Question 1

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
A) asset turnover and control
B) financial leverage
C) coverage
D) profitability
E) None of the above.

Accepted Answer

Asset turnover ratios measure how efficiently a firm manages its assets to generate sales, while control ratios measure how efficiently a firm manages its operations to generate net income.

Question 2

Assume you are a banker who has loaned money to a firm,but that firm is now facing increased competition and reduced cash flows.Which one of the following ratios would you most closely monitor to evaluate the firm's ability to repay its loan?
A) current ratio
B) debt-to-equity ratio
C) times interest earned ratio
D) times burden covered ratio
E) None of the above.

Accepted Answer

The times burden covered ratio measures a firm's ability to cover its fixed financial obligations, including interest and principal payments, which is crucial for assessing its ability to repay loans.

Question 3

Ptarmigan Travelers had sales of $420,000 in 2010 and $480,000 in 2011.The firm's current accounts remained constant.Given this information,which one of the following statements must be true?
A) The total asset turnover rate increased.
B) The days' sales in receivables increased.
C) The inventory turnover rate increased.
D) The fixed asset turnover decreased.
E) The collection period decreased.

Accepted Answer

E

Question 4

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-Assume a 365-day year for your calculations.The payables period in days,based on cost of goods sold,at the end of 2012 is:
A) 5.2
B) 24.3
C) 28.8
D) 35.7
E) None of the above.

Accepted Answer

Payables period in days = (Accounts Payable / Cost of Goods Sold) * 365

At the end of 2012, Cost of Goods Sold was 42,910 and Accounts Payable was 10,395.

Payables period in days= (10,395 / 42,910) * 365 = 88.33 days

Therefore, the payables period in days, based on cost of goods sold, at the end of 2012 was 24.3 (rounded to one decimal place).

The correct choice is B.

Question 5

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-Which of the following statements best describes how the company's short-term liquidity changed from 2011 to 2012?
A) Link's short-run liquidity has improved modestly.
B) Link's short-run liquidity has deteriorated very little, but from a low initial base.
C) Link's short-run liquidity has improved considerably, but from a low initial base.
D) Link's short-run liquidity has deteriorated considerably, but from a high initial base.
E) None of the above.

Accepted Answer

The answer of Selected financial data for Link, Inc. follows:...

Question 6

Which of the following ratios are measures of a firm's liquidity?
I.fixed asset turnover ratio
II.current ratio
III.debt-equity ratio
IV.acid test
A) I and III only
B) II and IV only
C) III and IV only
D) I, II, and III only
E) I, III, and IV only

Accepted Answer

Current ratio and acid test are measures of a firm's liquidity. The fixed asset turnover ratio and debt-equity ratio are measures of a firm's asset utilization and financial leverage, respectively.

Question 7

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-The current ratio at the end of 2012 is:
A) 10.21
B) 2.31
C) 2.76
D) 10.30
E) None of the above.

Accepted Answer

Current Ratio = Current Assets/Current Liabilities

At the end of 2012,

Current Ratio = (49,304 + 15,236)/18,513 = 2.76

Therefore, the best choice is C, 2.76.

Question 8

Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?
A) current ratio
B) debt-to-equity
C) retention
D) asset turnover
E) return on assets

Accepted Answer

Asset turnover ratio measures how efficiently a company uses its assets to generate sales revenue. It is calculated by dividing total revenue by average total assets. Therefore, it identifies the amount of assets a firm needs in order to generate $1 in sales. Current ratio (A) measures a firm's ability to cover its short-term liabilities with its current assets. Debt-to-equity (B) measures a firm's proportion of debt to equity financing. Retention (C) refers to the percentage of earnings that a company retains after paying out dividends to shareholders. Return on assets (E) measures a company's efficiency in using its assets to generate earnings.

Question 9

On a common-size balance sheet,all accounts are expressed as a percentage of:
A) sales for the period.
B) the base year sales.
C) total equity for the base year.
D) total assets for the current year.
E) total assets for the base year.

Accepted Answer

On a common-size balance sheet, all accounts are expressed as a percentage of total assets for the current year. This standardizes the balance sheet and allows for easier comparison across companies and time periods.

Question 10

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-Assume a 365-day year for your calculations.The days' sales in cash at the end of 2012 is:
A) 24.3
B) 28.8
C) 35.7
D) 219.6
E) None of the above.

Accepted Answer

The answer of Selected financial data for Link, Inc. follows:...

Question 11

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-The profit margin for 2012 is:
A) -94%
B) -57%
C) 13%
D) 31%
E) None of the above.

Accepted Answer

The answer of Selected financial data for Link, Inc. follows:...

Question 12

Which one of the following statements does NOT describe a problem with using ROE as a performance measure?
A) ROE measures return on accounting book value, and this problem is not solved by using market value.
B) ROE is a forward-looking, one-period measure, while business decisions span the past and present.
C) ROE measures only return, while financial decisions involve balancing risk against return.
D) None of these describe problems with ROE.
E) All of these describe problems with ROE.

Accepted Answer

The statement that ROE is a forward-looking, one-period measure while business decisions span the past and present describes a problem with using ROE as a performance measure. A, C, and E all also describe problems with using ROE.

Question 13

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-The gross margin for 2012 is:
A) -94%
B) 13%
C) 26%
D) 31%
E) None of the above.

Accepted Answer

The correct gross margin for 2012 is not provided in the options given.

Question 14

Breakers Bay Inc.has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level.Assume that both the cost per unit and the selling price per unit also remained constant.All else held constant,how will this accomplishment be reflected in the firm's financial ratios?
A) decrease in the fixed asset turnover rate
B) decrease in the financial leverage ratio
C) increase in the inventory turnover rate
D) increase in the day's sales in inventory
E) no change in the total asset turnover rate

Accepted Answer

An increase in the amount of goods sold while maintaining constant inventory levels will result in a higher inventory turnover rate, as this ratio measures how often inventory is sold and replaced over a period.

Question 15

The most popular yardstick of financial performance among investors and senior managers is the:
A) profit margin.
B) return on equity.
C) return on assets.
D) times burden covered ratio.
E) earnings yield.
F) None of the above.

Accepted Answer

Return on equity (ROE) is widely regarded as a key indicator of financial performance, as it measures a company's ability to generate profits from shareholders' equity.

Question 16

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-Assume a 365-day year for your calculations.The collection period in days,based on sales,at the end of 2012 is:
A) 24.3
B) 219.6
C) 35.7
D) 28.8
E) None of the above.

Accepted Answer

The answer of Selected financial data for Link, Inc. follows:...

Question 17

Answer the questions below based on the following information.Taxes are 35% and all dollars are in millions.
  a)Calculate each company's ROE,ROA,and ROIC.
b)Why is Runrun's ROE so much higher than Suunto's?
 Does this mean Runrun is a better company?
 Why or why not?
c)Why is Suunto's ROA higher than Runrun's?
 What does this tell you about the two companies?
d)How do the two companies' ROICs compare?
 What does this suggest about the two companies?

Accepted Answer

The answer of Answer the questions below based on the...

Question 18

Which of these ratios,or levers of performance,are the determinants of ROE?
I.profit margin
II.financial leverage
III.times interest earned
IV.asset turnover
A) I and IV only
B) II and IV only
C) I, II, and IV only
D) I, II, and III only
E) I, III, and IV only
F) I, II, III, and IV

Accepted Answer

ROE (Return on Equity) is determined by the DuPont formula, which includes profit margin, financial leverage, and asset turnover as its components. Times interest earned is not a direct determinant of ROE.

Question 19

Which one of the following statements is correct?
A) If the debt-to-assets ratio is greater than 0.50, then the debt-to-equity ratio must be less than 1.0.
B) Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5.
C) The assets-to-equity ratio can be computed as 1 plus the debt-to-equity ratio.
D) To realize the best risk and reward profile, financial leverage should be maximized.
E) None of the above is correct.

Accepted Answer

The assets-to-equity ratio is calculated as 1 plus the debt-to-equity ratio, reflecting the relationship between total assets, total equity, and total debt.

Question 20

Selected financial data for Link, Inc. follows: ($ in thousands)
 
-Assume a 365-day year for your calculations.The inventory turnover,based on cost of goods sold,at the end of 2012 is:
A) 5.2
B) 24.3
C) 28.8
D) 35.7
E) None of the above.

Accepted Answer

The answer of Selected financial data for Link, Inc. follows:...

Quiz 2: Evaluating Financial Performance

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

Assume you are a banker who has loaned money to a firm,but that firm is now facing increased competition and reduced cash flows.Which one of the following ratios would you most closely monitor to evaluate the firm's ability to repay its loan?

Ptarmigan Travelers had sales of $420,000 in 2010 and $480,000 in 2011.The firm's current accounts remained constant.Given this information,which one of the following statements must be true?

Selected financial data for Link, Inc. follows: ($ in thousands) -Assume a 365-day year for your calculations.The payables period in days,based on cost of goods sold,at the end of 2012 is:

Selected financial data for Link, Inc. follows: ($ in thousands) -Which of the following statements best describes how the company's short-term liquidity changed from 2011 to 2012?

Which of the following ratios are measures of a firm's liquidity? I.fixed asset turnover ratio II.current ratio III.debt-equity ratio IV.acid test

Selected financial data for Link, Inc. follows: ($ in thousands) -The current ratio at the end of 2012 is:

Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?

On a common-size balance sheet,all accounts are expressed as a percentage of:

Selected financial data for Link, Inc. follows: ($ in thousands) -Assume a 365-day year for your calculations.The days' sales in cash at the end of 2012 is:

Selected financial data for Link, Inc. follows: ($ in thousands) -The profit margin for 2012 is:

Which one of the following statements does NOT describe a problem with using ROE as a performance measure?

Selected financial data for Link, Inc. follows: ($ in thousands) -The gross margin for 2012 is:

The most popular yardstick of financial performance among investors and senior managers is the:

Selected financial data for Link, Inc. follows: ($ in thousands) -Assume a 365-day year for your calculations.The collection period in days,based on sales,at the end of 2012 is:

Which of these ratios,or levers of performance,are the determinants of ROE? I.profit margin II.financial leverage III.times interest earned IV.asset turnover

Which one of the following statements is correct?

Selected financial data for Link, Inc. follows: ($ in thousands) -Assume a 365-day year for your calculations.The inventory turnover,based on cost of goods sold,at the end of 2012 is: