Deck 5: Evaluating Financial Performance

Question 1

The cash conversion cycle refers to the time it takes to convert a sale into net income.

Answer 1

False

Question 2

The "cash conversion cycle" measures the time it takes to pay off the principal on a loan.

Answer 2

False

Question 3

The sum of the inventory-to-sale conversion period and the purchase-to-payment conversion period minus the sale-to-cash conversion period is called the cash conversion cycle.

Answer 3

False

Question 4

Commercial banks are important users of financial ratios and measures during the development and startup stages of ventures.

Question 5

The sale-to-cash conversion period is calculated by dividing average revenues by net sales per day.

Question 6

"Cash burn" is the cash a venture expends on its operating,financing,and depreciation expenses.

Question 7

Net working capital reflects current assets deducted from current liabilities.

Question 8

Liquidity ratios indicate the venture's ability to pay short term assets from short-term liabilities.

Question 9

A venture's cash,marketable securities,and receivables comprise the venture's "liquid assets".

Question 10

The term "cash build" as used in Chapter 5 is equal to net sales minus the change in receivables.

Question 11

The "cash burn rate" is the cash burn for a fixed period of time,typically a month.

Question 12

Investment bankers are users of financial ratios and measures of ventures primarily during the rapid-growth stage relative to the development and startup stages.

Question 13

"Net working capital" is calculated as fixed assets minus current liabilities.

Question 14

How efficiently a venture controls its expenses and uses its assets and debt is evaluated with profitability and efficiency ratios.

Question 15

Second-round,mezzanine,and liquidity-stage financing generally occur during a venture's survival stage.

Question 16

Trend analysis is used to examine a venture's performance over time.

Question 17

Conversion period ratios show the average time in days it takes to convert certain current assets and current liabilities into cash.

Question 18

Showing the relationships between two or more financial variable and/or time,financial ratios are useful means of summarizing large amounts of financial data for comparative purposes.

Question 19

"Net cash burn" occurs when cash burn exceeds cash build in a specified time period.

Question 20

Cross-sectional analysis is used to examine a venture's performance over time.

Question 21

Which of the following is used to compare a venture's performance against the average performance of other firms in the same industry?

A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis

Question 22

The term "cash build" is measured as:

A)net income plus depreciation
B)net sales minus expenses minus (plus)an increase (decrease)in inventories
C)net sales minus (plus)an increase (decrease)in receivables
D)net income plus depreciation minus (plus)an increase (decrease)in payables

Question 23

The extent to which a venture is in debt and in its ability to repay its debt obligations is indicated by leverage ratios.

Question 24

The entrepreneur,angels,and VCs are important users of financial ratios and measures during which of the following life cycle stages?

A)Development stage
B)Startup stage
C)Survival stage
D)Rapid-growth stage
E)All four stages

Question 25

Accounting rules require that the current maturities of long-term debt obligations be classified as short-term liabilities.

Question 26

Investment bankers and commercial banks are important users of financial ratios and measures during which of the following life cycle stages?

A)Development stage
B)Startup stage
C)Survival stage
D)Rapid-growth stage
E)All four stages

Question 27

During the development and startup stages of a venture's life cycle,important financial ratios and measures include cash burn rates,liquidity ratios,and conversion period ratios.

Question 28

Profitability and efficiency ratios are generally considered to be more important during the development and startup stages compared to the survival and rapid-growth stages.

Question 29

The equity multiplier shows the extent by which assets are supported by equity and debt.

Question 30

How efficiently a venture controls its expenses and uses its assets and debt is evaluated with profitability and efficiency ratios.

Question 31

The equity multiplier is considered an efficiency ratio.

Question 32

The Return on Assets model states: ROA = net profit margin × asset turnover × the equity multiplier.

Question 33

Leverage ratios are generally considered to be more important during the survival and rapid-growth stages compared to the development and startup stages.

Question 34

Which one of the following is not a basic ratio techniques used to conduct financial analysis?

A)trend analysis
B)sensitivity analysis
C)cross-sectional analysis
D)industry comparables analysis

Question 35

Which of the following is used to examine a venture's performance over time?

A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis

Question 36

"Net cash burn" is calculated as:

A)cash burn plus cash build
B)cash build minus cash burn
C)cash burn minus cash build
D)cash burn minus cash build squared

Question 37

If a firm has positive net income,a drop in a venture's asset intensity ratio will increase its ROE.

Question 38

The part of a venture's interest payment that is subsidized by the government because of the deductibility of interest is called the interest tax shield.

Question 39

During the development and startup stages of a venture's life cycle,important users of financial ratios and measures include the entrepreneur,business angels,and venture capitalists (VCs).

Question 40

Which of the following is used to compare a venture's performance against another firm at the same point in time?

A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis

Question 41

Which of the following measures the average time it takes a firm to complete its operating cycle after deducting the days supported by trade credit and delayed payroll financing?

A)sale-to-cash conversion period
B)inventory-to-sale conversion period
C)purchase-to-payment conversion period
D)cash conversion cycle

Question 42

Which one of the following conversion periods operates to reduce the length of the cash conversion cycle?

A)inventory-to-sale conversion period
B)sale-to-cash conversion period
C)purchase-to-payment conversion period
D)fixed assets-to-usage conversion period

Question 43

Which one of the following conversion periods is not a component in the cash conversion cycle?

A)inventory-to-sale conversion period
B)sale-to-cash conversion period
C)purchase-to-payment conversion period
D)fixed assets-to-usage conversion period

Question 44

Which of the following measures the average time from purchase of materials and labor to actual cash payment?

A)sale-to-cash conversion period
B)inventory-to-sale conversion period
C)purchase-to-payment conversion period
D)cash conversion cycle

Question 45

A firm has the following balance sheet information: total assets = $100,000;current assets = $30,000;inventories = $10,000;cash = $5,000;total liabilities = $30,000;current liabilities = $15,000;notes payable = $2,000.What are the firm's quick and NWC-to-Total-Assets ratios?

A)1.00 and .13
B)1.33 and .13
C)1.00 and .15
D)1.33 and .15

Question 46

Based on the following information,determine the venture's cash conversion cycle: Inventory-to-sale conversion period = 112.9 days;Sale-to-cash conversion period= 57.1 days;and Purchase-to-payment conversion period = 76.8 days.

A)170.0 days
B)189.7 days
C)93.2 days
D)246.8 days
E)133.9 days

Question 47

Determine the cash conversion cycle based on the following information:inventory-to-sale conversion period = 112.9 days;sale-to-cash conversion period = 57.1 days;and purchase-to-payment conversion period = 76.8 days.

A)93.2 days
B)132.6 days
C)170.0 days
D)246.8 days
E)365.0 days

Question 48

Use the following information to determine a firm's "cash build:" net sales = $150,000;net income = $15,000;beginning-of-period accounts receivable = $60,000;end-of-period accounts receivable = $90,000;and interest = $10,000.

A)$10,000
B)$15,000
C)$30,000
D)$60,000
E)$120,000

Question 49

Calculate the sale-to-cash conversion period based on the following information:average inventories = $120,000;average receivables = $90,000;average payables = $40,000;cost of goods sold = $182,500;and net sales = $365,000.

A)240.0 days
B)180.0 days
C)90.0 days
D)60.0 days
E)45.0 days

Question 50

Which of the following is measured by dividing the average daily cost of goods sold into the average inventory?

A)sale-to-cash conversion period
B)inventory-to-sale conversion period
C)purchase-to-payment conversion period
D)cash conversion cycle

Question 51

Which one of the following "measures" the average days of sales committed to the extension of trade credit?

A)sale-to-cash conversion period
B)inventory-to-sale conversion period
C)purchase-to-payment conversion period
D)cash conversion cycle period

Question 52

Last year,Nemo's Fish 'n Chips recorded the following financial data: sales = $85,000;cost of goods sold = $45,000;selling and administrative expenses = $25,000;depreciation and amortization = $7,000;interest expense = $12,000.The tax rate was 30%.Find Nemo's interest coverage for last year.

A)-.29 times
B).66 times
C).86 times
D)1.25 times
E)3.33 times

Question 53

Which of the following is not part of the operating cycle?

A)time it takes to purchase products
B)time it takes to produce products
C)time it takes to sell the products
D)time it takes to pay suppliers
E)time it takes to collect receivables

Question 54

Which of the following is true?

A)ROA is always greater than or equal to ROE
B)an increase in the asset turnover ratio implies a decrease in the asset
Intensity ratio
C)a and b
D)none of the above

Question 55

The difference between a venture's ability to generate cash to pay interest and the amount of interest it has to pay is determined by which of the following ratios?

A)fixed charges coverage
B)debt to asset
C)equity multiplier
D)debt to equity
E)interest coverage

Question 56

Using the following information,determine the average monthly net cash burn rate:annual net income = $20,000;annual interest = $10,000;annual cash build = $150,000;and annual cash burn = $186,000.

A)$1,000
B)$3,000
C)$4,000
D)$6,000
E)$7,000

Question 57

Calculate the inventory-to-sale conversion period based on the following information:average inventories = $120,000;average receivables = $90,000;average payables = $40,000;cost of goods sold = $182,500;and net sales = $365,000.

A)240.0 days
B)180.0 days
C)90.0 days
D)60.0 days
E)45.0 days

Question 58

Which of the following is not a profitability and efficiency ratio?

A)sales-to-total-assets
B)return on equity
C)return on assets
D)inventory-to-total assets
E)NOPAT profit margin

Question 59

Based on the following information,determine the average receivables (rounded to thousands of dollars)that were outstanding: Net sales = $575,000;Sale-to-cash conversion period = 57.1 days;Purchase-to-payment conversion period = 76.8 days;and Cost of goods sold = $380,000.

A)$90,000
B)$180,000
C)$121,000
D)$31,000
E)$41,000

Question 60

Based on the following information,determine the venture's inventory-to-sale conversion period: cash conversion cycle = 250 days;sale-to-cash conversion period = 60 days;and purchase-to-payment conversion period = 70 days.

A)70 days
B)140 days
C)240 days
D)260 days
E)330 days

Question 61

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
The gross profit margin for Runs and Goses is?

A)26.2%
B)30.3%
C)43.3%
D)56.3%
E)60.0%

Question 62

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
The interest coverage ratio for Runs and Goses is:

A)6.5 times
B)4.5 times
C)9.7 times
D)3.5 times
E)1.5 times

Question 63

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is Runs and Goses' debt-to-equity ratio?

A)0.91
B)2.15
C)0.48
D)1.12
E)2.32

Question 64

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is the return on equity for Runs and Goses?

A)26.1%
B)44.7%
C)62.6%
D)18.4%
E)7.9%

Question 65

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is the current ratio for Runs and Goses?

A)1.46
B)1.33
C)1.23
D)1.21
E)1.13

Question 66

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
Runs and Goses operating profit margin is?

A)26.2%
B)56.3%
C)43.3%
D)30.3%
E)60.0%

Question 67

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is Runs and Goses' return on total assets?

A)9.6%
B)13.6%
C)19.1%
D)37.9%
E)22.5%

Question 68

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is the equity multiplier for Runs and Goses?

A)4.59 times
B)2.35 times
C)0.48 times
D)1.12 times
E)1.91 times

Question 69

Last year,Lenny's Lemonade had $3,500 in sales,and cost of goods sold was $2,000.Depreciation expenses totaled $500 and interest expense was $700.If the tax rate is 25%,what is the net profit margin for Lenny's Lemonade? What is its NOPAT margin?

A)6.43% and 21.43%
B)20.7% and 21.43%
C)2.14% and 32.14%
D)22.86% and 32.14%

Question 70

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is the net profit margin for Runs and Goses?

A)60.0%
B)22.7%
C)7.9%
D)18.4%
E)26.2%

Question 71

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
What is Runs and Goses' sales to total asset ratio?

A)1.91
B)0.25
C)0.52
D)0.23
E)0.57

Question 72

In its closing financial statements for its first year in business,the Runs and Goses Company,had cash of $242,accounts receivable of $850,inventory of $820,net fixed assets of$3,408,accounts payable of $700,short-term notes payable of $740,long-term liabilities of $1,100,common stock of $1,160,retained earnings of$1,620,net sales of $2,768,cost of goods sold of $1,210,depreciation of $360,interest expense of $160,taxes of $312,addition to retained earnings of $508,and dividends paid of $218.
The total-debt-total-asset ratio for Runs and Goses is?

A)0.48
B)0.71
C)0.27
D)0.53
E)0.82