Question 1

Asset Management Ratios Rachets R Us Corp. reported sales for 2011 of $200,000. Rachets R Us listed $25,000 of inventory on its balance sheet. Using a 365-day year, how many days did Rachets R Us's inventory stay on the premises? How many times per year did Rachets R Us's inventory turn over?
A) 0.125 days, 8 times, respectively
B) 0.125 days, 5 times, respectively
C) 45.625 days, 8 times, respectively
D) 45.625 days, 5 times respectively

Accepted Answer

The answer of Asset Management Ratios Rachets R Us Corp....

Question 2

DuPont Analysis If Apex, Inc. has an ROE = 10%, equity multiplier = 3, and profit margin of 5%, what is the total asset turnover ratio?
A) .0600
B) .0667
C) .1667
D) .6667

Accepted Answer

The answer of DuPont Analysis If Apex, Inc. has an...

Question 3

Debt Management Ratios You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry. LotsofDebt, Inc. finances its $100 million in assets with $90 million in debt and $10 million in equity. LotsofEquity, Inc. finances its $100 million in assets with $10 million in debt and $90 million in equity. What are the debt ratio, equity multiplier, and debt-to-equity ratio for the two firms?
A) LotsofDebt: 90%, 10 times, 9 times, respectively; and LotsofEquity: 10%, 1.11 times, .1111 times, respectively.
B) LotsofDebt: 10%, 1.11 times, .1111 times, respectively; and LotsofEquity: 90%, 10 times, 9 times, respectively.
C) LotsofDebt: 90%, 1.11 times, .1111 times, respectively; and LotsofEquity: 10%, 10 times, 9 times, respectively.
D) LotsofDebt: 10%, 10 times, 9 times, respectively; and LotsofEquity: 90%, 1.11 times, .1111 times, respectively.

Accepted Answer

LotsofDebt has a debt ratio of 90% ($90M/$100M), an equity multiplier of 10 times ($100M/$10M), and a debt-to-equity ratio of 9 times ($90M/$10M). LotsofEquity has a debt ratio of 10% ($10M/$100M), an equity multiplier of 1.11 times ($100M/$90M), and a debt-to-equity ratio of 0.1111 times ($10M/$90M).

Question 4

To interpret financial ratios, managers, analysts, and investors use the follow type of benchmarks:
A) competitive analysis
B) cross-industry analysis
C) time-industry analysis
D) time series analysis

Accepted Answer

Time series analysis involves comparing financial ratios over different periods to identify trends and patterns, making it a common benchmark for interpreting financial ratios.

Question 5

Market Value Ratios Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value per share and earnings per share?
A) $450, $1050, respectively
B) $1050, $450, respectively
C) $22.2222, $9.5238, respectively
D) $9.5238, $22.2222, respectively

Accepted Answer

Book value per share = Market-to-book ratio * Current stock price / Number of outstanding shares
Book value per share = 4.5 * $100 / X
where X is the number of outstanding shares

Earnings per share = Current stock price / PE ratio
Earnings per share = $100 / 10.5

We cannot determine the number of outstanding shares from the given information, therefore we cannot calculate the book value per share and earnings per share exactly. However, we can simplify the equations by assuming a certain number of outstanding shares.

Assuming there are 10 outstanding shares, we get:

Book value per share = 4.5 * $100 / 10 = $45
Earnings per share = $100 / 10.5 = $9.5238

Therefore, the closest answer is C.

Question 6

Market Value Ratios Bree's Tennis Supply's market-to-book ratio is currently 9.4 times and PE ratio is 20 times. If Bree's Tennis Supply's common stock is currently selling at $20.50 per share, what is the book value per share and earnings per share?
A) $1.025, $2.1809, respectively
B) $2.1809, $1.025, respectively
C) $410.00, $192.70, respectively
D) $192.70, $410.00, respectively

Accepted Answer

To find the book value per share, we use the market-to-book ratio formula:

Market-to-book ratio = market value per share / book value per share

9.4 = 20.50 / book value per share

Book value per share = 20.50 / 9.4 = $2.1809 (rounded to nearest cent)

To find the earnings per share, we use the PE ratio formula:

PE ratio = market price per share / earnings per share

20 = 20.50 / earnings per share

Earnings per share = 20.50 / 20 = $1.025 (rounded to nearest cent)

Question 7

Liquidity Ratios The top part of Mars, Inc.'s 2008 balance sheet is listed below (in millions of dollars).  What are Mars, Inc.'s Current ratio, Quick ratio, and Cash ratio for 2008?
A) 0.1111, 0.5556, 0.2
B) 2.3333, 0.5556, 0.1111
C) 4.2, 1.0, 0.2
D) 10.5, 6.0, 1.0

Accepted Answer

Current ratio = Current assets / Current liabilities = 10,458 / 4,485 = 2.3333
Quick ratio = (Current assets - Inventory) / Current liabilities = (10,458 - 2,643) / 4,485 = 0.5556
Cash ratio = Cash and cash equivalents / Current liabilities = 2,281 / 10,460 = 0.2182, which is closest to 0.1111 in choice A, but not an exact match. Therefore, the answer is B.

Question 8

Liquidity Ratios The top part of Rammy's Inc.'s 2008 balance sheet is listed below (in millions of dollars).  What are Rammy's Inc.'s Current ratio, Quick ratio, and Cash ratio for 2008?
A) 1.74242, 0.30303, 0.07576
B) 7.1875, 1.25, 0.3125
C) 1.43939, 0.30303, 0.07576
D) 19.16667, 3.33333, 0.83333

Accepted Answer

The answer of Liquidity Ratios The top part of Rammy's...

Question 9

DuPont Analysis Last year Café Creations, Inc. had an ROA of 25%, a profit margin of 12%, and sales of $4 million. What is Café Creations' total assets?
A) $0.12 m
B) $0.48 m
C) $1.00 m
D) $1.92 m

Accepted Answer

ROA = Net Income / Total Assets
Profit Margin = Net Income / Sales

Given:
ROA = 25%
Profit Margin = 12%
Sales = $4 million

Using the DuPont formula:

ROA = (Profit Margin) x (Total Asset Turnover)
25% = 12% x (Total Asset Turnover)
Total Asset Turnover = 2.08

Total Assets = Sales / Total Asset Turnover
Total Assets = $4 million / 2.08
Total Assets = $1.92 million

Therefore, the correct answer is D) $1.92 million.

Question 10

These can be used by interested parties to identify changes in corporate performance.
A) common-size financial statements
B) industrialized financial statements
C) sanitized financial statements
D) None of these

Accepted Answer

Common-size financial statements are a type of financial statement analysis that shows the relative size of each item on the statements, allowing interested parties to easily identify changes in corporate performance over time. Industrialized financial statements and sanitized financial statements are not common types of financial statement analysis.

Question 11

DuPont Analysis Last year Mocha Java, Inc. had an ROA of 10%, a profit margin of 5%, and sales of $25 million. What is Mocha Java's total assets?
A) $0.125 m
B) $1.25 m
C) $12.5 m
D) $125 m

Accepted Answer

DuPont Analysis formula for ROA is: ROA = Profit Margin x Asset Turnover. Given ROA = 10% and Profit Margin = 5%, we can find Asset Turnover = ROA / Profit Margin = 10% / 5% = 2. Asset Turnover = Sales / Total Assets, so Total Assets = Sales / Asset Turnover = $25 million / 2 = $12.5 million.

Question 12

Which is true? Ratio analysis:
A) can provide useful information on a firm's current position but should never be used to forecast future performance.
B) can provide useful information on a firm's current position and hint at future performance.
C) can provide useful information on a firm's past but not current position.
D) can provide useful information on a firm's past and current position, but should never be used to forecast future performance.

Accepted Answer

Ratio analysis can provide useful information on a firm's current position and also hint at future performance. While it is not an exact predictor of future outcomes, trends or changes in ratios can suggest potential future success or challenges for a business.

Question 13

DuPont Analysis If Epic, Inc. has an ROE = 25%, equity multiplier = 4, a profit margin of 12%, what is the total asset turnover ratio?
A) .0833
B) .192
C) .5208
D) .75

Accepted Answer

The DuPont analysis formula is:

ROE = Net Income/Total Equity 
ROE = Net Income/Sales x Sales/Total Assets x Total Assets/Total Equity 
ROE = Profit Margin x Total Asset Turnover x Equity Multiplier

Given: 
ROE = 25% 
Equity multiplier = 4 
Profit margin = 12%

We can solve for the total asset turnover ratio:

ROE = Profit Margin x Total Asset Turnover x Equity Multiplier 
25% = 12% x Total Asset Turnover x 4 
Total Asset Turnover = 25%/12%/4 
Total Asset Turnover = 0.5208

Therefore, the answer is C.

Question 14

Internal Growth Rate Last year Umbrellas Unlimited Corporation had an ROA of 10% and a dividend payout ratio of 50%. What is the internal growth rate?
A) 1.00%
B) 2.25%
C) 5.26%
D) 100.00%

Accepted Answer

The internal growth rate formula is:

Internal growth rate = (ROA x Retention ratio) / (1 - ROA x Retention ratio)

Where:

Retention ratio = 1 - Dividend payout ratio

Plugging in the given values,

Retention ratio = 1 - 0.5 = 0.5

ROA = 0.10

Internal growth rate = (0.10 x 0.5) / (1 - 0.10 x 0.5) = 0.0526 or 5.26%

Therefore, the answer is choice C.

Question 15

Asset Management Ratios Corn Products Corp. ended the year 2011 with an average collection period of 40 days. The firm's credit sales for 2011 were $9 million. What is the approximate year-end 2011 balance in accounts receivable for Corn Products?
A) $225,000
B) $986,300
C) $4,444,400
D) $360,000,000

Accepted Answer

The average collection period is the average number of days it takes a company to collect its accounts receivable. It is calculated by dividing the average accounts receivable balance by the credit sales for the period. In this case, the average collection period is 40 days and the credit sales for 2011 were $9 million. Therefore, the approximate year-end 2011 balance in accounts receivable for Corn Products is $9 million * 40 days / 365 days = $986,300.

Question 16

Liquidity Ratios You are evaluating the balance sheet for Blue Jays Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $200,000, Accounts receivable = $800,000, Inventory = $1,000,000, Accrued wages and taxes = $250,000, Accounts payable = $400,000, and Notes payable = $300,000. What are Blue Jays' Current ratio, Quick ratio, and Cash ratio, respectively?
A) 1.05263, 1.05263, 0.21053
B) 2.10526, 1.05263, 0.21053
C) 3.07692, 1.53846, 0.30769
D) 3.07692, 1.05263, 0.30769

Accepted Answer

The current ratio is calculated as (Cash + Accounts Receivable + Inventory) / (Accrued Wages and Taxes + Accounts Payable + Notes Payable) = ($200,000 + $800,000 + $1,000,000) / ($250,000 + $400,000 + $300,000) = 2.10526. The quick ratio is (Cash + Accounts Receivable) / (Accrued Wages and Taxes + Accounts Payable + Notes Payable) = ($200,000 + $800,000) / ($250,000 + $400,000 + $300,000) = 1.05263. The cash ratio is Cash / (Accrued Wages and Taxes + Accounts Payable + Notes Payable) = $200,000 / ($250,000 + $400,000 + $300,000) = 0.21053.

Question 17

Asset Management Ratios Tops N Bottoms Corp. reported sales for 2008 of $50 million. Tops N Bottoms listed $4 million of inventory on its balance sheet. Using a 365-day year, how many days did Tops N Bottoms' inventory stay on the premises? How many times per year did Tops N Bottoms' inventory turn over?
A) 29.2 days, 12.5 times, respectively
B) 12.5 days, 29.2 times, respectively
C) 0.08 days, 12.5 times, respectively
D) 29.2 days, 0.0345 times, respectively

Accepted Answer

To find out how many days Tops N Bottoms' inventory stayed on the premises, we use the formula:

Inventory turnover = Cost of goods sold / Average inventory

To calculate the average inventory, we can simply divide the ending inventory by 2, as it is the average of the beginning and ending inventory:

Average inventory = ($4 million + $4 million) / 2 = $4 million

Using the formula above, we can calculate the inventory turnover:

Inventory turnover = $50 million / $4 million = 12.5 times

To find out how many days on average the inventory stayed on the premises, we use the formula:

Days in inventory = 365 days / Inventory turnover

Days in inventory = 365 days / 12.5 times = 29.2 days

Therefore, the best choice is A, with 29.2 days and 12.5 times, respectively.

Question 18

Debt Management Ratios Trina's Trikes, Inc. reported a debt-to-equity ratio of 2 times at the end of 2011. If the firm's total debt at year-end was $10 million, how much equity does Trina's Trikes have?
A) $2 million
B) $5 million
C) $10 million
D) $20 million

Accepted Answer

The debt-to-equity ratio is calculated by dividing total debt by equity. Therefore, if the debt-to-equity ratio is 2 times and the total debt is $10 million, the equity is equal to half of the debt, which is $5 million.

Question 19

This is the maximum growth rate that can be achieved by financing asset growth with new debt and retained earnings.
A) internal growth rate
B) retained earnings growth rate
C) sustainable growth rate
D) weighted growth rate

Accepted Answer

The sustainable growth rate is the maximum growth rate that a company can achieve by using internal resources such as new debt and retained earnings. It takes into account the company's profitability, retention rate, and asset turnover ratio to determine the rate at which the company can grow without external financing. Therefore, option C is the correct answer. Option A (internal growth rate) refers to the maximum growth rate a company can achieve by using only retained earnings, while option B (retained earnings growth rate) is the rate at which a company retains its earnings. Option D (weighted growth rate) is not a commonly used term in finance and does not relate to the concept described in the question.

Question 20

Debt Management Ratios Will's Wheels, Inc. reported a debt-to-equity ratio of .65 times at the end of 2011. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have?
A) $.65 million
B) $3.25 million
C) $5 million
D) $7.69 million

Accepted Answer

The debt-to-equity ratio is calculated as total debt divided by total equity. Given the debt-to-equity ratio of 0.65 and total debt of $5 million, we can set up the equation: $5 million / Equity = 0.65. Solving for Equity gives us Equity = $5 million / 0.65 = $7.69 million.

Quiz 3: Analyzing Financial Statements

Asset Management Ratios Rachets R Us Corp. reported sales for 2011 of $200,000. Rachets R Us listed $25,000 of inventory on its balance sheet. Using a 365-day year, how many days did Rachets R Us's inventory stay on the premises? How many times per year did Rachets R Us's inventory turn over?

DuPont Analysis If Apex, Inc. has an ROE = 10%, equity multiplier = 3, and profit margin of 5%, what is the total asset turnover ratio?

To interpret financial ratios, managers, analysts, and investors use the follow type of benchmarks:

Market Value Ratios Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value per share and earnings per share?

Market Value Ratios Bree's Tennis Supply's market-to-book ratio is currently 9.4 times and PE ratio is 20 times. If Bree's Tennis Supply's common stock is currently selling at $20.50 per share, what is the book value per share and earnings per share?

Liquidity Ratios The top part of Mars, Inc.'s 2008 balance sheet is listed below (in millions of dollars) . What are Mars, Inc.'s Current ratio, Quick ratio, and Cash ratio for 2008?

Liquidity Ratios The top part of Rammy's Inc.'s 2008 balance sheet is listed below (in millions of dollars) . What are Rammy's Inc.'s Current ratio, Quick ratio, and Cash ratio for 2008?

DuPont Analysis Last year Café Creations, Inc. had an ROA of 25%, a profit margin of 12%, and sales of $4 million. What is Café Creations' total assets?

These can be used by interested parties to identify changes in corporate performance.

DuPont Analysis Last year Mocha Java, Inc. had an ROA of 10%, a profit margin of 5%, and sales of $25 million. What is Mocha Java's total assets?

Which is true? Ratio analysis:

DuPont Analysis If Epic, Inc. has an ROE = 25%, equity multiplier = 4, a profit margin of 12%, what is the total asset turnover ratio?

Internal Growth Rate Last year Umbrellas Unlimited Corporation had an ROA of 10% and a dividend payout ratio of 50%. What is the internal growth rate?

Asset Management Ratios Corn Products Corp. ended the year 2011 with an average collection period of 40 days. The firm's credit sales for 2011 were $9 million. What is the approximate year-end 2011 balance in accounts receivable for Corn Products?

Debt Management Ratios Trina's Trikes, Inc. reported a debt-to-equity ratio of 2 times at the end of 2011. If the firm's total debt at year-end was $10 million, how much equity does Trina's Trikes have?

This is the maximum growth rate that can be achieved by financing asset growth with new debt and retained earnings.

Debt Management Ratios Will's Wheels, Inc. reported a debt-to-equity ratio of .65 times at the end of 2011. If the firm's total debt at year-end was $5 million, how much equity does Will's Wheels have?