Question 1

Saki Kale Farms has net income of $96,320, total assets of $975,200, total equity of $555,280, and total sales of $1,141,275.What is the common-size percentage for the net income?

Accepted Answer

The common-size percentage for net income is calculated by dividing the net income by total sales and then multiplying by 100. So, ($96,320 / $1,141,275) * 100 = 8.44 percent.

Question 2

A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600.What is the common-size percentage of the equity?

Accepted Answer

The answer of A firm has inventory of $46,500, accounts...

Question 3

A firm can increase its sustainable rate of growth by decreasing its:

Accepted Answer

Reducing dividends increases retained earnings, which can be reinvested into the firm, thus increasing the sustainable growth rate.

Question 4

The sustainable growth rate is based on the premise that:

Accepted Answer

The sustainable growth rate assumes that the firm will grow without changing its financial leverage, meaning the debt-equity ratio remains constant.

Question 5

All else held constant, which one of the following will decrease if a firm increases its net income?

Accepted Answer

The price-earnings ratio (P/E) is calculated as the market price per share divided by earnings per share (EPS). If net income increases, EPS increases, which can lead to a decrease in the P/E ratio if the market price per share remains constant.

Question 6

A firm has sales of $811,000 for the year.The profit margin is 5.1 percent and the retention ratio is 56 percent.What is the common-size percentage for the dividends paid?

Accepted Answer

The answer of A firm has sales of $811,000 for...

Question 7

Wilberton's has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700.If inventory is $173,900, what is the current ratio?

Accepted Answer

The answer of Wilberton's has total assets of $537,800, net...

Question 8

You would like to borrow money three years from now to build a new building.In preparation for applying for that loan, you are in the process of developing target ratios for your firm.Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future?

Accepted Answer

A higher cash coverage ratio indicates better ability to cover interest expenses, and a lower debt-equity ratio suggests less reliance on debt, both of which are favorable for obtaining financing.

Question 9

The DuPont identity can be used to help a financial manager determine the:
I.degree of financial leverage used by a firm.
II.operating efficiency of a firm.
III.utilization rate of a firm's assets.
IV.rate of return on a firm's assets.

Accepted Answer

The DuPont identity is a financial ratio that decomposes the return on equity (ROE) into three components: the profit margin, the asset turnover ratio, and the financial leverage ratio. The profit margin measures the firm's operating efficiency, the asset turnover ratio measures the firm's utilization rate of its assets, and the financial leverage ratio measures the degree of financial leverage used by the firm. Therefore, the DuPont identity can be used to help a financial manager determine all of the following: the degree of financial leverage used by a firm, the operating efficiency of a firm, and the utilization rate of a firm's assets.

Question 10

Philippe Organic Farms has total assets of $689,400, long-term debt of $198,375, total equity of $364.182, net fixed assets of $512,100, and sales of $1,021,500.The profit margin is 6.2 percent.What is the current ratio?

Accepted Answer

The answer of Philippe Organic Farms has total assets of...

Question 11

Financial statement analysis:

Accepted Answer

Financial statement analysis provides insights into a company's financial health and performance, which can be used to forecast future performance.

Question 12

Prisqua Rentals has inventory of $147,500, equity of $320,000, total assets of $658,800, and sales of $800,780.What is the common-size percentage for the inventory account?

Accepted Answer

The answer of Prisqua Rentals has inventory of $147,500, equity...

Question 13

Which one of these statements is true concerning the price-earnings (PE) ratio?

Accepted Answer

A high PE ratio often suggests that investors expect higher earnings growth in the future compared to companies with a lower PE ratio.

Question 14

Donovan's would like to increase its internal rate of growth.Decreasing which one of the following will help the firm achieve its goal?

Accepted Answer

Decreasing the dividend payout ratio will increase the retention ratio, allowing the firm to reinvest more earnings back into the business, thus potentially increasing its internal rate of growth.

Question 15

Outdoor Gear reduced its general and administrative costs this year.This cost improvement will increase which of the following ratios?
I.Profit margin
II.Return on assets
III.Total asset turnover
IV.Return on equity

Accepted Answer

Reducing general and administrative costs increases net income, which improves the profit margin (I), return on assets (II), and return on equity (IV). Total asset turnover (III) is not directly affected by cost reductions.

Question 16

Delmont Movers has a profit margin of 7.1 percent and net income of $63,700.What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year?

Accepted Answer

The answer of Delmont Movers has a profit margin of...

Question 17

Which ratio was primarily designed to monitor firms with negative earnings?

Accepted Answer

The price-sales ratio is used to evaluate companies with negative earnings because it focuses on sales rather than profits, which can be negative.

Question 18

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

Accepted Answer

If a firm has a 100 percent dividend payout ratio, it means all earnings are paid out as dividends, leaving no retained earnings for reinvestment. Therefore, the internal growth rate, which depends on retained earnings, is zero percent.

Question 19

Sweet Candies reduced its fixed assets this year without affecting the shop's operations, sales, or equity.This reduction will increase which of the following ratios?
I.Capital intensity ratio
II.Return on assets
III.Total asset turnover
IV.Return on equity

Accepted Answer

Reducing fixed assets while maintaining sales increases the return on assets and total asset turnover, as both are calculated using total assets in the denominator.

Question 20

Which one of the following statements is correct?

Accepted Answer

Adjustments are necessary when comparing income statements of firms using different inventory accounting methods, as these methods can significantly affect financial results.

Quiz 3: Working With Financial Statements