Finance Chapter 3: Ratios, Practice Problems

Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:

had an equity multiplier of 1

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

profitability

Which one of the following accurately lists the three components of the DuPont identity?

Profit margin, total assets turnover, equity multiplier

Which one of the following is a correct formula for computing the return on equity?

ROA X Equity Multiplier

Mashburn Roasters has sales of $807,200, total assets of $768,100, and a net profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity?

To do this, you use the Dupont. We have profit at 6.68 To find TAT, you divide sales by total assets which gives 1.051 To find equity multiplier, we have to d/e ratio which is .54/1-.54 Then take this number and add one to get 2.1739 then multiply to get 15.2

During the past two years, both the cost per unit and the selling price per unit remained constant at The Floor Store. The firm was able to increase the quantity of goods it sells while holding the amount of inventory on hand at a constant level. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

decrease in the days' sales in inventory

All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will:

decrease the quick ratio

According to the statement of cash flows, an increase in interest expense will ______ the cash flow from ______ activities.

decrease, operating

According to the statement of cash flows, an increase in inventory will ______ the cash flow from ______ activities.

decrease, operating

A firm's liquidity is measured with which ratio?

Quick Ratio, Current Ratio

AdVentures has sales of $528,700, costs of goods sold of $252,100, inventory of $43,900, accounts receivable of $78,900, and accounts payable of $32,400. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

(COGS/Inventory = 5.7426 For days = 365/inventory management ratio) 63.56 days

Nielsen Paint had interest expense of $38,400, depreciation of $28,100, and taxes of $19,600 for the year. At the start of the year, the firm had total assets of $879,400 and current assets of $289,600. By year's end total assets had increased to $911,900 while current assets decreased to $279,300. What is the amount of the cash flow from investment activity for the year?

-70900 Changes in gross fixed minus depreciation

A firm has inventory of $29,406, accounts receivable of $46,215, net working capital of $4,507, and current liabilities of $90,549. What is the quick ratio?

.75

For the past year, Zhao Events had taxable income of $198,600, beginning common stock of $68,000, beginning retained earnings of $318,750, ending common stock of $71,500, ending retained earnings of $316,940, interest expense of $11,300, and a tax rate of 21 percent. What is the amount of dividends paid during the year?

158704 You multiple the taxable income by (1-0.21) Then take ending retained earnings and subtract from beginning retained earnings then subtract this number from the income after tax answer

Anytime Coffee has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?

2.12 (see your notes for how to do this)

Kasturi Safe & Lock generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payables increased by $15, accounts receivables increased by $28, 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?

959 (ignore fixed assets (investment) and dividends (financing activity))

On the statement of cash flows, which one of the following is considered an operating activity? Increase in net fixed assets Decrease in accounts payable Purchase of equipment Dividends paid Repayment of long-term debt

Decrease in Accounts Payable

On the statement of cash flows, which one of the following is considered a financing activity? Increase in inventory Decrease in accounts payable Increase in net working capital Dividends paid Decrease in fixed assets

Dividends Paid