BULM 701 Quizzes 1-3

Jason Traders has sales of $624,081, a gross profit margin of 36.1 %, and inventory of $243,392. What is the company's inventory turnover ratio? 2.18 times 1.6 times 2.56 times 1.9 times

1.6 times

Gateway corp has an inventory turnover ratio of 5.6. What is the firm's DIO

65.2 days

Baker's Cakes, Inc. wants to increase its return on assets, ROA. Which one of the following will help the firm achieve this goal, all else held constant? A slower collection of invoices An increase in long-term debt A decrease in total sales A faster collection of invoices An increase in fixed assets

An increase in fixed assets

Ratios 2016 Company A Company B Current Asset turnover 5.3 5.4 Fixed Asset turnover 3.92 3.5 Inventory Turnover 2.55 5.4 AR Turnover (ART) 5.11 4.9 AP Turnover 4.8 4.7 Although company A seems to be less effective in using its assets to generate revenue, relative to company B, it looks like company A has superior inventory management capabilities. True False

False

Ratios 2016 Company A Company B Current Asset turnover 5.3 5.4 Fixed Asset turnover 3.92 3.5 Inventory Turnover 2.55 5.4 AR Turnover (ART) 5.11 4.9 AP Turnover 4.8 4.7 From a supplier's perspective, and based on this information alone, it looks like it makes more sense to do business with company B True False

False

Ratios 2016 Company A Company B Current Asset turnover 5.3 5.4 Fixed Asset turnover 3.92 3.5 Inventory Turnover 2.55 5.4 AR Turnover (ART) 5.11 4.9 AP Turnover 4.8 4.7 On average company B seems to take more time to turn its inventory into sales than company A. True False

False

Ratios 2016 Company A Company B Current Asset turnover 5.3 5.4 Fixed Asset turnover 3.92 3.5 Inventory Turnover 2.55 5.4 AR Turnover (ART) 5.11 4.9 AP Turnover 4.8 4.7 Overall, Company A seems to hold inventory for fewer days than company B (Hint: calculate DIO) True False

False

Return on assets can be desegregated into profit margin x gross margin True False

False Net Profit Margin x Asset Turnover

DuPont analysis breaks ROE into three components, which are, the profit margin, the current ratio and the equity multiplier. True False

False Profit Margin x Asset Turnover x Financial Leverage/Equity Multiplier

Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same year. Both firms have an equity multiplier of to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this we know that b. Firm B has a higher profit margin than firm A c. Firm A and B have the same profit margin d. Firm A has a higher equity multiplier than firm B a. Firm A has a higher profit margin than firm B

Firm B has a higher Profit Margin than Firm A (To find, plug in values into Dupont Model and solve for Profit Margin (algebraically)

Proctor & Gamble Income Statement Net sales $ 83,680.00 Costs of Good sold $ 42,391.00 Selling General and Administrative expense $ 27,997.00 Operating income $ 13,292.00 Interest expense $ 769.00 Other non operating income $ 262.00 Earnings before interests and taxes $ 12,785.00 Income taxes $ 3,468.00 Net earnings from continuing operations $ 9,317.00 Net earnings from discontinued operations $ 1,587.00 Net earnings $ 10,904.00 What is P&G Gross Profit Margin?

Gross Margin = Gross Profit/Sales Revenue = 41,289/83,680 = .4934 = 49.34%

ROA is computed as...

Net Income/Avg Total Assets Or Net Profit Margin x Asset Turnover

Proctor & Gamble Income Statement Net sales $ 83,680.00 Costs of Good sold $ 42,391.00 Selling General and Administrative expense $ 27,997.00 Operating income $ 13,292.00 Interest expense $ 769.00 Other non operating income $ 262.00 Earnings before interests and taxes $ 12,785.00 Income taxes $ 3,468.00 Net earnings from continuing operations $ 9,317.00 Net earnings from discontinued operations $ 1,587.00 Net earnings $ 10,904.00 What is P&G operating margin?

Operating Margin = Operating Profit/Sales Revenue = 13,292/83,680

Proctor & Gamble Income Statement Net sales $ 83,680.00 Costs of Good sold $ 42,391.00 Selling General and Administrative expense $ 27,997.00 Operating income $ 13,292.00 Interest expense $ 769.00 Other non operating income $ 262.00 Earnings before interests and taxes $ 12,785.00 Income taxes $ 3,468.00 Net earnings from continuing operations $ 9,317.00 Net earnings from discontinued operations $ 1,587.00 Net earnings $ 10,904.00 What is P&G profit margin?

Profit Margin = Net Income/Sales Revenue =10,904/83,680 = .13 = 13%

Kriger's 2012 balance sheet shows average shareholders' equity of $4,632 million, net income of $602 million, and common shares issued of $959 million. Kroger's ROE for the year is:

ROE = NI/Equity = 602/4,632 = .1299 = 12.99%

Express R'US has observed the following financial performance: 1. Gross profit margin is unchanged, but 2. The operating profit margin declined over the same period. This could have happened if __________. Dividends were decreased SG&A increased faster than sales The federal government increased the tax rate Cost of goods sold increased relative to sales

SG&A increased faster than sales

A high accounts payable turnover ratio relative to a company's peer group or industry standards is NOT always in the best interest of a company. True False

True

From a common stock holders standpoint, relatively high debt to equity ratios are normally preferred. True False

True

Ratios 2016 Company A Company B Current Asset turnover 5.3 5.4 Fixed Asset turnover 3.92 3.5 Inventory Turnover 2.55 5.4 AR Turnover (ART) 5.11 4.9 AP Turnover 4.8 4.7 On average, in 2016 customers of company A seemed to pay their invoices faster than company B's. True False

True

A low or decreasing quick ratio generally suggest that a company is: c. Paying AP too quickly a. Over-leveraged b. Having difficulties to maintain or grow sales d. All of the options are correct

d) all of the above

Just as with ROE, fixed assets turnover ratio can be misleading even when comparing two companies in the same industry and peer group. Potential problems with this ratio may arise from: b)Different Inventory accounting methods f) None of the above c)Differences in cost of capital d)Levels of Investments in PP&E a) Different methods of depreciation e) a and b

a) Different methods of depreciation

Over the past 3 years the current asset turnover ratio of company XYZ has been increasing while sales have remained steady. This trend may be explained by the fact that: a) The company's stock is on the rise b) Operational improvements have driven the cost of capital down c) Recent changes in depreciation methods have reduced the tax liability d) Customers are paying their invoices more slowly e) Negotiations with new suppliers have substantially reduced the costs of raw materials

e) Negotiations with new suppliers have substantiall reduced the costs of raw materials