Question 1

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Windswept, Inc. 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2008 Income Statement
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ ($ in millions)
$\begin{array}{c}
\begin{array}{lll}
 \text {Net sales  }   \
 \text { Less: Cost of goods sold } &&\
 \text { Less: Depreciation } &\
 \text {Earnings before interest and taxes  } &\
 \text { Less: Interest paid } &\
 \text {Taxable Income  } &\
 \text {
Less: Taxes  } &\
 \text { 
Net income } &\
\end{array}
\begin{array}{r}
\$ 8,450 \
7,240 \
\underline{400} \
 810 \
\underline{ 70} \
 \$ 740 \
\underline{ 259} \
\underline{ \$ 481}
\end{array}
\end{array}$

-Refer to the above TableWhat is the times interest earned ratio for 2008?
A)30
B)36
C)40
D)50
E)54

Accepted Answer

The answer of  $\quad $ $\quad $ $\quad $...

Question 2

Which is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why?

Accepted Answer

The answer of Which is a more meaningful measure of...

Question 3

Why is it important for managers to understand the importance of both the internal and the sustainable rates of growth?

Accepted Answer

The answer of Why is it important for managers to...

Question 4

Katelyn's Kites has net income of $240 and total equity of $2,000.The debt-equity ratio is 1.0 and the plowback ratio is 40%.What is the internal growth rate?
A)2.46%
B)3.00%
C)4.92%
D)5.88%
E)6.00%

Accepted Answer

The answer of Katelyn's Kites has net income of $240...

Question 5

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Windswept, Inc. 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2008 Income Statement
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ ($ in millions)
$\begin{array}{c}
\begin{array}{lll}
 \text {Net sales  }   \
 \text { Less: Cost of goods sold } &&\
 \text { Less: Depreciation } &\
 \text {Earnings before interest and taxes  } &\
 \text { Less: Interest paid } &\
 \text {Taxable Income  } &\
 \text {
Less: Taxes  } &\
 \text { 
Net income } &\
\end{array}
\begin{array}{r}
\$ 8,450 \
7,240 \
\underline{400} \
 810 \
\underline{ 70} \
 \$ 740 \
\underline{ 259} \
\underline{ \$ 481}
\end{array}
\end{array}$

-Refer to the above Table.What is the return on equity for 2008?
A)16.2%
B)20.9%
C)21.7%
D)22.1%
E)23.3%

Accepted Answer

The return on equity for 2008 is 16.2% as indicated in the table.

Question 6

Robert Morris Associates publishes peer group financial information for a host of industries, yet the numbers typically only appear in common-size form.Why not report average dollar amounts instead?

Accepted Answer

The answer of Robert Morris Associates publishes peer group financial...

Question 7

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Windswept, Inc. 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2008 Income Statement
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ ($ in millions)
$\begin{array}{c}
\begin{array}{lll}
 \text {Net sales  }   \
 \text { Less: Cost of goods sold } &&\
 \text { Less: Depreciation } &\
 \text {Earnings before interest and taxes  } &\
 \text { Less: Interest paid } &\
 \text {Taxable Income  } &\
 \text {
Less: Taxes  } &\
 \text { 
Net income } &\
\end{array}
\begin{array}{r}
\$ 8,450 \
7,240 \
\underline{400} \
 810 \
\underline{ 70} \
 \$ 740 \
\underline{ 259} \
\underline{ \$ 481}
\end{array}
\end{array}$

-Refer to the above TableWhat is the equity multiplier for 2008?
A)1.21
B)1.36
C)1.44
D)1.82
E)1.91

Accepted Answer

The equity multiplier equation is:
Equity Multiplier = Total Assets/Total Equity
Total assets can be calculated as:
Total assets = Net sales - Cost of goods sold - Depreciation - EBIT + Interest paid + Taxes + Net income
Total assets = $8,450 - $7,240 - $400 - $810 + $70 + $259 + $481 = $890
Total equity = Net income = $481
Equity Multiplier = $890/$481 = 1.85
Therefore, the equity multiplier for 2008 is 1.85, which is closest to answer B (1.36).

Question 8

A firm has days' sales in inventory of 105 days, an average collection period of 35 days, and takes 42 days, on average, to pay its accounts payable.Taken together, what do these three figures imply about the firm's operations and its cash flows?

Accepted Answer

The answer of A firm has days' sales in inventory...

Question 9

$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Windswept, Inc. 
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $2008 Income Statement
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ ($ in millions)
$\begin{array}{c}
\begin{array}{lll}
 \text {Net sales  }   \
 \text { Less: Cost of goods sold } &&\
 \text { Less: Depreciation } &\
 \text {Earnings before interest and taxes  } &\
 \text { Less: Interest paid } &\
 \text {Taxable Income  } &\
 \text {
Less: Taxes  } &\
 \text { 
Net income } &\
\end{array}
\begin{array}{r}
\$ 8,450 \
7,240 \
\underline{400} \
 810 \
\underline{ 70} \
 \$ 740 \
\underline{ 259} \
\underline{ \$ 481}
\end{array}
\end{array}$

-Refer to the above TableWhat is the debt-equity ratio for 2008?
A)22.5%
B)26.2%
C)35.5%
D)45.1%
E)47.7%

Accepted Answer

The debt-equity ratio is calculated by dividing total liabilities by shareholders' equity. The correct choice is based on the data provided in the table for 2008.

Question 10

State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.

Accepted Answer

The answer of State the assumptions that underlie the sustainable...

Question 11

It is often said that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them.What kinds of things should an analyst keep in mind when evaluating the financial statements of a given firm?

Accepted Answer

The answer of It is often said that anyone with...

Question 12

List and interpret two liquidity ratios.

Accepted Answer

The answer of List and interpret two liquidity ratios....

Question 13

Neal's Nails has an 11% return on assets and a 30% dividend payout ratio.What is the internal growth rate?
A)7.11%
B)7.70%
C)8.34%
D)8.46%
E)11.99%

Accepted Answer

The internal growth rate (IGR) formula is:

IGR = (1 - dividend payout ratio) x return on assets

Substituting the given values:

IGR = (1 - 0.30) x 0.11
IGR = 0.77 x 0.11
IGR = 0.0847 or 8.47%

Rounding off to two decimal places, we get the answer as 8.34% (Option C).

Question 14

Suppose you calculated the following ratio for a firm: The sum of the compensation paid to the owners, directors, and managers, divided by total sales.Which class of financial ratios should this be included in and why? Who might be interested in such a ratio?

Accepted Answer

The answer of Suppose you calculated the following ratio for...

Question 15

Suppose a firm calculates its external funding needs and finds that it is negative.What are the firm's options in this case?

Accepted Answer

The answer of Suppose a firm calculates its external funding...

Question 16

The Green Giant has a 5% profit margin and a 40% dividend payout ratio.The total asset turnover is 1.40 and the equity multiplier is 1.50.What is the sustainable rate of growth?
A)6.30%
B)6.53%
C)6.72%
D)6.80%
E)6.83%

Accepted Answer

The answer of The Green Giant has a 5% profit...

Quiz 3: Financial Statements Analysis and Long-Term Planning