Question 1

Which of the following ratios is calculated as (Average Current Assets - Average Inventories)÷ Average Current Liabilities?
A)current ratio
B)quick ratio
C)net-working-capital ratio
D)current liabilities-to-total-debt ratio

Accepted Answer

The quick ratio, also known as the acid-test ratio, is calculated by subtracting average inventories from average current assets and then dividing the result by average current liabilities. This ratio measures a company's ability to meet its short-term obligations with its most liquid assets, excluding inventories.

Question 2

How is net cash burn calculated? A)Net Cash Burn = Cash Burn + Cash Build B)Net Cash Burn = Cash Build - Cash Burn C)Net Cash Burn = Cash Burn - Cash Build D)Net Cash Burn = Cash Burn - Cash Build²

Accepted Answer

Net Cash Burn is calculated by subtracting Cash Build from Cash Burn, indicating the net amount of cash that a company is spending over a period.

Question 3

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; and interest expense = $12,000. The tax rate was 30%. Find Nemo's interest coverage for last year.
A)-0.29 times
B)0.66 times
C)0.86 times
D)1.25 times

Accepted Answer

Interest coverage ratio is calculated as EBIT (Earnings Before Interest and Taxes) divided by interest expense. EBIT is sales minus cost of goods sold and selling and administrative expenses, but before subtracting interest and taxes. So, EBIT = $85,000 - $45,000 - $25,000 = $15,000. Depreciation and amortization are non-cash expenses and do not affect the calculation. Therefore, interest coverage = $15,000 / $12,000 = 1.25 times.

Question 4

Following is financial statement information for Rogex Corporation: cash = $242; accounts receivable = $850; inventory = $820; net fixed assets = $3,408; accounts payable = $700; short-term notes payable = $740; long-term liabilities = $1,100; common stock = $1,160; and retained earnings = $1,620. What is the debt-to-equity ratio for Rogex?
A)0.91
B)2.15
C)0.48
D)1.12

Accepted Answer

The debt-to-equity ratio is calculated as total liabilities divided by total shareholders' equity. Total liabilities = short-term notes payable ($740) + long-term liabilities ($1,100) + accounts payable ($700) = $2,540. Shareholders' equity = common stock ($1,160) + retained earnings ($1,620) = $2,780. Debt-to-equity ratio = $2,540 / $2,780 = 0.91.

Question 5

Which of the following is not a basic ratio technique used to conduct financial analysis?
A)trend analysis
B)sensitivity analysis
C)cross-sectional analysis
D)industry comparable analysis

Accepted Answer

Trend analysis, cross-sectional analysis, and industry comparable analysis are all basic ratio techniques used to conduct financial analysis. Sensitivity analysis, however, is not a basic ratio technique, but rather a method used to test the sensitivity of a company's financial results to various scenarios or assumed changes in key inputs.

Question 6

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

Accepted Answer

Industry comparable analysis is a method for comparing a venture's performance with the average performance of other firms in the same industry. This comparison helps in identifying the strengths and weaknesses of the venture and can be used to make strategic decisions to improve the performance of the venture. Qualitative analysis, trend analysis, and cross-sectional analysis do not involve benchmarking against industry averages.

Question 7

Following is financial statement information for Rogex Corporation: cash = $242; accounts receivable = $850; inventory = $820; net fixed assets = $3,408; accounts payable = $700; short-term notes payable = $740; long-term liabilities = $1,100; common stock = $1,160; and retained earnings = $1,620.What is the current ratio for Rogex?
A)1.46
B)1.33
C)1.23
D)1.21

Accepted Answer

The current ratio is calculated as Current Assets / Current Liabilities. Current Assets = Cash + Accounts Receivable + Inventory = $242 + $850 + $820 = $1,912. Current Liabilities = Accounts Payable + Short-term Notes Payable = $700 + $740 = $1,440. Therefore, the current ratio = $1,912 / $1,440 = 1.33.

Question 8

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

Accepted Answer

Trend analysis is used to examine a venture's performance over time by identifying patterns and changes in performance indicators over a period of time. It helps to identify the direction of the trend, whether it is positive or negative, and whether the business is growing or declining. A qualitative analysis is based on subjective factors and opinions, while cross-sectional analysis compares different companies at a specific point in time, and industry comparable analysis evaluates a company's performance against its competitors in the same industry.

Question 9

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-equity ratio
C)equity multiplier
D)interest coverage

Accepted Answer

The interest coverage ratio measures a company's ability to pay its interest expenses on its outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expenses. A higher ratio indicates that the company is more capable of paying off its interest expenses, while a lower ratio may be a sign of financial distress. Therefore, 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 the interest coverage ratio.

Question 10

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; and notes payable = $2,000. What is the firm's quick ratio?
A)1.00
B)1.11
C)1.22
D)1.33

Accepted Answer

The answer of A firm has the following balance sheet...

Question 11

Which of the following ratios is computed by dividing the average total assets by the average owners' equity?
A)equity multiplier
B)debt-to-equity ratio
C)current liabilities-to-total-debt ratio
D)current ratio

Accepted Answer

The equity multiplier is computed by dividing total assets by owners' equity, whereas the debt-to-equity ratio and current liabilities-to-total-debt ratio involve dividing various amounts of debt by owners' equity. The current ratio compares current assets to current liabilities and does not involve owners' equity at all.

Question 12

Following is financial statement information for Rogex Corporation: cash = $242; accounts receivable = $850; inventory = $820; net fixed assets = $3,408; accounts payable = $700; short-term notes payable = $740; long-term liabilities = $1,100; common stock = $1,160; and retained earnings = $1,620. The total-debt-to-total-assets ratio for Rogex is:
A)0.48
B)0.71
C)0.27
D)0.53

Accepted Answer

The total-debt-to-total-assets ratio is calculated as total debt divided by total assets. Total debt includes both short-term and long-term liabilities, so for Rogex, it's $740 (short-term notes payable) + $1,100 (long-term liabilities) = $1,840. Total assets are the sum of all assets listed, which is $242 (cash) + $850 (accounts receivable) + $820 (inventory) + $3,408 (net fixed assets) = $5,320. The ratio is $1,840 / $5,320 = 0.3458, which rounds to 0.35, but since this option is not available and there seems to be a mistake in the calculation or the options provided, the closest provided option is A) 0.48, indicating a possible error in the calculation or the interpretation of the options.

Question 13

Following is financial statement information for Rogex Corporation: cash = $242; accounts receivable = $850; inventory = $820; net fixed assets = $3,408; accounts payable = $700; short-term notes payable = $740; long-term liabilities = $1,100; common stock = $1,160; and retained earnings = $1,620. What is the equity multiplier for Rogex?
A)2.35 times
B)0.48 times
C)1.12 times
D)1.91 times

Accepted Answer

The equity multiplier is calculated as total assets divided by total equity. 
Total assets = (Cash + Accounts Receivable + Inventory + Net Fixed Assets) = $242 + $850 + $820 + $3,408 = $5,320 
Total equity = (Common Stock + Retained Earnings) = $1,160 + $1,620 = $2,780 
Equity multiplier = Total assets/Total equity = $5,320/$2,780 = 1.91 times

Question 14

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

Accepted Answer

The answer of The term "cash build" is measured as:
A)net...

Question 15

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)$15,000
B)$30,000
C)$60,000
D)$120,000

Accepted Answer

Cash build is calculated as net sales minus the increase in accounts receivable. The increase in accounts receivable is $90,000 - $60,000 = $30,000. Therefore, cash build = $150,000 - $30,000 = $120,000.

Question 16

First-round financing occurs primarily during which of the following life cycle stages?
A)development stage
B)startup stage
C)survival stage
D)rapid-growth stage

Accepted Answer

The answer of First-round financing occurs primarily during which of...

Question 17

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

Accepted Answer

The answer of Using the following information, determine the average...

Question 18

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; and notes payable = $2,000. What is the firm's net-working-capital-to-total-assets ratio?
A)0.11
B)0.13
C)0.15
D)0.17

Accepted Answer

The answer of A firm has the following balance sheet...

Question 19

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

Accepted Answer

Cross-sectional analysis is used to compare a venture's performance against another firm at the same point in time. Qualitative analysis focuses on non-numerical factors, trend analysis assesses performance over a period of time, and industry comparable analysis compares the venture's performance against industry averages.

Question 20

Investment bankers often play an important role in which of the following life cycle stages?
A)development stage
B)startup stage
C)survival stage
D)rapid-growth stage

Accepted Answer

Investment bankers typically become involved in companies in the rapid-growth stage, when financing is needed to fuel expansion and take the company to the next level. They may help to raise capital through IPOs or secondary offerings, and provide advice on mergers and acquisitions. Investment bankers are less likely to be involved in the earlier stages of a company's life cycle, such as the development or startup stages, where financing needs may be smaller and more focused on seed funding or angel investing. In the survival stage, companies may be focused on reducing costs and improving profitability rather than raising capital, so investment bankers may play a less significant role.

Quiz 5: Evaluating Operating and Financial Performance

Which of the following ratios is calculated as (Average Current Assets - Average Inventories) ÷ Average Current Liabilities?

How is net cash burn calculated?

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

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

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

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 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; and notes payable = $2,000. What is the firm's quick ratio?

Which of the following ratios is computed by dividing the average total assets by the average owners' equity?

The term "cash build" is measured as:

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.

First-round financing occurs primarily during which of the following life cycle stages?

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 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; and notes payable = $2,000. What is the firm's net-working-capital-to-total-assets ratio?

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

Investment bankers often play an important role in which of the following life cycle stages?