Question 1

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?
A)Asset turnover
B)Current ratio
C)Liquidity ratio
D)Quick ratio

Accepted Answer

Asset turnover is a ratio that measures how efficiently a company uses its assets to generate revenue. When the firm increases its annual sales without a corresponding increase in assets, it means that it is generating more revenue with the same amount of assets. This will lead to an increase in the asset turnover ratio. The other ratios (current ratio, liquidity ratio, and quick ratio) are not directly affected by changes in sales, as they measure the company's ability to meet its short-term obligations with its current assets.

Question 2

Which of the following transactions will result in a decrease in cash flow from operations?
A)Increase in accounts receivable
B)Decrease in inventories
C)Decrease in taxes payable
D)Decrease in bonds outstanding

Accepted Answer

An increase in accounts receivable means that cash has not yet been collected for sales made on credit, resulting in a decrease in cash flow from operations. Decrease in inventories, decrease in taxes payable, and decrease in bonds outstanding will not result in a decrease in cash flow from operations.

Question 3

A firm has a compound leverage factor greater than 1 indicates that ________.
A)this firm has no interest payments
B)this firm uses less debt as a percentage of financing
C)its interest payments are equal to the firm's pretax profits
D)its debt has a positive contribution to the firm's ROA

Accepted Answer

A compound leverage factor greater than 1 indicates that the use of debt positively contributes to the firm's return on assets (ROA). This means that using debt increases the firm's profitability and efficiency, which is reflected in a higher ROA.

Question 4

Which of the following results in an increase in cash to the firm?
A)Dividends paid
B)A delay in collecting on accounts receivable
C)Net new investments
D)Increase in accounts payable

Accepted Answer

An increase in accounts payable means the firm has delayed paying its bills, resulting in an increase in cash. The other options will result in a decrease in cash. Dividends paid will result in cash leaving the firm. A delay in collecting on accounts receivable will result in a decrease in cash coming into the firm. Net new investments will require the firm to spend cash to acquire the new investment.

Question 5

A firm purchases goods on credit worth $90. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $180 to pay for the purchase. What is the change in net cash provided by investments?
A)$10 decrease
B)$90 decrease
C)$180 decrease
D)$190 decrease

Accepted Answer

The purchases on credit worth $90 do not affect net cash provided by investments. The payment of $100 in old credit purchases is a cash outflow from financing activities, not investments. The issuance of equity in the amount of $180 is a cash inflow from financing activities, but there is no corresponding cash outflow from investments since the funds were used to purchase the new facility. Therefore, the change in net cash provided by investments is a decrease of $180.

Question 6

Which of the following would result in a cash inflow under the heading 'Cash flow from investing' in the statement of cash flows?
A)Purchase of capital equipment
B)Payments to suppliers for inventory
C)Collections on receivables
D)Sale of production machinery

Accepted Answer

The sale of production machinery would result in a cash inflow under the heading 'Cash flow from investing'. Whereas, option A (Purchase of capital equipment) would result in a cash outflow, and options B (Payments to suppliers for inventory) and C (Collections on receivables) would fall under 'Cash flow from operating activities'.

Question 7

Another term for EVA is ________.
A)net income
B)operating income
C)residual income
D)market based income

Accepted Answer

EVA stands for Economic Value Added, which is a type of residual income that measures the net operating profit of a business after deducting a charge for the opportunity cost of invested capital. Therefore, the best choice is C, residual income. A is incorrect because net income refers to the total amount of profit or revenue earned by a business after all expenses have been deducted. B is incorrect because operating income refers to the income earned from the core operations of a business before deducting interest and taxes. D is incorrect because market-based income refers to income earned from market investments such as stocks and bonds.

Question 8

The tax burden of the firm is .4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?
A)1.58%
B)5.68%
C)12.20%
D)13.33%

Accepted Answer

The answer of The tax burden of the firm is...

Question 9

When assessing sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?
A)Cash flow from investment activities
B)Cash flow from operating activities
C)Cash flow from financing
D)Cash flow from extraordinary events

Accepted Answer

Cash flow from operating activities is the preferred source of sustainable cash growth because it reflects the cash generated from a firm's core business operations. Cash flow from investment activities can be volatile and influenced by one-time events, such as the purchase or sale of assets. Cash flow from financing activities can be unsustainable if a firm is relying heavily on debt or equity issuances to generate cash. Cash flow from extraordinary events is not a reliable or sustainable source of cash growth as it is unpredictable and non-recurring.

Question 10

Which of the following transactions will result in a decrease in cash flow from investments?
A)Acquisition of another business
B)Capital gain from sale of a subsidiary
C)Decrease in net investments
D)Sale of equipment

Accepted Answer

Acquisition of another business involves a cash outflow and therefore will result in a decrease in cash flow from investments.

Other choices:

B) Capital gain from sale of a subsidiary: This will result in a cash inflow and increase in cash flow from investments.

C) Decrease in net investments: The impact on cash flow from investments cannot be determined by this information alone.

D) Sale of equipment: This will result in a cash inflow and increase in cash flow from investments.

Question 11

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?
A)$50 increase
B)$100 increase
C)$150 increase
D)$250 increase

Accepted Answer

Cash from operations = 150 - 100 = 50 increase

Question 12

Look at the following table of data for Key Biscuit Company:  What must have caused the firm's ROE to drop?
A)The firm began using more debt as a percentage of financing.
B)The firm began using less debt as a percentage of financing.
C)The compound leverage ratio was less than 1.
D)The operating ROA was declining.

Accepted Answer

The answer of Look at the following table of data...

Question 13

The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9% and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?
A)$8 million
B)-$6 million
C)$3 million
D)-$4 million

Accepted Answer

EVA = (ROA - k)(capital) = (0.09 - 0.15)$100 million = -$6 million

Question 14

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?
A)$20 increase
B)$80 increase
C)$100 increase
D)$200 increase

Accepted Answer

Cash from financing = Cash raised by equity financing = $200

Question 15

All of the following ratios are related to efficiency except for ________.
A)total asset turnover
B)fixed asset turnover
C)average collection period
D)cash ratio

Accepted Answer

The cash ratio is not related to efficiency, it measures a company's ability to pay off short-term liabilities with its cash and cash equivalents. The other ratios listed (total asset turnover, fixed asset turnover, average collection period) are all related to efficiency.

Quiz 13: Financial Statement Analysis

What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?

Which of the following transactions will result in a decrease in cash flow from operations?

A firm has a compound leverage factor greater than 1 indicates that ________.

Which of the following results in an increase in cash to the firm?

A firm purchases goods on credit worth $90. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $180 to pay for the purchase. What is the change in net cash provided by investments?

Which of the following would result in a cash inflow under the heading 'Cash flow from investing' in the statement of cash flows?

Another term for EVA is ________.

The tax burden of the firm is .4, the interest burden is 0.65, the return on sales is 0.05, the asset turnover is 0.90, and the leverage ratio is 1.35. What is the ROE of the firm?

When assessing sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources?

Which of the following transactions will result in a decrease in cash flow from investments?

A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?

Look at the following table of data for Key Biscuit Company: What must have caused the firm's ROE to drop?

The ABS company has a capital base of $100 million, an opportunity cost of capital (k) of 15%, a return on assets (ROA) of 9% and a return on equity (ROE) of 18%. What is the economic value added (EVA) for ABS?

A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $200 to pay for the purchase. What is the change in net cash provided by financing?

All of the following ratios are related to efficiency except for ________.