Question 1

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's asset turnover ratio for 2009 is
A)1.79.
B)1.63.
C)1.34.
D)2.58.
E)None of the options

Accepted Answer

$8,000,000/[($6,440,000 + $5,500,000)/2] = 1.34.

Question 2

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's times interest earned ratio for 2009 is
A)8.86.
B)7.17.
C)9.66.
D)6.86.
E)None of the options

Accepted Answer

$1,240,000/$140,000 = 8.86.

Question 3

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%.The firm's asset turnover is
A)0.3.
B)1.3.
C)2.3.
D)3.3.

Accepted Answer

17.82% = 0.625 × 0.9 × 8% × asset turnover × 1.2; asset turnover = 3.3.

Question 4

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's P/E ratio for 2009 is
A)8.88.
B)7.63.
C)7.88.
D)7.32.

Accepted Answer

EPS = $660,000/130,000 = $5.08; $40/$5.08 = 7.88.

Question 5

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes
A)higher reported sales.
B)higher incomes taxes.
C)lower ending inventory.
D)higher incomes taxes and lower ending inventory.
E)None of the options

Accepted Answer

In inflationary periods, the use of FIFO causes overstated earnings, which result in higher taxes.

Question 6

A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%.The firm's ROA is
A)2%.
B)4%.
C)6%.
D)8%.
E)None of the options

Accepted Answer

-2% = (1)[ROA + (ROA - 10%) 1] = 4%.

Question 7

FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average.These ratios suggest that the firm
A)utilizes assets effectively.
B)has too much equity in the capital structure.
C)has relatively high current liabilities.
D)has a relatively low dividend payout ratio.
E)None of the options

Accepted Answer

Total debt includes both current and long term debt; the above relationships could occur only if FOX Company has a higher than average level of current liabilities.

Question 8

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's average collection period for 2009 is
A)59.31.
B)55.05.
C)61.31.
D)49.05.
E)None of the options

Accepted Answer

AR turnover = $8,000,000/[($1,200,000 + $950,000)/2] = 7.44; ACP = 365/7.44 = 49.05 days.

Question 9

Return on total assets is the product of
A)interest rates and pre-tax profits.
B)the debt-equity ratio and P/E ratio.
C)the after-tax profit margin and the asset turnover ratio.
D)sales and fixed assets.
E)None of the options

Accepted Answer

ROA = Net profit margin × total asset turnover.

Question 10

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's return on equity ratio for 2009 is
A)16.88%.
B)15.63%.
C)14.00%.
D)15.00%.
E)16.24%.

Accepted Answer

$660,000/[($4,140,000 + $3,680,000)/2] = .1688.

Question 11

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's inventory turnover ratio for 2009 is
A)3.15.
B)3.63.
C)3.69.
D)2.58.
E)4.20.

Accepted Answer

$5,260,000/[($1,840,000 + $1,500,000)/2] = 3.15.

Question 12

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years
A)Sales/total assets
B)Debt/total assets
C)Debt/equity
D)Retained earnings/total assets

Accepted Answer

Only retained earnings reflect profits reinvested over the years.

Question 13

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's market to book value for 2009 is
A)1.13.
B)1.62.
C)1.00.
D)1.26.

Accepted Answer

$40/$31.85 = 1.26.

Question 14

A firm's current ratio is above the industry average; however, the firm's quick ratio is below the industry average.These ratios suggest that the firm
A)has relatively more total current assets and even more inventory than other firms in the industry.
B)is very efficient at managing inventories.
C)has liquidity that is superior to the average firm in the industry.
D)is near technical insolvency.

Accepted Answer

Total current assets are high, and inventory is a very large portion of total current assets, relative to other firms in the industry.

Question 15

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's fixed asset turnover ratio for 2009 is
A)2.04.
B)2.58.
C)2.97.
D)1.58.
E)None of the options

Accepted Answer

$8,000,000/[($3,200,000 + $3,000,000)/2] = 2.58.

Question 16

The financial statements of Black Barn Company are given below.  Refer to the financial statements of Black Barn Company.The firm's return on sales ratio for 2009 is
A)15.5%.
B)14.6%.
C)14.0%.
D)15.0%.
E)16.5%.

Accepted Answer

$1,240,000/$8,000,000 = 0.155, or 15.5%.

Question 17

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%.The firm's ROE is
A)4.2%.
B)5.2%.
C)6.2%.
D)7.2%.
E)None of the options

Accepted Answer

ROE = 0.6 × 0.6 × 4% × 2.5 × 2 = 7.2%.

Question 18

Ferris Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.
A)payment of current payables from cash
B)sales of current marketable securities for cash
C)write-down of impaired assets
D)delay of next payroll
E)None of the options

Accepted Answer

Example: CA = $150; CL = $100; current ratio = 1.5; Pay $50 of CL with cash; CA = $100; CL = $50; current ratio = 2.B has no effect on ratio (CA remain same); C does not affect current account; D would decrease ratio.

Question 19

A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%.The firm's ROE is
A)11.18%.
B)8.97%.
C)11.54%.
D)12.62%.

Accepted Answer

ROE = (1 - 0.35)[14% + (14% - 10%)0.8] = 11.18%.

Question 20

A measure of asset utilization is
A)sales divided by working capital.
B)return on total assets.
C)return on equity capital.
D)operating profit divided by sales.
E)None of the options

Accepted Answer

The return on total assets measures how efficiently the firm is utilizing assets to generate returns.

Quiz 19: Financial Statement Analysis

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's asset turnover ratio for 2009 is

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's times interest earned ratio for 2009 is

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%.The firm's asset turnover is

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's P/E ratio for 2009 is

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes

A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%.The firm's ROA is

FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average.These ratios suggest that the firm

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's average collection period for 2009 is

Return on total assets is the product of

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's return on equity ratio for 2009 is

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's inventory turnover ratio for 2009 is

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's market to book value for 2009 is

A firm's current ratio is above the industry average; however, the firm's quick ratio is below the industry average.These ratios suggest that the firm

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's fixed asset turnover ratio for 2009 is

The financial statements of Black Barn Company are given below. Refer to the financial statements of Black Barn Company.The firm's return on sales ratio for 2009 is

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%.The firm's ROE is

Ferris Corp.wants to increase its current ratio from the present level of 1.5 when it closes the books next week.The action of __________ will have the desired effect.

A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%.The firm's ROE is

A measure of asset utilization is