Question 1

The debt ratio is the ratio of total debt divided by total equity.

Accepted Answer

The debt ratio is calculated by dividing total liabilities (not just debt) by total assets, not by total equity.

Question 2

The rate of return on common stockholders' equity shows how much income is earned for each $1 of total stockholders' equity.

Accepted Answer

The rate of return on common stockholders' equity specifically measures how much income is earned for each $1 of common stockholders' equity, not total stockholders' equity, which includes preferred stock.

Question 3

Which of the following statements is true for financial leverage?

Accepted Answer

D)Financial leverage is directly related to the debt ratio.The higher the debt ratio,the higher the financial leverage.

Question 4

A company reports total assets of $910,000 and stockholders' equity of $530,000.Calculate the debt ratio.(Round your answer to two decimal places. )

Accepted Answer

B)
 11ea86ed_2c29_5a65_8b27_d1560293c541_TB3056_00 Debt ratio = Total liabilities / Total assets = $380,000 / $910,000 = 41.76%

Question 5

The times-interest-earned ratio measures the number of times earnings before interest and taxes can cover interest expense.

Accepted Answer

The times-interest-earned ratio is a measure of a company's ability to meet its interest payments. It is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. Therefore, it measures how many times a company can cover its interest expense with its pre-tax earnings.

Question 6

Elephant,Inc.'s cost of goods sold for the year is $2,000,000,and the average merchandise inventory for the year is $129,000.Calculate the inventory turnover ratio of the company.(Round your answer to two decimal places. )

Accepted Answer

B)Inventory turnover ratio = Cost of Goods Sold / Average Merchandise Inventory =
$2,000,000 / 129,000 = 15.50 times

Question 7

The debt to equity ratio shows the proportion of total liabilities relative to total equity.

Accepted Answer

The debt to equity ratio is calculated by dividing total liabilities by total equity, showing the relationship between the amount of debt a company has and the amount invested by shareholders.

Question 8

Grand Office Supply reported the following gross profit percentages: 2017: 37.5%;2018: 36.2%;2019: 20.8%.The industry average is 35%.What are some possible reasons for the decline in 2019?

Accepted Answer

The answer of Grand Office Supply reported the following gross...

Question 9

Ottawa,Inc.provides the following data:

For the year ending December 31,2019:

Calculate the days' sales in inventory for 2019.(Use 365 days for any calculations.Round any intermediate calculations and your final answer to two decimal places. )

Accepted Answer

D)
Inventory turnover ratio = Cost of Goods Sold / Average Merchandise Inventory =
$170,000 / [(55,000 + 25,000)/ 2] = $170,000 / $40,000 = 4.25 times
Days' sales in inventory = 365 / Inventory turnover ratio = 365 / 4.25 = 85.88

Question 10

The rate of return on total assets measures a company's success in using its assets to earn a profit.

Accepted Answer

The rate of return on total assets (ROTA) is a financial ratio that measures how efficiently a company is using its assets to generate profits. Therefore, a higher ROTA indicates greater success in utilizing assets to earn a profit.

Question 11

Danby,Inc.provides the following data from its income statement for 2018:

Calculate the gross profit percentage.(Round your answer to two decimal places. )

Accepted Answer

B)Gross profit percentage = Gross profit / Net sales × 100 = $330,000 / $520,000 × 100 = 63.46%

Question 12

National,Inc.provides the following data:

For the year ending December 31,2019:

Calculate the accounts receivable turnover ratio for 2019.(Round your answer to two decimal places. )

Accepted Answer

C)Accounts receivable turnover ratio = Net credit sales / Average net accounts receivable = $250,000 / $100,000 = 2.50 times

Question 13

Normally,companies with low gross profit percentages will have low asset turnover.

Accepted Answer

The two measures are not directly related. A company can have a low gross profit percentage due to high costs of goods sold, but still have a high asset turnover if they are efficiently using their assets to generate revenue. Conversely, a company with a high gross profit percentage may have a low asset turnover if they have a lot of unused or underutilized assets.

Question 14

Use the following to calculate the inventory turnover ratio for the year 2019.

Accepted Answer

The answer of Use the following to calculate the inventory...

Question 15

Candle Shop,Inc.has net sales on account of $1,800,000.The average net accounts receivable are $680,000.Calculate the days' sales in receivables.(Use 365 days for any calculations.Round any intermediate calculations and your final answer to two decimal places. )

Accepted Answer

C)Accounts receivable turnover ratio = Net credit sales / Average net accounts receivable = $1,800,000 / $680,000 = 2.65
Days' sales in receivables = 365 / Accounts receivable turnover ratio = 365 / 2.65 = 137.74

Question 16

Which of the following items is a measure of a company's ability to collect receivables?

Accepted Answer

Days' sales in receivables (DSR) is a measure of how quickly a company can collect its accounts receivables. It represents the average number of days it takes for a company to collect its outstanding invoices. The lower the DSR, the shorter the amount of time it takes for the company to receive payment for its products or services, indicating a higher ability to collect receivables.

Question 17

The relationship between total liabilities and total assets is the ________.

Accepted Answer

The debt ratio indicates the proportion of a company's assets that are financed with debt. It is calculated by dividing total liabilities by total assets. Therefore, the relationship between total liabilities and total assets is the debt ratio. Choice B (debt to equity ratio) compares the amount of debt to equity financing and does not take into account total assets. Choice C (current ratio) compares current assets to current liabilities and does not include long-term liabilities. Choice D (earnings per share) measures a company's profitability and does not relate to the relationship between total liabilities and total assets.

Question 18

A high times-interest-earned ratio indicates difficulty in paying interest expense.

Accepted Answer

A high times-interest-earned ratio indicates that a company has a strong ability to meet its interest obligations, as it generates sufficient earnings to cover its interest expense.

Question 19

Milton,Inc.provides the following income statement for 2019:

Calculate the times-interest-earned ratio.(Round your answer to two decimal places. )

Accepted Answer

D)Times-interest-earned ratio = (Net income + Income tax expense + Interest expense)/ Interest expense = ($42,000 + 5000 + 1000)/ 1000 = 48.00 times

Question 20

Surround,Inc.provides the following data:
 
Calculate the debt to equity ratio.(Round your answer to two decimal places. )

Accepted Answer

D)Debt to equity ratio = Total liabilities / Total equity = $97,200 / $135,800 = 0.72

Quiz 15: Financial Statement Analysis