finance ch 3&4

If the company's current ratio is 2.5 times and current liabilities are $600,000, what are current assets? $1,250,000 $480,000 $240,000 $1,500,000

$1,500,000

The company has total assets of $2,400,000, inventory of $600,000, fixed assets of $1,000,000, and current liabilities of $530,000. What is the company's quick ratio? 2.64 times 1.51 times 2.5 times 2.11 times

1.51 times

The firm projects sales at 500,000 units and requires an ending inventory of 25,000 units. If the firm's beginning inventory is 50,000 units, what is the firm's production requirement for the period? 525,000 units 475,000 units 575,000 units 450,000 units

475,000 units

If a company has current assets of $800,000, total assets of $2,000,000, current liabilities of $500,000, and total liabilities of $1,100,000, its debt to total assets ratio is Blank______. 181.8% 55.0% 57.1% 72.7%

55.0%

Which of the following is more likely to need to raise additional long-term capital to support its anticipated sales growth? Cannot be determined A firm operating at less than full capacity A firm operating at full capacity

A firm operating at full capacity

Trend analysis can be described as which of the following? An analysis of the firm's financial statements over a number of years An analysis of the firm's ability to overcome inflation over a number of years An analysis of the firm's performance over a number of years An analysis of the firm's management by objectives over a number of years

An analysis of the firm's performance over a number of years

What does a fixed charge coverage ratio of 8 times indicate? The firm can pay off the fixed charges in 8 days. Earnings after interest and taxes covers fixed charge obligations 8 times. Earnings before fixed charges and taxes covers the fixed charge obligation 8 times. Earnings before interest and taxes covers fixed charge obligations 8 times.

Earnings before fixed charges and taxes covers the fixed charge obligation 8 times.

What does a current ratio of 2.5 times represent. For every $1 in assets the company has $2.50 in liabilities. For every $1 in current liabilities the company has $2.50 in current assets. For every $1 in liabilities the company has $2.50 in total assets. For every $1 in current liabilities the company has $2.50 in current assets, not including inventory.

For every $1 in current liabilities the company has $2.50 in current assets.

What does a return on equity of 15% represent? For every $1 in stockholders' equity the company generates 15 cents in profit For every $1 in profit the company generates 15 cents in stockholders' equity For every $1 in total assets the company generates 15 cents in stockholders' equity For every $1 in stockholders' equity the company generates 15 cents in debt

For every $1 in stockholders' equity the company generates 15 cents in profit

What does a times interest earned ratio of 10 times indicate? The firm can cover the fixed charges 10 times. The firms debt is 10 times larger than the assets. The firm can pay off the interest obligations every 10 days. Income before interest and taxes covers the interest obligation of the firm by 10 times.

Income before interest and taxes covers the interest obligation of the firm by 10 times.

Which of the following is a projection of future assets, liabilities, and stockholders' equity levels? Cash receipts budget Pro forma income statement Sales forecast Pro forma balance sheet

Pro forma balance sheet

From the investor's perspective, which ratio category is of primary importance? Asset utilization ratios Liquidity ratios Profitability ratios Debt utilization ratios

Profitability ratios

Which of the following is a profitability ratio? Average collection period Debt to total assets Return on assets Receivable turnover

Return on assets

Which of the following two methods provides a month-to-month breakdown of the data? Systems approach Percent-of-sales

Systems approach

What does an average collection period of 30 days indicate for a company? The company sold off their accounts receivable in 30 days or less. The company collects on its issued trade credit in 30 days. The company collected on sales and re-loaned the money 30 times during the year. The company has a 30 day collection policy.

The company collects on its issued trade credit in 30 days.

What does a total asset turnover ratio of 1.5 times represent? The company generated $1.50 in sales for $1 in total assets. The company generated 50 cents in sales for every $1 in total assets. The company generated $1 in sales for every $1.50 in total assets. The company generated $1.50 in sales for $1 in current assets.

The company generated $1.50 in sales for $1 in total assets.

What does a fixed asset turnover ratio of 4 times represent? The company purchased $4 in fixed assets for $1 they made in sales. The company generated $4 in sales for every $1 in fixed assets. The company generated $1 in sales for every $4 in fixed assets. The company held 4 times as many fixed assets than the industry average.

The company generated $4 in sales for every $1 in fixed assets.

What does a profit margin of 20% represent? The company generates 20 cents in profit for every $1 in sales The company generates a $1 in profit for every 20 cents in sales The company generates 20 cents in profit for every $1 in assets The company generates 20 cents in profit for every $1 in equity

The company generates 20 cents in profit for every $1 in sales

What does a return on assets of 12.5% represent? The company generates a profit of $12.5 for every $100 in total assets The company generates $1 in profit for every $12.5 in total assets The company generates a profit of $12.5 for every $1 in sales The company generates $12.5 for every $1 in equity

The company generates a profit of $12.5 for every $100 in total assets

What does an inventory turnover ratio of 7 times represent? The company's inventory turnover is 7 times smaller than the industry average. The company's inventory turnover is 7 times greater than the industry average. The company collected on sales and repurchased its entire inventory in 7 days. The company generates sales equivalent to 7 times its inventory value during the year.

The company generates sales equivalent to 7 times its inventory value during the year.

What does a debt to total assets ratio of 50% indicate about a company? The company's earnings before interest and taxes are 50% greater than the company's debt. The company is carrying half as much debt as it has total assets. The company's current liabilities are half of its total assets. The company's debt is 50% greater than the company's equity.

The company is carrying half as much debt as it has total assets.

What does a receivables turnover of 7 times represent? The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year. The company took an average of 7 days to collect on their sales. The company collected on their sales and sold the accounts receivable for 7 times their worth. The company's average accounts receivable collection period is 7 days.

The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year.

Which of the following are debt utilization ratios? Times interest earned Debt to total assets Fixed charge coverage Return on equity

Times interest earned Debt to total assets Fixed charge coverage

Deflation can be described as Blank______. a decrease in prices an increase in prices an increase in costs the result of inflation

a decrease in prices

The percent-of-sales method for financial forecasting is the most difficult method to use because it requires tracing cash & accounting flows. assumes balance sheet accounts maintain a constant relationship to sales. provides a month-to-month breakdown of the data. is more exacting than the systems approach.

assumes balance sheet accounts maintain a constant relationship to sales.

To calculate the cash balance before financing on the cash budget, add the ______. cash borrowed or repaid to the ending cash balance beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments beginning cash balance to the budgeted cash payments and subtract the budgeted cash receipts budgeted cash receipts to the budgeted cash payments and subtract the beginning cash balance

beginning cash balance to the budgeted cash receipts and deduct budgeted cash payments

If the company's average collection period is 25 days and industry average is 30 days, the company's average collection period is Blank______ the industry average. worse than better than

better than

If the company's return on equity is 18% and the industry average is 15%, the company's return on equity ratio is Blank______ the industry average. worse than better than

better than

The primary purpose of the Blank______ budget is to allow the firm to anticipate the need for outside funding at the end of each month. liabilities fixed asset cash credit

cash

In developing data for accounts payable for the pro forma balance sheet, the financial manager is most likely to turn to the pro forma income statement. production schedule. statement of retained earnings. cash budget.

cash budget.

The process of dividing the pro forma income statement into smaller time frames is done to anticipate the seasonal and monthly patterns of which of the following? cash outflows production cash inflows projected sales

cash outflows cash inflows

When preparing a pro forma income statement, the main consideration is the ______ for the time period. cost of goods sold operating expenses contribution margin depreciation expenses

cost of goods sold

Asset utilization ratios include all of the following except: fixed asset turnover receivable turnover inventory turnover debt to total assets turnover

debt to total assets turnover

Cash payments may be necessary for all of the following except manufacturing overhead. issuing a cash dividend. depreciation expenses. general exp

depreciation expenses.

The most comprehensive means of financial forecasting is to develop a series of projected, or pro forma, financial statements. develop sales projections two years in advance. develop a detailed marketing strategy. analyze prior year balance sheet as the basis for the projected income statement.

develop a series of projected, or pro forma, financial statements.

Inflation is a source of Blank______ on the financial reporting of the firm. help liability wealth distortion

distortion

Profitability ratios measure the company's ability to pay off short-term debt when it comes due earn an adequate return on sales, total assets, and invested capital pay off long-term debt when it comes due sell inventory and collect on accounts receivable

earn an adequate return on sales, total assets, and invested capital

The first step in developing the pro forma income statement is to compute other expenses determine a production schedule establish a sales projection determine net earnings

establish a sales projection

If a company is operating at Blank______, it will need to buy new plant and equipment to produce more goods to sell. full capacity less than full capacity

full capacity

A firm operating at full capacity will require a Blank______ level of new funds than a firm operating at less than full capacity. Multiple choice question. lower higher equal undetermined

higher

Using a systems approach, the first pro forma statement to be constructed is the statement of retained earnings income statement balance sheet cash budget

income statement

A major problem during inflationary times is that profit may be more a function of management performance than of increasing prices. decreasing prices than of management performance. increasing prices than of improved performance. decreasing prices than of improved performance.

increasing prices than of improved performance.

In preparation of the pro forma income statement, which of the following items are deducted from gross profits to arrive at earnings after taxes? interest expense General and administrative expenses Cost of goods sold tax expense

interest expense General and administrative expenses tax expense

The primary considerations for cash payments are monthly costs associated with cash inflows from operating activities interest payments and taxes. general and administrative expenses. inventory manufactured during the period.

interest payments and taxes. general and administrative expenses. inventory manufactured during the period.

A firm that does not wish to borrow to meet anticipated sales growth may instead decide to sell off fixed assets. issue additional common stock. issue preferred stock.

issue additional common stock. issue preferred stock.

Some companies prefer to use the ______ inventory accounting method because it provides a higher cost of goods sold value and a lower inventory value during periods of rising prices. last-in, first out (LIFO) first-in, first-out (FIFO) specific identification weighted average

last-in, first out (LIFO)

Asset utilization ratios are used to measure management's ability to pay off short-term debt when it comes due earn an adequate return on sales make the best use of the company's assets to generate revenue pay off long-term debt when it comes due

make the best use of the company's assets to generate revenue

In developing data for accounts receivable for the pro forma balance sheet, the financial manager is most likely to turn to the pro forma income statement. production schedule. monthly cash receipts report. statement of retained earnings.

monthly cash receipts report.

In developing data for accounts receivable for the pro forma balance sheet, the financial manager is most likely to turn to the statement of retained earnings. production schedule. monthly cash receipts report. pro forma income statement.

monthly cash receipts report.

A company that has the ability to increase sales with its current plant and equipment is said to be Blank______. operating at full capacity. operating at less than full capacity

operating at less than full capacity

Liquidity ratios are used to measure the company's ability to earn an adequate return on invested capital pay off long-term debt as it comes due earn an adequate return on assets pay off short-term debt as it comes

pay off short-term debt as it comes

A company should be able to estimate which of the following on the basis of its projected financial statements? market value of its common stock payables inventory accounts receivable

payables inventory accounts receivable

An alternative to the systems approach for determining a firm's financial needs is the ______ method. articulated judgmental sales projection percent-of-sales

percent-of-sales

According to the text, if there is one talent essential to the financial manager it is the ability to Blank______. plan ahead and to make necessary adjustments before actual events occur. learn from mistakes from the past and move forward to the future. be willing to take educated risks. make adjustments after events occur.

plan ahead and to make necessary adjustments before actual events occur.

Holding cash for emergency purposes is a Blank______ motive. compensating balance precautionary transactional

precautionary

The information used to prepare the pro forma balance sheet comes from which of the following: prior year's balance sheet cash budget pro forma income statement prior year's income statement

prior year's balance sheet cash budget pro forma income statement

The pro forma balance sheet is developed by integrating the information from the ______ statement of retained earnings. statement of changes in equity. pro forma cash flow statement. pro forma income statement and cash budget.

pro forma income statement and cash budget.

This formula is used to determine the firm's Blank______ requirements: Blank______ = Projected sales + Desired ending inventory - Beginning inventory production financial accounting marketing

production

The importance of the pro forma income statement is to provide a projection of how much Blank______ is anticipated over the ensuing time period. cash debt accounts receivable profit

profit

The importance of the pro forma income statement is to provide a projection of how much ______ is anticipated over the ensuing time period. cash accounts receivable profit debt

profit

Which of the following are liquidity ratios? quick ratio receivable ratio debt ratio current ratio

quick ratio current ratio

Besides changing prices, other elements of distortion in the financial evaluation of a company may include which of the following: methods of constructing the financial statements tax write-off policies methods of reporting revenue treatment of nonrecurring items

tax write-off policies methods of reporting revenue treatment of nonrecurring items

True or false: Bankers' and trade creditors' emphasis is on the firm's current ability to meet debt obligations.

true

If the current ratio is 2 times, then the firm's current asset balance is Blank______ its current liabilities balance. two times less than two times greater than half of equal to

two times greater than

Debt utilization ratios indicate to what extent the firm is able to earn an adequate return on invested capital. able to pay off short-term debt as it comes due. using debt and the prudence with which it is being managed. able to purchase its assets as they come due.

using debt and the prudence with which it is being managed.

If the company's profit margin is 6% and the industry average is 9.5%, the company's profit margin is Blank______ the industry average. worse than better than

worse than

If the company's receivables turnover is 7 times and the industry average is 10 times, the company's receivables turnover is Blank______ the industry average. better than worse than

worse than