Question 1

Refer to the information for Carl Industries. In a percentage change balance sheet over the period of 2009 to 2011, what is the change in long-term liabilities?
A) 94.7%
B) 15.4%
C) 5.3%
D) 5%

Accepted Answer

($ ($420,000-400000)/$400,000=5%

Question 2

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Accepted Answer

The answer of The ____________________ effect of interest expense on...

Question 3

Refer to the information for Ramos Company. In a percentage change income statement over the period of 2009 to 2011, what is the change in net income?
A) 100%
B) 21.6%
C) 72.4%
D) 27.6%

Accepted Answer

($13,400 - 10,500)/ $10,500 = 27.6%

Question 4

The computation of the additional shares to be issued on the exercise of stock options assumes that the firm would repurchase common shares on the open market using an amount equal to the sum of all the following except :
A) any cash proceeds from such exercise
B) net incremental shares issued
C) any unamortized compensation expense on those options
D) any tax benefits that would be credited to additional paid-in capital

Accepted Answer

The sum of all factors except net incremental shares issued would be used to repurchase common shares on the open market. However, net incremental shares issued would be the actual additional shares issued on exercise of stock options and would not be used for repurchasing shares.

Question 5

Return on assets will likely differ across firms and across time. Three elements of risk that will help explain these differences are operating leverage, ___________________________________, and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 6

Refer to the information for Carl Industries. In a percentage change balance sheet over the period of 2009 to 2011, what is the change in current assets?
A) 78.6%
B) (27.3%)
C) (21.4%)
D) (18.75%)

Accepted Answer

($65,000-80,000)/80,000 = (18.75%)

Question 7

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except :
A) changes in expenses in the numerator independent of changes in sales
B) changes in sales independent of changes in expenses
C) interaction effects between the numerator and denominator
D) All of these are possible explanations.

Accepted Answer

The answer of Common-size analysis requires the analyst to be...

Question 8

Return on assets will likely differ across firms and across time. Three elements of risk that will help explain these differences are ________________________________________, cyclicality of sales and stage and length of product life cycle.

Accepted Answer

The answer of Return on assets will likely differ across...

Question 9

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:
A) product life cycles, cyclicality of sales, competitive constraint.
B) operating leverage, cyclicality of sales, product life cycles.
C) cyclicality of sales, competitive constraint, operating leverage.
D) operating leverage, competitive constraint, product life cycles.

Accepted Answer

The answer of The three elements of risk that help...

Question 10

Firms with complex capital structures can use which of the following in calculating EPS?
A) Outstanding convertible bonds.
B) Stock options exercised
C) Stock warrants issued
D) All of these are correct.

Accepted Answer

Firms with complex capital structures can use outstanding convertible bonds, stock options exercised, and stock warrants issued in calculating EPS. All of these securities have potential dilutive effects on EPS, so it is important for firms to include them in their calculations.

Question 11

In order to measure how profitable a firm is in generating a return for its common shareholders, a financial analyst would examine the return on _____________________________________________.

Accepted Answer

The answer of In order to measure how profitable a...

Question 12

Refer to the information for Carl Industries. In a common size balance sheet for 2009, total liabilities and equity are expressed as:
A) 25.9%
B) 100%
C) 74.1%
D) 103.6%

Accepted Answer

In a common size balance sheet, all items are expressed as a percentage of total assets. Therefore, total liabilities and equity should equal 100%.

Question 13

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Accepted Answer

The answer of Firms with high operating leverage have a...

Question 14

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.

Accepted Answer

The answer of Return on assets can be disaggregated into...

Question 15

Return on common equity can be disaggregated into profit margin for ROCE, capital structure leverage and _________________________________________________.

Accepted Answer

The answer of Return on common equity can be disaggregated...

Question 16

Which of the following are better indicated by percentage change statements than common-size statements?
A) monetary changes
B) profitability
C) stability
D) growth and decline

Accepted Answer

Percentage change statements are best indicated for analyzing growth and decline as they express the change in a variable relative to the original value, providing insight into the direction and magnitude of change. Common-size statements, on the other hand, express each line item as a percentage of a base value, typically total assets or sales, which is more useful for analyzing the relative composition of a company's financial statements rather than changes over time. Monetary changes can be expressed in either format but are often more easily understood in absolute dollar amounts. Profitability and stability can be analyzed using either format, depending on the specific metrics being evaluated.

Question 17

Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.

Accepted Answer

The answer of Firms with ____________________ levels of operating leverage...

Question 18

Another term for earnings power is:
A) nonrecurrent revenue.
B) nonrecurrent gains.
C) sustainable earnings.
D) net change in equity.

Accepted Answer

Earnings power refers to the ability of a business to generate sustainable earnings over a long period of time. Therefore, the best choice is C - sustainable earnings. A and B refer to one-time or irregular revenue/gains, and D refers to the change in a company's equity, which may not reflect its ongoing earnings power.

Question 19

Carl Industries
Carl Industries has condensed balance sheets as shown:

Refer to the information for Carl Industries. In a common size balance sheet for 2010, plant and equipment (net) is expressed as:
A) 74.5%
B) 93.2%
C) 83.5%
D) 30.5%

Accepted Answer

Common size balance sheet expresses each account as a percentage of total assets. To find the percentage of plant and equipment (net), we need to divide it by the total assets. Therefore, (600,000/718,000) x 100 = 83.5%.

Question 20

When the financial analysts multiplies the profit margin for ROA with the assets turnover ratio the result is called ______________

Accepted Answer

The answer of When the financial analysts multiplies the profit...

Quiz 4: Profitability Analysis

Refer to the information for Carl Industries. In a percentage change balance sheet over the period of 2009 to 2011, what is the change in long-term liabilities?

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Refer to the information for Ramos Company. In a percentage change income statement over the period of 2009 to 2011, what is the change in net income?

The computation of the additional shares to be issued on the exercise of stock options assumes that the firm would repurchase common shares on the open market using an amount equal to the sum of all the following except :

Return on assets will likely differ across firms and across time. Three elements of risk that will help explain these differences are operating leverage, ___________________________________, and stage and length of product life cycle.

Refer to the information for Carl Industries. In a percentage change balance sheet over the period of 2009 to 2011, what is the change in current assets?

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except :

Return on assets will likely differ across firms and across time. Three elements of risk that will help explain these differences are ________________________________________, cyclicality of sales and stage and length of product life cycle.

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

Firms with complex capital structures can use which of the following in calculating EPS?

In order to measure how profitable a firm is in generating a return for its common shareholders, a financial analyst would examine the return on _____________________________________________.

Refer to the information for Carl Industries. In a common size balance sheet for 2009, total liabilities and equity are expressed as:

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.

Return on common equity can be disaggregated into profit margin for ROCE, capital structure leverage and _________________________________________________.

Which of the following are better indicated by percentage change statements than common-size statements?

Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.

Another term for earnings power is:

Carl Industries Carl Industries has condensed balance sheets as shown: Refer to the information for Carl Industries. In a common size balance sheet for 2010, plant and equipment (net) is expressed as:

When the financial analysts multiplies the profit margin for ROA with the assets turnover ratio the result is called ______________