FNAN 300 - Chapter 3

Allyba Dance Supply has total assets of $550,000 and total debt of $295,000. What is the equity multiplier? Multiple Choice .46 1.0 1.075 1.86 2.16

2.16

Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity? Multiple Choice 18.91 percent 12.67 percent 18.28 percent 22.11 percent 21.55 percent

21.55 percent

Prisqua Rentals has inventory of $147,500, equity of $320,000, total assets of $658,800, and sales of $800,780. What is the common-size percentage for the inventory account? Multiple Choice 15.07 percent 18.42 percent 20.36 percent 22.39 percent 39.96 percent

22.39 percent

Saki Kale Farms has net income of $96,320, total assets of $975,200, total equity of $555,280, and total sales of $1,141,275. What is the common-size percentage for the net income? Multiple Choice 7.90 percent 8.44 percent 13.88 percent 48.65 percent 74.57 percent

8.44 percent

Which of the following represents the receivables turnover ratio? a. Accounts receivable/Sales b. Accounts receivable/Cost of goods sold c. Sales/Accounts receivable d. Cost of goods sold/Accounts receivable

c. sales/accounts receivable

Given an internal growth rate of 3 percent, a firm can _____. a. repay all of its outstanding debt. b. grow by more than 3 percent without any additional external financing c. not grow d. grow by 3 percent or less without any additional external financing

d. grow by 3 percent or less without any additional external financing

Whenever ___________ information is available, it should be used instead of accounting data. a. any other b. trivial c. historical d. market

d. market

The price-earnings (PE) ratio is a ____ ratio. a. liquidity b. turnover c. leverage d. market value

d. market value

A common-size balance sheet expresses accounts of percentage of _____________. a. total equity b. sales c. total liabilities d. total assets

d. total assets

The ____________________ payout ratio equals cash divided by net income.

dividend

The price-earnings ratio is ____________________ per share divided by ____________________ per share.

price; earnings

Which of the following is the correct representation of the total debt ratio? a. (total assets - total equity) / (total assets) b. long-term debt / total assets c. total equity / total long-term debt

a. (total assets - total equity) / (total assets)

Which of the following items are used to compute the current ratio? a. accounts payable b. cash c. earnings d. equipment

a. accounts payable b. cash

Return on equity (ROE) is a measure of _____. a. profitability b. utilization c. leverage d. liquidity

a. profitabilitiy

Return on assets (ROA) is measure of __________. a. profitability b. leverage c. liquidity d. utilization

a. profitability

Which of the following represents the receivables turnover ratio? a. sales/accounts receivable b. accounts receivable/sales c. accounts receivable/cost of goods sold d. cost of goods sold/account receivable

a. sales/accounts recivable

Which of the following best explains why financial managers use to common-size income statement? a. the common-size income statement can show which costs are rising or falling as a percentage of sales b. the common-size income statement can show sources of cash for the company

a. the common-size income statement can show which costs are rising or falling as a percentage of sales

A common-size balance sheet expresses accounts as a percentage of ____________________. a. total assets b. total equity c. sales d. total liabilities

a. total assets

In a common-size income statement, each item is expressed as a percentage of total sales. a. true b. false

a. true

It is important to investigate trends in financial ratios to identify the reason for the trend. a. True b. False

a. true

The debt-equity ratio equals the total assets minus total equity all over total assets. a. true b. false

a. true

Which one of the following is the correct equation for computing return on assets (ROA)? a. Net income/Sales b. Net income/Total assets c. Sales/Total assets d. Total assets/Net income

b. Net income/Total assets

Which of the following is the correct equation for return on equity? a. Total equity/Net income b. Net income/Total equity c. Net income/Sales d. Sales/Net Income

b. Net income/Total equity

How is the inventory turnover ratio computed? a. inventory / cost of goods sold b. cost of goods sold / inventory c. current assets / inventory d. inventory / total assets

b. cost of goods sold / inventory

The current ration computes the relationship between______________. a. current and liquid assets b. current assets and current liabilities c. current and long-term assets d. current assets and long-term liabilities

b. current assets and current liabilities

Financial ratios are computed using balance sheet information. a. true b. false

b. false

Financial ratios are computed using balance sheet information. a. true b. false

b. false

If there is a conflict between market and accounting data, accounting data should be given precedence. a. True b. False

b. false

The DuPont identity is a popular expression breaking ROA into three parts. a. True b. False

b. false

The dividend payout ratio equals cash dividends divided by sales. a. True b. False

b. false

The price-earnings ratio is price per share times earnings per share. a. True b. False

b. false

There is a solid and prescriptive method to select which ratios to use in financial statement analysis. a. true b. false

b. false

The information needed to compute the profit margin can be found on the ____. a. cash flow statement b. income statement c. balance sheet

b. income statement

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______. a. remain unchanged b. increase c. decrease

b. increase

Time-trend analysis is an example of a. management by comparison b. management by analysis c. management by exception

c. management by exception

Total profit margin is equal to net income divided by a. operating income b. total assets c. sales d. net working capital

c. sales

_______________________ financial statements enable one to compare firms that differ in size. a. compressed b. original c. standardized d. restated

c. standardized

Which one of the following best explains why financial managers use a common-size balance sheet? a. to monitor labor costs b. to identify changes in operating costs c. to track changes in a firm's capital structure d. to keep an eye on the firm's profit margin

c. to track changes in a firm's capital structure

The DuPont identity shows that _______________ _________________ ___________________ times total asset turnover times equity multiplier equals ROE.

net profit margin

Tony's Machinery has total equity of $815,280, long-term debt of $391,900, net working capital of $49,500, and total assets of $1,292,485. What is the total debt ratio? Multiple Choice .50 .37 .64 .46 .60

.37

Which of the following create problems with financial statement analysis? - The firm or its competitors are global companies. - The firm or its competitors are conglomerates - The firm and its competitors operate under different regulatory environments. - The firm and its competitors are approximately the same size.

- The firm or its competitors are global companies. - The firm or its competitors are conglomerates - The firm and its competitors operate under different regulatory environments.

Based on the DuPont Identity, an increase in sales, all else held equal, __________ ROE. - may increase or decrease - will always decrease - will always increase - may not change

- may increase or decrease - may not change

Which of the following is (are) true of financial ratios? - they are used for comparison purposes - they use only balance sheet data - they always reflect market values - they are computed in the same manner by all firms - they are developed from a firm's financial infomrmaiton

- they are used for comparison purposes - they are developed from a firm's financial information

Common-size statements are best used for comparing: - year-to-year for your firm - firms of different sizes - competitors - firms in different industries

- year-to-year for your firm - firms of different sizes - competitors

KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio? Multiple Choice 6.38 7.99 6.65 5.12 7.41

6.65

DJ's has a total asset turnover rate of 1.13, an equity multiplier of 1.46, a profit margin of 5.28 percent, a retention ratio of .74, and total assets of $138,000. What is the sustainable growth rate? Multiple Choice 6.98 percent 6.89 percent 7.33 percent 7.04 percent 7.21 percent

6.89 percent

UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315. What is the inventory turnover rate? Multiple Choice 7.33 times 6.90 times 5.70 times 7.14 times 8.47 times

6.90 times

Adell Furniture has a profit margin of 8.2 percent on sales of $211,000. The common size ratio of dividends is .03 and total assets are $196,000. What is the plowback ratio? Multiple Choice 58.20 percent 27.33 percent 54.60 percent 63.41 percent 68.20 percent

63.41 percent

Inventory turnover is cost of good sold divided by __________________.

Inventory

What is the formula for computing the internal growth rate (IGR)? a. (ROA x b)/(1 - ROA x b) b. (ROE x b)/(1 - ROE x b) c. (ROA x b)/(1+ROA x b) d. (ROA + b)/(1 - ROA x b)

a. (ROA x b)/(1 - ROA x b)

In a common-size income statement, each item is expressed as a percentage of total sales. a. true b. false

a. true

In a common-size income statement, each item is expressed as a percentage of total ___________.

sales

In common-size income statement, each item is expressed as a percentage of total _____________________.

sales

The DuPont identity breaks ROE into _______________ parts.

three

Gaspares Agricultural Cooperative has current liabilities of $162,500, net working capital of $28,560, inventory of $175,800, and sales of $1,941,840. What is the quick ratio? Multiple Choice .07 .16 .09 1.08 1.18

.09

How is the price-earnings (PE) ratio computed? a. Market price per share/Earnings per share b. Book value per share/Earnings per share c. Market capitalization/Earnings per share d. Sales price per unit/Earnings per share

a. Market price per share/Earnings per share