Chapter 03 - Working with Financial Statements

43. 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

8. Which one of the following is a source of cash?

increase in accounts payable

32. Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

profitability

38. Shareholders probably have the most interest in which one of the following sets of ratios?

return on equity and price-earnings

3. A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:

sales.

9. Which one of the following is a use of cash?

decrease in common stock

11. Which one of the following is a source of cash?

decrease in inventory

113. Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold?

$1,400,000

58. A firm has total debt of $4,620 and a debt-equity ratio of 0.57. What is the value of the total assets?

$12,725.26

107. Charlie's Chicken has a debt-equity ratio of 2.05. Return on assets is 9.2 percent, and total equity is $560,000. What is the net income?

$157,136

108. Canine Supply has sales of $2,200, total assets of $1,400, and a debt-equity ratio of 0.3. Its return on equity is 15 percent. What is the net income?

$161.54

106. Lancaster Toys has a profit margin of 9.6 percent, a total asset turnover of 1.71, and a return on equity of 21.01 percent. What is the debt-equity ratio?

0.28

57. A firm has a debt-equity ratio of 0.42. What is the total debt ratio?

0.30

53. Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $218, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $198, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of accounts receivable?

0.91

104. Coulter Supply has a total debt ratio of 0.47. What is the equity multiplier?

1.89

101. The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity?

10.63 percent

112. The Dockside Inn has net income for the most recent year of $8,450. The tax rate was 38 percent. The firm paid $1,300 in total interest expense and deducted $1,900 in depreciation expense. What was the cash coverage ratio for the year?

12.95 times

61. Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

121.07 days

105. High Mountain Foods has an equity multiplier of 1.55, a total asset turnover of 1.3, and a profit margin of 7.5 percent. What is the return on equity?

15.11 percent

62. The Flower Shoppe has accounts receivable of $3,709, inventory of $4,407, sales of $218,640, and cost of goods sold of $167,306. How many days does it take the firm to both sell its inventory and collect the payment on the sale assuming that all sales are on credit?

15.81 days

69. Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

18.63 percent

60. The Bike Shop paid $2,310 in interest and $1,850 in dividends last year. The times interest earned ratio is 2.2 and the depreciation expense is $460. What is the value of the cash coverage ratio?

2.40

92. Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $109,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio?

2.56 times

65. Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 78 percent. What is the return on equity?

32.14 percent

109. Billings, Inc. has net income of $161,000, a profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?

33.18 days

56. A firm has total assets of $311,770 and net fixed assets of $167,532. The average daily operating costs are $2,980. What is the value of the interval measure?

48.40 days

111. A firm has a debt-total asset ratio of 74 percent and a return on total assets of 13 percent. What is the return on equity?

50 percent

102. The Home Supply Co. has a current accounts receivable balance of $300,000. Credit sales for the year just ended were $1,830,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

59.84 days

70. Taylor's Men's Wear has a debt-equity ratio of 42 percent, sales of $749,000, net income of $41,300, and total debt of $198,400. What is the return on equity?

8.74 percent

10. Which one of the following is a source of cash?

acquisition of debt

17. On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following?

base-year accounts receivables

4. Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time?

common-base year statement

5. Relationships determined from a firm's financial information and used for comparison purposes are known as:

common-base year statement

2. The sources and uses of cash over a stated period of time are reflected on the:

statement of cash flows.

67. Big Guy Subs has net income of $150,980, a price-earnings ratio of 12.8, and earnings per share of $0.87. How many shares of stock are outstanding?

173,540

66. The Meat Market has $747,000 in sales. The profit margin is 4.1 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $27. What is the price-earnings ratio?

6.61

93. A firm has annual sales of $320,000, a price-earnings ratio of 24, and a profit margin of 4.2 percent. There are 14,000 shares of stock outstanding. What is the price-sales ratio?

1.01

89. Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?

3.32 percent

88. BL Lumber has earnings per share of $1.21. The firm's earnings have been increasing at an average rate of 3.1 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $18.70. What is the firm's PEG ratio?

4.99

63. A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets?

$1.08

18. A firm uses 2008 as the base year for its financial statements. The common-size, base-year statement for 2009 has an inventory value of 1.08. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following?

2008 inventory expressed as a percent of 2008 total assets

64. The Purple Martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000, and a profit margin of 5.20 percent. What is the return on assets?

6.22 percent

103. BL Industries has ending inventory of $300,000, and cost of goods sold for the year just ended was $1,410,000. On average, how long does a unit of inventory sit on the shelf before it is sold?

77.66 days

26. Which one of the following statements is correct?

An increase in the depreciation expense will not affect the cash coverage ratio.

54. Russell's Deli has cash of $136, accounts receivable of $87, accounts payable of $215, and inventory of $409. What is the value of the quick ratio?

1.04

52. A firm has sales of $3,400, net income of $390, total assets of $4,500, and total equity of $2,750. Interest expense is $40. What is the common-size statement value of the interest expense?

1.18 percent

68. A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 18.7, and a book value per share of $9.12. What is the market-to-book ratio?

1.62

59. A firm has sales of $68,400, costs of $42,900, interest paid of $2,100, and depreciation of $6,500. The tax rate is 34 percent. What is the value of the cash coverage ratio?

12.14

51. A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current assets of $720. The firm has $310 in inventory. What is the common-size statement value of inventory?

13.36 percent

94. Lassiter Industries has annual sales of $220,000 with 10,000 shares of stock outstanding. The firm has a profit margin of 7.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

16

6. 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

29. Jasper United had sales of $21,000 in 2008 and $24,000 in 2009. 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.

33. 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.

37. The price-sales ratio is especially useful when analyzing firms that have which one of the following?

negative earnings

36. 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

16. On a common-size balance sheet all accounts are expressed as a percentage of:

total assets for the current year.

1. Activities of a firm which require the spending of cash are known as:

uses of cash.

45. It is easier to evaluate a firm using financial statements when the firm:

uses the same accounting procedures as other firms in the industry.

31. 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

71. A firm has a debt-equity ratio of 57 percent, a total asset turnover of 1.12, and a profit margin of 4.9 percent. The total equity is $511,640. What is the amount of the net income?

$44,084

110. Gladstone Pavers has a long-term debt ratio of 0.6 and a current ratio of 1.3. Current liabilities are $700, sales are $4,440, the profit margin is 9.5 percent, and the return on equity is 19.5 percent. How much does the firm have in net fixed assets?

$5,197.69

50. A firm generated net income of $878. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $22, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

$904

49. During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. How did these three accounts affect the firm's cash flows for the year?

$95 use of cash

47. 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

13. On the Statement of Cash Flows, which of the following are considered operating activities? I. costs of goods sold II. decrease in accounts payable III. interest paid IV. dividends paid

I, II, and III only

42. 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

41. 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

19. 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

7. 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

30. 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

20. 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

15. According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.

decrease; operating

39. Which one of the following accurately describes the three parts of the Du Pont identity?

equity multiplier, profit margin, and total asset turnover

46. 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.

34. Which one of the following will decrease if a firm can decrease its operating costs, all else constant?

price-earnings ratio

14. According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.

increase; operating

24. Over the past year, the quick ratio for a firm increased while the current ratio remained constant. Given this information, which one of the following must have occurred? Assume all ratios have positive values.

inventory decreased

25. Ratios that measure a firm's financial leverage are known as _____ ratios.

long-term solvency

27. 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

55. Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

0.51

44. Which one of the following statements is correct?

Financial statements are frequently used as the basis for performance evaluations.

40. 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

12. On the Statement of Cash Flows, which of the following are considered financing activities? I. increase in long-term debt II. decrease in accounts payable III. interest paid IV. dividends paid

I and IV only

22. A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?

cash

23. 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

48. Wise's Corner Grocer had the following current account values. What effect did the change in net working capital have on the firm's cash flows for 2009? ____________________2008__________2009 Cash:_______________87______________112 A/R:______________309______________321 Inventory:_______919_____________868 A/P:_______________617_____________714

net source of cash of $111

28. 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

35. 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.

21. An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?

accounts receivable