Question 1

All of the following are common examples of possible distortion in reported income except

Accepted Answer

Cash flow statements do not report income, so they cannot distort reported income. Inflation, treatment of nonrecurring items, and reporting of revenue are all potential sources of income distortion.

Question 2

If Turnpoint Inc. has net income of $400,000, assets of $5,000,000, sales of $2,000,000, and debt of 2,000,000, what is their ROE?

Accepted Answer

The answer of If Turnpoint Inc. has net income of...

Question 3

If Baxter Unlimited has annual sales of $5,000,000 (80% on credit), and receivables equal to 35% of credit sales, what is their receivables turnover?

Accepted Answer

The answer of If Baxter Unlimited has annual sales of...

Question 4

Complete the following balance sheet for the Range Company using the following information:
Debt to assets = 60 percent
Quick ratio = 1.1
Asset turnover = 5x
Fixed asset turnover = 12.037x
Current ratio = 2
Average collection period = 16.837 days

Accepted Answer

The answer of Complete the following balance sheet for the...

Question 5

If Crossroads International has $3,000,000 in total sales (75% on credit) and receivables of $500,000, what is their average collection period?

Accepted Answer

The answer of If Crossroads International has $3,000,000 in total...

Question 6

If the company's accounts receivable turnover is increasing, the average collection period

Accepted Answer

An increasing accounts receivable turnover ratio indicates that the company is collecting its receivables more quickly, which means the average collection period is going down.

Question 7

Given the balance sheet and income state for Simmons Maintenance Company, compute the ratios that are also shown for the industry average. For each ratio, indicate whether Simmons is better or worse than the industry average. For inventory turnover, use sales rather than cost of goods sold.

Accepted Answer

The answer of Given the balance sheet and income state...

Question 8

Trend and industry analysis provide all of the following information except

Accepted Answer

The answer of Trend and industry analysis provide all of...

Question 9

Follies Bookstore, the only bookstore close to campus, had net income in 2005 of $90,000. Here are some of the financial ratios from the annual report. Profit Margin  $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$12 \%$
Return on Assets$ \quad $$ \quad $$ \quad $$ \quad $$20 \%$
Debt to Asset Ratio$ \quad $$ \quad $$ \quad $$55 \%$
 Using these ratios, calculate the following for Follies Bookstore:
a) Sales
b) Total assets
c) Total asset turnover
d) Total debt
e) Stockholders' equity
f) Return on equity

Accepted Answer

The answer of Follies Bookstore, the only bookstore close to...

Question 10

The most rigorous test of a firm's ability to pay its short-term obligations is its

Accepted Answer

The quick ratio, also known as the acid-test ratio, is the most rigorous test of a firm's ability to pay its short-term obligations because it measures the company's ability to quickly convert its most liquid assets into cash to meet its current financial obligations. It excludes inventory and other assets that may not be easily converted into cash. A higher quick ratio indicates a better ability to meet short-term obligations.

Question 11

Match between columns
                        Premises: A group of ratios that indicate to what extent a firm has borrowed funds and how prudently these funds are being managed.
Analysis of performance over a number of years that is made to ascertain significant patterns.
A phantom source of profit that can mislead even the most alert analysts.
A result of an inflationary economy in which old stocks of goods are sold at large profits.
Ratios that measure the firm's ability to pay off short-term obligations as they come due.
Indicates the strength of the firm regarding its coverage of interest payments.
The ratios that measure return on sales, assets, and invested capital of the firm.
A system of including inventory into cost of goods sold in which the items purchased last are written off first.
A system that converts inventory into cost of goods sold by writing off the items purchased earliest sooner.
Costs incurred if the present asset base were repurchased at current prices.
Ratios that measure the speed at which the firm is turning over its assets.
A method of study that breaks down return on assets between the profit margin and asset turnover and compels the analyst to look into the sources of profitability.
Measures the firm's ability to meet all fixed obligations.

Accepted Answer

The Answer of inflation and fixed charge coverage and trend is...

Quiz 3: Financial Analysis