Deck 5: Evaluating Operating and Financial Performance

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Net working capital is a dollar amount measure of the cushion between current assets and current liabilities.

Answer 3

True

Question 4

Total debt includes current liabilities,long-term debt,and retained earnings.

Question 5

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

Question 6

The current ratio and the quick ratio differ only because average inventories are subtracted in the numerator of the quick ratio.

Question 7

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 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

For a venture with inventories,the quick ratio will always be greater than the current ratio.

Question 15

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

Question 16

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

Question 17

Leverage ratios indicate the extent to which the venture has used debt and its ability to meet debt obligations.

Question 18

Net working capital reflects current assets deducted from current liabilities.

Question 19

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

Question 20

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

Question 21

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

Question 22

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 23

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 24

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

Question 25

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

Question 26

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 27

"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 28

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 29

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

Question 30

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 31

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

Question 32

The equity multiplier is considered an efficiency ratio.

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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 38

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 39

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 40

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 41

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 42

Dividing the average total assets by the average owners' equity is called which of the following ratios?

A)equity multiplier
B)debt to equity ratio
C)current liabilities to total debt ratio
D)current ratio

Question 43

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 44

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 45

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 46

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 47

Net sales minus cost of goods sold when divided by sales is called which of the following ratios?

A)gross profit margin
B)operating profit margin
C)net profit margin
D)net operating profit after taxes margin

Question 48

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 49

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 50

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 51

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 52

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 53

Net income divided by net sales is called which of the following ratios?

A)net operating profit after taxes margin
B)net profit margin'
C)operating profit margin
D)gross profit margin

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

Average current assets minus average inventories when divided by average current liabilities is called which of the following ratios?

A)current ratio
B)quick ratio
C)net working capital ratio
D)current liabilities to total debt ratio

Question 56

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 57

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 58

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 59

A venture has net sales of $400,000,cost of goods sold of $200,000,operating expenses (selling,general,and administrative)of $100,000,and interest expenses of $50,000.What is the operating profit margin?

A)50.0%
B)75%
C)25%
D)40%

Question 60

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 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 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 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 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

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 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 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 Runs and Goses' debt-to-equity ratio?

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