Question 1

A Halifax firm has an interval measure of 83. This means that the firm must:
A) Pay its creditors within the next 83 days or go bankrupt.
B) Get additional financing within the next 83 days or possibly face closing the firm.
C) Sell all of its common stock in the next 83 days or become privately owned.
D) Pay a dividend to its shareholders every 83 days.
E) Pay interest on its debt every 83 days.

Accepted Answer

The interval measure indicates the number of days a firm can continue to operate without additional financing, assuming no income. If it's 83, the firm must secure financing within that period to avoid potential closure.

Question 2

If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:
A) Profit margin.
B) Return on assets.
C) Return on equity.
D) Equity multiplier.
E) Earnings per share.

Accepted Answer

Return on Equity (ROE) measures the amount of profit a company generates with the money shareholders have invested. It is a key indicator of financial performance from the perspective of shareholders, showing how effectively their capital is being used to generate profits.

Question 3

The financial ratio measured as net income divided by total assets is known as the firm's:
A) Profit margin.
B) Return on assets.
C) Return on equity.
D) Asset turnover.
E) Earnings before interest and taxes (EBIT).

Accepted Answer

Return on Assets (ROA) is calculated by dividing a company's net income by its total assets. This ratio indicates how efficiently a company is using its assets to generate profit.

Question 4

Stockholders are most interested in the:
A) Times interest earned ratio.
B) Current ratio.
C) Return on equity ratio.
D) Total asset turnover rate.
E) Return on assets ratio.

Accepted Answer

Stockholders are most interested in the return on equity ratio as it measures the profitability and efficiency of a company in generating returns on shareholders' investments.

Question 5

The financial ratio measured as net income divided by total equity is known as the firm's:
A) Profit margin.
B) Return on assets.
C) Return on equity.
D) Asset turnover.
E) Earnings before interest and taxes (EBIT).

Accepted Answer

Return on Equity (ROE) is calculated by dividing net income by shareholder equity, thus measuring the profitability relative to the shareholders' equity.

Question 6

The value of the current assets divided by the value of the current liabilities is called:
A) Net working capital.
B) Current ratio.
C) Quick ratio.
D) Liquid ratio.
E) Cash ratio.

Accepted Answer

The current ratio is calculated by dividing the value of current assets by the value of current liabilities, providing a measure of a company's liquidity and ability to meet short-term obligations.

Question 7

In a common size statement, the statement of financial position may be expressed as a percentage of ____________ while the statement of comprehensive income may be expressed as a percentage of ____________.
A) liabilities plus equity; net income
B) assets; net income
C) sales; liabilities plus equity
D) liabilities plus equity; sales
E) liabilities; sales

Accepted Answer

The answer of In a common size statement, the statement...

Question 8

The Du Pont identity is defined as the:
A) Profit margin times the total asset turnover times the equity multiplier.
B) Profit margin times the inventory turnover times the equity multiplier.
C) Return on equity times the profit margin times the total asset turnover.
D) Return on equity times the total asset turnover times the equity multiplier.
E) Return on assets times the total asset turnover times the profit margin.

Accepted Answer

The Du Pont identity breaks down Return on Equity (ROE) into three important components: profit margin (net income divided by sales), total asset turnover (sales divided by total assets), and the equity multiplier (total assets divided by total equity). This formula shows how a company's profitability, asset management, and financial leverage contribute to its ROE.

Question 9

Which of the following is not a liquidity ratio?
A) Interval measure.
B) Current ratio.
C) Quick ratio.
D) Net working capital to total assets.
E) Current asset amplifier.

Accepted Answer

The "Current asset amplifier" is not a recognized liquidity ratio, unlike the other options listed.

Question 10

The net working capital turnover ratio is measured as:
A) Sales divided by net working capital.
B) Sales minus net working capital.
C) Sales times net working capital.
D) Net working capital divided by sales.
E) Net working capital plus sales.

Accepted Answer

The net working capital turnover ratio is calculated by dividing sales by net working capital, which measures how efficiently a company uses its working capital to generate sales.

Question 11

Common sized statements:
A) Depict the cash flows of a firm.
B) Are useful in making comparisons.
C) Reflect the ratio analysis of a firm.
D) Show the sources and uses of cash.
E) Reflect the market value of a firm.

Accepted Answer

Common size statements are useful in making comparisons because they standardize financial statements of companies of different sizes, making it easier to compare financial metrics across companies or across time periods for the same company.

Question 12

Which of the following could be calculated with the use of only a statement of financial position?
A) Interval measure.
B) Equity multiplier.
C) Receivables turnover.
D) Times interest earned.
E) Return on equity.

Accepted Answer

The equity multiplier can be calculated using only the statement of financial position, as it is the ratio of total assets to total equity.

Question 13

The total asset turnover ratio is measured as:
A) Sales minus total assets.
B) Sales divided total assets.
C) Sales times total assets.
D) Total assets divided by sales.
E) Total assets plus sales.

Accepted Answer

The total asset turnover ratio is calculated by dividing sales by total assets, which measures how efficiently a company uses its assets to generate sales.

Question 14

The fixed asset turnover ratio is measured as:
A) Sales minus net fixed assets.
B) Sales times net fixed assets.
C) Sales divided by net fixed assets.
D) Net fixed assets divided by sales.
E) Net fixed assets plus sales.

Accepted Answer

The fixed asset turnover ratio is calculated by dividing sales by net fixed assets, which measures how efficiently a company uses its fixed assets to generate sales.

Question 15

The receivables turnover ratio is measured as:
A) Sales plus accounts receivable.
B) Sales divided by accounts receivable.
C) Sales minus accounts receivable, divided by sales.
D) Accounts receivable times sales.
E) Accounts receivable divided by sales.

Accepted Answer

The receivables turnover ratio is calculated by dividing total sales by the average accounts receivable during the period, which measures how efficiently a company collects its receivables.

Question 16

Which of the following statements is incorrect?
A) The equity multiplier is equal to 1 plus the debt-equity ratio.
B) Return on equity is equal to the return on assets multiplied by the equity multiplier.
C) Return on equity is equal to total equity divided by net income.
D) Return on equity is equal to the equity multiplier multiplied by the total asset turnover multiplied by the profit margin.
E) The difference between the asset multiplier and liability multiplier equals the equity multiplier.

Accepted Answer

The answer of Which of the following statements is incorrect?
A)...

Question 17

Which ratio does not focus on turnover?
A) Inventory turnover.
B) Days' sales in inventory.
C) Receivable turnover.
D) Total asset turnover.
E) Interval measure.

Accepted Answer

The interval measure does not focus on turnover. Instead, it estimates how long a company can continue to operate without needing to secure additional financing or sales, focusing on liquidity rather than the rate at which assets are converted into sales or cash.

Question 18

During 2018, the quick ratio:
A) Increased.
B) Decreased.
C) Remained constant.
D) Changed, but the direction of the change cannot be determined.
E) None of the choices are correct.

Accepted Answer

The answer of   During 2018, the quick ratio:
A)...

Question 19

The financial ratio measured as net income divided by sales is known as the firm's:
A) Profit margin.
B) Return on assets.
C) Return on equity.
D) Asset turnover.
E) Earnings before interest and taxes (EBIT).

Accepted Answer

The profit margin is a financial ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and the sales of a company. It is calculated by dividing the net income by the sales.

Question 20

Second Cups has a price-earnings ratio of 16. Tam Hortons has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Tam Hortons':
A) Has a higher market price than one share of stock in Second Cups.
B) Has a higher market price per dollar of earnings than one share of Second Cups.
C) Sells at a lower price per share than one share of Second Cups.
D) Represents a larger percentage of firm ownership than does one share of Second Cups' stock.
E) Earns a greater profit per share than does one share of Second Cups' stock.

Accepted Answer

The price-earnings (P/E) ratio measures the market price per dollar of earnings. A higher P/E ratio, as seen with Tam Hortons, indicates a higher market price per dollar of earnings compared to Second Cups.

Quiz 3: Working With Financial Statements

A Halifax firm has an interval measure of 83. This means that the firm must:

If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:

The financial ratio measured as net income divided by total assets is known as the firm's:

Stockholders are most interested in the:

The financial ratio measured as net income divided by total equity is known as the firm's:

The value of the current assets divided by the value of the current liabilities is called:

In a common size statement, the statement of financial position may be expressed as a percentage of while the statement of comprehensive income may be expressed as a percentage of .

The Du Pont identity is defined as the:

Which of the following is not a liquidity ratio?

The net working capital turnover ratio is measured as:

Common sized statements:

Which of the following could be calculated with the use of only a statement of financial position?

The total asset turnover ratio is measured as:

The fixed asset turnover ratio is measured as:

The receivables turnover ratio is measured as:

Which of the following statements is incorrect?

Which ratio does not focus on turnover?

During 2018, the quick ratio:

The financial ratio measured as net income divided by sales is known as the firm's:

Second Cups has a price-earnings ratio of 16. Tam Hortons has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Tam Hortons':