ch 3
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
0.5
A firm uses 2011 as the base year for its financial statements. The common-size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?
2011 inventory expressed as a percent of 2011 total assets
Which one of the following statements is correct?
An increase in the depreciation expense will not affect the cash coverage ratio.
The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
Du Pont identity
An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?
accounts receivable
A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?
equity multiplier
Which one of the following accurately describes the three parts of the Du Pont identity?
equity multiplier, profit margin, and total asset turnover
The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:
financial ratios to the firm's historical ratios.
Relationships determined from a firm's financial information and used for comparison purposes are known as:
financial ratios.
If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:
has an equity multiplier of 1.0.
Ratios that measure a firm's financial leverage are known as _____ ratios.
long-term solvency
The price-sales ratio is especially useful when analyzing firms that have which one of the following?
negative earnings
The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its following obligations?
payment of interest to a lender
Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
price-earnings ratio
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
profitability
Shareholders probably have the most interest in which one of the following sets of ratios?
return on equity and price-earnings
A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
sales
Tobin's Q relates the market value of a firm's assets to which one of the following?
today's cost to duplicate those assets
On a common-size balance sheet all accounts are expressed as a percentage of:
total assets for the current year.
It is easier to evaluate a firm using financial statements when the firm:
uses the same accounting procedures as other firms in the industry.
Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91. Sam's has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.88. Both companies have similar operations. Based on this information, Dee's must be doing which one of the following?
utilizing its total assets more efficiently than Sam's
Jasper United had sales of $21,000 in 2011 and $24,000 in 2012. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?
The net working capital turnover rate increased.
An increase in which of the following will increase the return on equity, all else constant? I. sales II. net income III. depreciation IV. total equity
I and II only
Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends.
I, II, III, and IV
The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner?
I, II, and III only
Which of the following can be used to compute the return on equity? I. Profit margin × Return on assets II. Return on assets × Equity multiplier III. Net income/Total equity IV. Return on assets × Total asset turnover
II and III only
Which of the following ratios are measures of a firm's liquidity? I. cash coverage ratio II. interval measure III. debt-equity ratio IV. quick ratio
II and IV only
The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:
Standard Industrial Classification code.
Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?
Ben's is increasing its earnings at a faster rate than the Al's.
Which one of the following statements is correct?
Financial statements are frequently used as the basis for performance evaluations.
On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following?
base-year accounts receivables
A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?
cash
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
common-base year statement
A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?
cover its operating costs for the next 48 days
The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?
decrease in the day's sales in inventory
An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.
decrease in the quick ratio