return on sales ratio for 2009 is

Accepted Answer

The return on sales ratio can be calculated as net income divided by total revenue. In this case, the net income for 2009 is $3,240,000 and the total revenue is $15,000,000. Therefore, the return on sales ratio for 2009 is (3,240,000 / 15,000,000) x 100 = 21.6%.

Question 8

Comparability problems arise because

Accepted Answer

Both options A and B are possible reasons for comparability problems. Firms may use different accounting principles to prepare financial statements, which may make it difficult for analysts to compare them. Additionally, inflation may affect firms differently depending on the accounting conventions they use, which can further complicate comparisons between companies. Therefore, the best answer is D, which includes both of these factors.

Question 9

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's average collection period for 2009 is

Accepted Answer

The answer of The financial statements of Midwest Tours are...

Question 10

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's return on equity ratio for 2009 is

Accepted Answer

Return on Equity (ROE) = Net Income/Shareholders' Equity
ROE = $1,732,000/$11,174,000
ROE = 0.1550 or 15.50%
Therefore, the correct answer is C) 15.50%.

Question 11

Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average?

Accepted Answer

The firm having a higher net income/total equity ratio than the industry average while having a lower net income/total assets ratio suggests that the firm is using more debt in its capital structure. A higher debt ratio (total liabilities/total assets) means the firm has a higher proportion of debt relative to its assets, which can increase the net income/total equity ratio due to leverage but may not necessarily improve the net income/total assets ratio if the assets are not generating income efficiently.

Question 12

The financial statements of Snapit Company are given below.   Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company.The firm's return on sales ratio for 2009 is

Accepted Answer

Return on sales ratio = Net income / Total sales
From the income statement for 2009:
Net income = $49,000
Total sales = $370,000
Return on sales ratio = $49,000 / $370,000 = 0.1325 or 13.25% 
Since the question does not specify a percentage or decimal, we assume it is asking for the ratio in decimal form. Therefore, the correct answer is B) 0.1325.

Question 13

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's fixed asset turnover ratio for 2009 is

Accepted Answer

The answer of The financial statements of Midwest Tours are...

Question 14

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's leverage ratio for 2009 is

Accepted Answer

The answer of The financial statements of Midwest Tours are...

Question 15

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

Accepted Answer

The answer of What best explains why a firm's ratio...

Question 16

The financial statements of Snapit Company are given below.   Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company.The firm's fixed asset turnover ratio for 2009 is

Accepted Answer

The answer of The financial statements of Snapit Company are...

Question 17

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's current ratio for 2009 is

Accepted Answer

The current ratio for Midwest Tours in 2009 can be calculated by dividing current assets ($745,000) by current liabilities ($575,000), which gives a result of 1.30.

Question 18

One problem with comparing financial ratios prepared by different reporting agencies is

Accepted Answer

Different reporting agencies may have different policies as to what they include or exclude from the financial ratio calculations. This can result in discrepancies and make the ratios difficult to compare.

Question 19

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours.The firm's quick ratio for 2009 is

Accepted Answer

Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Quick Ratio for 2009 = (17,400 - 3,800) / 20,400 = 0.85.

Question 20

The financial statements of Snapit Company are given below.   Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company.The firm's asset turnover ratio for 2009 is

Accepted Answer

The answer of The financial statements of Snapit Company are...

Quiz 19: Financial Statement Analysis

__________ best explains a ratio of sales/average net fixed assets that exceeds the industry average.

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's times interest earned ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's asset turnover ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's inventory turnover ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's P/E ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's market-to-book value for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's return on sales ratio for 2009 is

Comparability problems arise because

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's average collection period for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's return on equity ratio for 2009 is

Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average?

The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company.The firm's return on sales ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's fixed asset turnover ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's leverage ratio for 2009 is

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company.The firm's fixed asset turnover ratio for 2009 is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's current ratio for 2009 is

One problem with comparing financial ratios prepared by different reporting agencies is

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours.The firm's quick ratio for 2009 is

The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company.The firm's asset turnover ratio for 2009 is