FIN 201 - Online: Chapter 3 (LearnSmart)

Which of the following are uses of cash?

-increases in property, plant, and equipment -decreases in accounts payable -increases in inventory

A firm with a market-to-book value that is greater than 1 is said to have ______ value for shareholders.

created

Omega Co. as annual sales of 250,000, COGS of 168,000, and assets of 322,000. AR = 86,200. What is receivables turnover

2.90

A firm with a 26% return on equity earned __ cents in profit for every one dollar in shareholders equity.

26

Which of these computes days' sales in receivables

365/receivables turnover

A firm with a profit margin of 6.8 percent generates _____ cents in net income for every 1 dollar in sales

6.8

How are firms classified into peer groups for ratio analysis?

According to Standard Industrial Classification Codes

Which one of the following equations defines the total asset turnover ratio?

Sales/Total Assets

A common-base year financial statement presents items relative to a certain base, which is the:

dollar amount of each item during a common base year

The price-earnings (PE) ratio is a ______ ratio

market value

The EBITDA ratio is similar in spirit to:

PE ratio

A firm has an operating profit (EBIT) of 600 on sales of 1,000. Interest expense is 250 and taxes are 120. What is the times interest earned ratio?

Times Interest Earned Ratio = ((EBIT))/(Interest Expense) =600/250 = 2.40

The interval measure indicates how long a start-up company can operate until it needs more financing?

True

Profitability measures such as a Return on Assets and Return on Equity are ______ rates of return

accounting

Although ___ ___ are often poor reflections of reality, they are often the best information available.

accounting numbers

What does a current ratio of 1.2 mean?

The firm has $1.20 in current assets for every 1$ in current liabilities.

At the most fundamental level, firms generate cash and ______

spend it

Which 2 of the following groups are most interested in liquidity ratios?

-Suppliers -Bankers

Whenever ___ information is available, it should be used instead of accounting data

market

What is the main difference between the cash coverage ratio and the times interest earned ratio

non-cash expenses

Total Capitalization = Total Equity plus total

Long Term Debt

AD Co. has net income of $4,250 on total sales of $128,400. Total Assets are $145,000. What is the Profit Margin

Profit Margin = (Net Income)/(Total Sales) =4,250/128,400 =3.31%

Which 3 of the following are most apt to create problems when comparing financial statements for multiple firms?

-Differing fiscal years -Differing accounting methods -Seasonality

Which of the following are traditional financial ratio categories?

-Market Value Ratios -Asset Management Ratios -Profitability ratios

The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes _____ to sell.

Long

What does it mean when a firm has a days' sales in rceivables of 45?

the firm collects its credit sales in 45 days on average

The inventory turnover ratios for Proctor and Gamble over the past 3 years are 5.09, 5.72, and 5.92 itmes respectively. Explaining the upward trend in inventory turnover ratio requires

-examining whether the trend is because of inreased sales or decreased inventory -further investigation

Which one of the following is one way in which financial managers use a common-dize balance sheet?

-to track changes in a firm's capital structure

A firm has a total debt ratio of 0.30 times. This means the firm has _____ in total debt for every $1 in total assets

0.30$

BC Corporation has 1,800 shares outstanding and earned 2,700 last year on assets of 2 million and equity of 1.5 million. What is the PE ratio if the stock is currently selling at 18 per share

18/(2700/1800) = 12 times

Alpha Co. has COGS 77 million, net income 9.6 million, sales of 120 million, and total assets of 150 million. A common-size income statement will show COGS ____ percent and a net profit of _____ percent

64.2; 8.0

Rock construction has current assets of 45 million, total liabilities and equity of 67 million, and sales of 59 million. How would current assets be expressed on a common-size balance sheet?

67% 45 million / 67 million current assets / total liabilities and equity

Assume current assets = $48; fixed assets = 125, current liabilities = 42, and equity = 100. What is the TOTAL DEBT RATIO

=48+125-100/(48+125) =.42

BC Toys has total equity of $584,000. There are 35,000 shares outstanding at a market price of $54 per share. What is the market to book ratio?

=54/(total equity/shares outstanding) = 3.24 times

How is the inventory turnover ratio computed?

Cost of Goods Sold / Inventory

When acquiring another firm, financial statement information is not important in identifying potential targets

False

______ ______ are the prime source of information about a firm's financial health

Financial Statements

An _______ in net profit margin will increase ROE

Increase

Which one of the following does NOT affect ROE according to the DuPont Identity

Investor Sentiment

Which ratios use some information that is not contained in financial statements?

Market-Value Ratios

Alphas has assets of 102 million, net income of 4.3 million, and total sales of 97 million. Omega has assets of 12.4 million, net income of 0.76 million, and total sales of 9.3 million. Based on common-dize income statements which company is more profitable?

Omega .76/9.3 = > 4.3/97 = <

AD corporation has a ROE of 20% on total equity of 800,000. AD generated 1.6 million in sales on 2.7 million in assets. A DuPont decomposition of ROE shoes the 20% ROE is from a ____% profit margin

PM = (20%)/ [ 1.6m/0.8m] ROA = (20%) / [2.7m/0.8m] EM = (2.7m / 0.8m)

BC Corporation has net income of 176,000, sales of 1,982,000 and total assets of 2.24 million. What is the return on assets?

ROA = (Net Income) / (Total Assets) = (176,000) / (2,240,000) = 7.86%

Nestor's has net income of $315,000, total sales of $3.52 million, total assets of $4.4 million, and total equity of $1.98 million. What is the return on equity?

ROE = (Net Income)/ (Total Equity) =315,000/1,980,000 =15.91%

The profit margin is equal to Net Income divided by

Sales

___ financial statements provide for comparison of firms that differ in size

Standardized

The Cash Ratio is found by dividing cash by:

current liabilities

Long-Term solvency ratios are known as

financial leverage ratios

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will

increase

If a company has inventory, the quick ratio will always be _______ the current ratio

less than

If management has been unsuccessful at creating value for the company's stockholders, the market-to-book ratio will be _____.

less than 1

Current Assets on the common-size balance sheet over the past 3 years hae increased from 32% to 35% while current liabilities have decreased from 29% to 25%. This indiciates that the firm has increased its

liquidity

Some financial ratios measure a firm's ______, which shows the ability to meet short-term obligations without undue stress, while others measure a firms' financial ______ which demonstrates the proportion of assets financed by long-term obligations

liquidity; leverage

One of the most important uses of financial statement information within the firm is:

performance evaluation

When a company has negative earnings for an extended period of time, analysts will often resort to the:

price-sales ratio

Return on Assets (ROA) is a measure of:

profitability

Return on Equity (ROE) is a measure of

profitability

The net income as shown on the common-size income statement of Omega Industries for the past 3 yearsi ncreased from 3 percent to 6 percent. This indicates that the firm is increasing its ______

profitability

If a company's common-size income statement shows a lower percentage for cost of goods sold this period compared to last period, the company may be controlling its costs well or it has ______

raised its prices relative to costs

What does an inventory turnover ratio of 5 mean?

the entire inventory was sold and replaced 5x during the year

When the typical stock in the S&P 500 Index has a PE ratio of 12, a company with a PE ratio of 15 may have _____ than average growth prospects, given similiar earnings per share

higher

Assume cash = $120, inventory = $470, accounts payable = $811, accounts receivable = $510, and total assets = $21,400. There are no other current assets. What is the current ratio?

(120+510+470)/811 = 1.36

Which of the following is the correct representation of the Cash Coverage Ratio?

(EBIT + Non-Cash Expenses) / Interest Expense

Which of the following are sources of cash?

-A decrease in accounts receivable -An increase in notes payable

If Marley Company has a stock price of 12 per share, 100,000 shares outstanding, 432,000 in liabilities and 100,000 in cash, what is the enterprise value?

Enterprise value = market value of stock + book value of liabilities - cash EV = 12*100,000 + 432,000 - 100,000 = 1,532,000

There is only one method for preparing the statement of cash flows

False

Which of the following items are among the items used to compute the current ratio?

-Cash -Accounts Payable

A common-size balance sheet expresses accounts as a percentage of _______

total assets

A common-size income statement helps compare financial results over time by controlling for changes in _____

sales

What is the debt-equity ratio for a company with 3.5 million in ttal assets and 1.4 million in equity

Total Debt = Assets - Equity (3.5-1.4) = 2.1 million Debt-Equity Ratio = Total Debt / Total Assets =2.1 million/ 1.4 million =1.50

Financial Statements report:

book values

When combining common-size and common-base year analyisis, the effect of overall growth in assets can be eliminated by first forming the:

common-size statements