QUESTION 1
Determine the cost of sales for a firm with the following financial ratios and data:
Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times
a. $6,000,000
b. $3,000,000
c. $2,000,000
d. $1,000,000
8.3 points
QUESTION 2
What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.
a. 2.65
b. 2.1
c. 1.1
d. 1.2
8.3 points
QUESTION 3
A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?
a. $20,000
b. $ 5,000
c. $10,000
d. $15,000
8.3 points
QUESTION 4
If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must
a. increase its equity multiplier
b. increase sales and increase assets
c. decrease its equity multiplier
d. reduce sales and increase assets
8.3 points
QUESTION 5
The sales-to-inventory ratio:
a. is technically inferior to other commonly used ratios.
b. is superior to the inventory turnover ratio.
c. as a determination of financial performance, is good comparison tool.
d. was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole.
8.5 points
QUESTION 6
Primary sources of comparative financial data include
a. Dun and Bradstreet
b. Richard Moore, Inc.
c. Framingham Financial Library
d. New York Times
8.3 points
QUESTION 7
____ indicate the ability of the firm to meet its short-term financial obligations
a. Leverage ratios
b. Profitability ratios
c. Activity ratios
d. Liquidity ratios
8.3 points
QUESTION 8
If a firmâs common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:
a. on total assets as a percentage of long-term liabilities.
b. on cost of goods sold as a percentage of sales.
c. on taxes paid as a percentage of stockholdersâ equity.
d. on expenses as a percentage of current assets.
8.3 points
QUESTION 9
The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.
a. payout
b. earnings
c. return on earnings
d. dividend yield
8.3 points
QUESTION 10
The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:
a. based on the company's accounting information system (AIS)
b. constructed in conformity with generally accepted accounting principles
c. developed using management's choice of accounting enhancement techniques
d. an accurate picture of the company's market position
8.3 points
QUESTION 11
The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.
a. liquidity
b. profitability
c. size
d. risk
8.3 points
QUESTION 12
The type of ratio that indicates the firmâs ability to provide adequate returns in the form of dividends and share price appreciation is:
a. Profitability ratios
b. Asset management ratios
c. Financial leverage management ratios
d. Liquidity ratios
8.5 points
Click Save and Submit to save and submit. Click Save All Answers to save all answers.
QUESTION 1
Determine the cost of sales for a firm with the following financial ratios and data:
Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times
| a. | $6,000,000 | |
| b. | $3,000,000 | |
| c. | $2,000,000 | |
| d. | $1,000,000 |
8.3 points
QUESTION 2
What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.
| a. | 2.65 | |
| b. | 2.1 | |
| c. | 1.1 | |
| d. | 1.2 |
8.3 points
QUESTION 3
A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?
| a. | $20,000 | |
| b. | $ 5,000 | |
| c. | $10,000 | |
| d. | $15,000 |
8.3 points
QUESTION 4
If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must
| a. | increase its equity multiplier | |
| b. | increase sales and increase assets | |
| c. | decrease its equity multiplier | |
| d. | reduce sales and increase assets |
8.3 points
QUESTION 5
The sales-to-inventory ratio:
| a. | is technically inferior to other commonly used ratios. | |
| b. | is superior to the inventory turnover ratio. | |
| c. | as a determination of financial performance, is good comparison tool. | |
| d. | was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole. |
8.5 points
QUESTION 6
Primary sources of comparative financial data include
| a. | Dun and Bradstreet | |
| b. | Richard Moore, Inc. | |
| c. | Framingham Financial Library | |
| d. | New York Times |
8.3 points
QUESTION 7
____ indicate the ability of the firm to meet its short-term financial obligations
| a. | Leverage ratios | |
| b. | Profitability ratios | |
| c. | Activity ratios | |
| d. | Liquidity ratios |
8.3 points
QUESTION 8
If a firmâs common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:
| a. | on total assets as a percentage of long-term liabilities. | |
| b. | on cost of goods sold as a percentage of sales. | |
| c. | on taxes paid as a percentage of stockholdersâ equity. | |
| d. | on expenses as a percentage of current assets. |
8.3 points
QUESTION 9
The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.
| a. | payout | |
| b. | earnings | |
| c. | return on earnings | |
| d. | dividend yield |
8.3 points
QUESTION 10
The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:
| a. | based on the company's accounting information system (AIS) | |
| b. | constructed in conformity with generally accepted accounting principles | |
| c. | developed using management's choice of accounting enhancement techniques | |
| d. | an accurate picture of the company's market position |
8.3 points
QUESTION 11
The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.
| a. | liquidity | |
| b. | profitability | |
| c. | size | |
| d. | risk |
8.3 points
QUESTION 12
The type of ratio that indicates the firmâs ability to provide adequate returns in the form of dividends and share price appreciation is:
| a. | Profitability ratios | |
| b. | Asset management ratios | |
| c. | Financial leverage management ratios | |
| d. | Liquidity ratios |
8.5 points
Click Save and Submit to save and submit. Click Save All Answers to save all answers.
Related questions
| E13-5 Matching Each Ratio with Its Computational Formula LO 13-4, 13-5, 13-6, 13-7 | |||||||
| Match each definition with its related ratios or percentages by selecting the appropriate letter in the drop down provided. | |||||||
| Definitions: | Ratios or Percentages | Definitions | |||||
| A. | Net Income (before extraordinary items) ÷ Net Sales | 1 | Profit margin | ||||
| B. | Days in Year ÷ Receivable Turnover ratio | 2 | Inventory turnover ratio | ||||
| C. | Net Income ÷ Average Stockholdersâ Equity | 3 | Average collection period | ||||
| D. | Net Income ÷ Average Number of Shares of Common Stock Outstanding | 4 | Dividend yield ratio | ||||
| E. | Return on Equity â Return on Assets | 5 | Return on equity | ||||
| F. | Quick Assets ÷ Current Liabilities | 6 | Current ratio | ||||
| G. | Current Assets ÷ Current Liabilities | 7 | Debt-to-equity ratio | ||||
| H. | Cost of Goods Sold ÷ Average Inventory | 8 | Price/earnings ratio | ||||
| I. | Net Credit Sales ÷ Average Net Receivables | 9 | Financial leverage percentage | E | |||
| J. | Days in Year ÷ Inventory Turnover Ratio | 10 | Receivable turnover ratio | ||||
| K. | Total Liabilities ÷ Stockholdersâ Equity | 11 | Average daysâ supply of inventory | ||||
| L. | Dividends per Share ÷ Market Price per Share | 12 | Earnings per share | ||||
| M. | Market Price per Share ÷ Earnings per Share | 13 | Return on assets | ||||
| N. | [Net Income + Interest Expense (net of tax)] ÷ Average Total Assets | 14 | Quick ratio | ||||
| O. | Cash from Operating Activities (before interest and taxes) ÷ Interest Paid | 15 | Times interest earned | ||||
| P. | Net Sales Revenue ÷ Net Fixed Assets | 16 | Cash coverage ratio | ||||
| Q. | (Net Income + Interest Expense + Income Tax Expense) ÷ Interest Expense | 17 | Fixed asset turnover ratio | ||||
Problem 3-6
Du Pont Analysis
Gardial & Son has an ROA of 9%, a 3% profit margin, and a return on equity equal to 13%.
What is the company's total assets turnover? Round your answer to two decimal places.
What is the firm's equity multiplier? Round your answer to two decimal places.
Current and Quick Ratios
Ace Industries has current assets equal to $7 million. The company's current ratio is 2.5, and its quick ratio is 2.0.
What is the firm's level of current liabilities? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000
$
What is the firm's level of inventories? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000
$
Problem 3-8
Profit Margin and Debt Ratio
Assume you are given the following relationships for the Haslam Corporation:
| Sales/total assets | 1.9 |
| Return on assets (ROA) | 3% |
| Return on equity (ROE) | 9% |
Calculate Haslam's profit margin. Do not round intermediate calculations. Round your answer to two decimal places.
%
Calculate Haslam's liabilities-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.
%
Suppose half of Haslam's liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.
%
Problem 3-9
Current and Quick Ratios
The Nelson Company has $1,650,000 in current assets and $550,000 in current liabilities. Its initial inventory level is $330,000, and it will raise funds as additional notes payable and use them to increase inventory.
How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.3? Round your answer to the nearest cent.
$
What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.
Problem 3-10
Times-Interest-Earned Ratio
The Morris Corporation has $850,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris's annual sales are $3.4 million, its average tax rate is 40%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio? Round intermediate calculations to two decimal places. Round your answer to two decimal places.
