Question 1

Which of the following competitively important assets is typically excluded from a firm's balance sheet?
A) land and building
B) accounts payable
C) patents
D) customer experience

Accepted Answer

Today, the most competitively important assets tend to be intangibles such as innovation, quality, and customer experience, which are not included in a firm's balance sheets. Intangibles that are not captured in accounting data have become much more important in firms' stock market valuations over the last few decades.

Question 2

_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.
A) Payables turnover
B) Receivables turnover
C) Assets turnover
D) Inventory turnover

Accepted Answer

Receivables turnover indicates how fast a firm is collecting the credit amount extended by the firm to its customers. Higher ratios of receivables turnover (Revenue/Accounts receivable) imply more efficient management in collecting accounts receivable and shorter durations of interest-free loans to customers (i.e., time until payments are due).

Question 3

The fixed asset turnover of a company is 8.3.What do you infer from this?
A) Every dollar spent on the company's fixed assets generates $8.30 of revenue.
B) 8.3% of the company's revenue is invested in fixed assets.
C) The return on fixed assets will break even in 8.3 years.
D) The cost of capital invested on fixed assets is 8.3% of the total profit.

Accepted Answer

From the given data, it can be concluded that every dollar spent on the company's fixed assets generates $8.30 of revenue. Fixed asset turnover (Revenue/Fixed assets) measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

Question 4

_____ are the legal owners of public companies.
A) Employees
B) Shareholders
C) Category captains
D) Creditors

Accepted Answer

Shareholders-individuals or organizations who own one or more shares of stock in a public company-are the legal owners of public companies.

Question 5

In 2014,Apple turned over its inventory more than 53 times.In stark contrast,Microsoft turned over its inventory only about 10 times during the year.Which of the following best explains this difference?
A) Apple had a more effective management of its global supply chain than Microsoft.
B) Microsoft had a stronger demand for its tablet computer than Apple did for its tablet computer.
C) Apple operated its own production facilities and therefore had lower production costs than Microsoft.
D) Microsoft had production facilities in countries with lower production costs than Apple.

Accepted Answer

Apple benefited from strong demand for its products, as well as an effective management of its global supply chain. The vast majority of Apple's manufacturing is done in China by low-cost producer Foxconn, which employs over 1.2 million people.

Question 6

Apple Watch retailed for $349 in 2015,and the firm was predicted to sell millions of units.The firm's total cost in terms of materials and labor for the Apple Watch was no more than $84.Thus,Apple's profit for each watch sold is an estimated $265,with a profit margin of _____ percent.
A) 215
B) 265
C) 315
D) 365

Accepted Answer

Apple's profit for each watch sold was an estimated $265, with a profit margin of 315 percent.

Question 7

Which of the following ratios best expresses inventory turnover?
A) Inventory/Working capital
B) Annul profits/Inventory
C) Inventory/Per unit cost of production
D) Cost of goods sold/Inventory

Accepted Answer

Inventory turnover is expressed as Cost of goods sold/Inventory. Cost of goods sold (COGS) captures the firm's production cost of merchandise it has sold. Inventory is the cost of the firm's merchandise to be sold. This ratio indicates how much of a firm's capital is tied up in its inventory.

Question 8

_____ most precisely measures how well a company leverages its fixed assets,particularly property,plant,and equipment (PPE).
A) Working capital turnover
B) Fixed asset turnover
C) Fixed assets to equity ratio
D) Capital leverage ratio

Accepted Answer

Fixed asset turnover (Revenue/Fixed assets) measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

Question 9

The receivables turnover of VK Products Inc.is 13.6 and that of its competitor DL Goods Inc.is 6.0.What does this financial data primarily imply?
A) VK Products is less efficient than DL Goods in collecting accounts receivables.
B) DL Goods pays its creditors more quickly as compared to VK Products.
C) VK Products collects accounts receivables faster than AP Goods does.
D) DL Goods has a larger value gap as compared to VK Products.

Accepted Answer

In this scenario, the receivables turnover of VK Products Inc. is 13.6 and that of its competitor, DL Goods Inc., is 6.0. Higher ratios of receivables turnover (Revenue/Accounts receivable) imply more efficient management in collecting accounts receivable and shorter durations of interest-free loans to customers (the time until payments are due).

Question 10

A high percentage of R&D/Revenue ratio indicates a(n)
A) strong focus on innovation to improve current products and services.
B) inefficiency in the management to focus on new products.
C) strong focus on marketing and sales to promote products and services.
D) negligent investment toward research and development.

Accepted Answer

The R&D/Revenue ratio indicates how much of each dollar that a firm earns in sales is invested to conduct research and development. A higher percentage is generally an indicator of a stronger focus on innovation to improve current products and services, and to come up with new ones.

Question 11

Which of the following best expresses fixed asset turnover?
A) Current assets/Fixed assets
B) Revenue/Fixed assets
C) Fixed assets/Total return to shareholders
D) Fixed assets/Current liabilities

Accepted Answer

Fixed asset turnover (Revenue/Fixed assets) measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

Question 12

Which of the following statements is true of accounting data?
A) Accounting data focus mainly on intangible assets, rather than tangible assets.
B) Accounting data are historical data and thus backward-looking.
C) Accounting data do not have to be adjusted in any manner to compare companies with different capital structures.
D) Accounting data consider off-balance sheet items, such as pension obligations of a firm.

Accepted Answer

All accounting data are historical data and thus backward-looking. Accounting profitability ratios show us only the outcomes from past decisions, and the past is no guarantee of future performance.

Question 13

_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.
A) Payables turnover
B) Receivables turnover
C) Assets turnover
D) Inventory turnover

Accepted Answer

Payables turnover (Revenue/Accounts payable) indicates how fast a firm is paying its creditors and how much it benefits from interest-free loans extended by its suppliers.

Question 14

_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.
A) Return on revenue
B) Risk capital
C) Working capital turnover
D) Revenue per employee

Accepted Answer

A component of return on invested capital is working capital turnover, which is a measure of how effectively capital is being used by a firm to generate revenue.

Question 15

The working capital of a small home-based business is $200,000.The revenues generated account to $600,000,and the profits incurred are $300,000.What would be the company's working capital turnover?
A) 3, that is, $600,000/$200,000
B) $300,000, that is, $600,000 - $300,000
C) 2, that is, $600,000/$300,000
D) $100,000, that is, $300,000 - $200,000

Accepted Answer

The company's working capital turnover would be 3, that is, $600,000/$200,000. A component of return on invested capital is working capital turnover, which is a measure of how effectively capital is being used to generate revenue. Working capital turnover is expressed as revenue/working capital.

Question 16

The ratio Cost of goods sold/Revenue indicates how efficiently a company can
A) produce a good.
B) sell a good.
C) advertise a good.
D) design a good.

Accepted Answer

The ratio Cost of goods sold/Revenue indicates how efficiently a company can produce a good.

Question 17

_____ precisely indicates how much of a firm's sales is converted into profits.
A) Break-even price
B) Working capital turnover
C) Return on revenue
D) Inventory turnover

Accepted Answer

Return on revenue (ROR) indicates how much of a firm's sales is converted into profits.

Question 18

The working capital turnover of Tesva Systems Corp.is 6.0.What does this financial data suggest?
A) For every $6.00 Tesva Systems puts to work, the company incurs a cost of $1.00.
B) For every $6.00 Tesva Systems puts to work, the company realizes sales of $1.00.
C) For every dollar Tesva Systems puts to work, the company realizes $6.00 in loss.
D) For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

Accepted Answer

From the given data, it can be concluded that for every dollar Tesva Systems puts to work, the company realizes $6.00 of sales. A component of return on invested capital is working capital turnover, which is a measure of how effectively capital is being used by a firm to generate revenue.

Question 19

In 2014,Apple had a return on revenue of 29.3 percent,and Microsoft had a return on revenue of 32 percent.Even so,Apple had a higher return on invested capital than Microsoft.Why did this happen?
A) Apple had a higher cost structure than Microsoft.
B) Apple was able to charge a much higher margin for its products and services than Microsoft.
C) Apple spent more on research and development and marketing and sales than Microsoft.
D) Apple had a much higher selling, general, and administrative expense that Microsoft.

Accepted Answer

Apple was able to charge a much higher margin for its products and services than Microsoft. One reason for this is that Microsoft had a higher cost structure than Apple.

Question 20

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue,Research & Development expense/Revenue,and
A) Accounting profitability/Revenue.
B) Economic value created/Revenue.
C) Total return to shareholders/Revenue.
D) Selling, general, & administrative expense/Revenue.

Accepted Answer

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue, Research & Development (R&D) expense/Revenue, and Selling, general, & administrative (SG&A) expense/Revenue.

Quiz 5: Competitive Advantage, Firm Performance, and Business Models

Which of the following competitively important assets is typically excluded from a firm's balance sheet?

_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.

The fixed asset turnover of a company is 8.3.What do you infer from this?

_____ are the legal owners of public companies.

In 2014,Apple turned over its inventory more than 53 times.In stark contrast,Microsoft turned over its inventory only about 10 times during the year.Which of the following best explains this difference?

Apple Watch retailed for $349 in 2015,and the firm was predicted to sell millions of units.The firm's total cost in terms of materials and labor for the Apple Watch was no more than $84.Thus,Apple's profit for each watch sold is an estimated $265,with a profit margin of _____ percent.

Which of the following ratios best expresses inventory turnover?

_____ most precisely measures how well a company leverages its fixed assets,particularly property,plant,and equipment (PPE) .

The receivables turnover of VK Products Inc.is 13.6 and that of its competitor DL Goods Inc.is 6.0.What does this financial data primarily imply?

A high percentage of R&D/Revenue ratio indicates a(n)

Which of the following best expresses fixed asset turnover?

Which of the following statements is true of accounting data?

_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.

_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.

The working capital of a small home-based business is $200,000.The revenues generated account to $600,000,and the profits incurred are $300,000.What would be the company's working capital turnover?

The ratio Cost of goods sold/Revenue indicates how efficiently a company can

_____ precisely indicates how much of a firm's sales is converted into profits.

The working capital turnover of Tesva Systems Corp.is 6.0.What does this financial data suggest?

In 2014,Apple had a return on revenue of 29.3 percent,and Microsoft had a return on revenue of 32 percent.Even so,Apple had a higher return on invested capital than Microsoft.Why did this happen?

The three financial ratios that constitute return on revenue are Cost of goods sold/Revenue,Research & Development expense/Revenue,and