chapter 3 finc 3310
Which of the following is the correct representation of the cash coverage ratio?
(EBIT + depreciation)/Interest expense
Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent, while current liabilities have decreased from 29 to 25 percent. This indicates the firm has increased its Blank______v
liquidity
short-term solvency ratios are also called --- ratios.
liquidity
Which of the following are traditional financial ratio categories?
profitability ratios turnover ratios financial leverage ratios
Return on equity (ROE) is a measure of Blank______.
profitiability
Receivables turnover is --- divided by accounts receivable.
sales
The times interest earned ratio is a measure of long-term ---
solvency
The DuPont identity breaks ROE into --- parts.
three
A common-size balance sheet expresses accounts as a percentage of Blank______.
total assets
True or false: Profit margin equals net income divided by sales.
true
A firm with a profit margin of 10 percent generates Blank______ in net income for every dollar in sales.
10 cents
Days' sales in receivables is given by the following ratio:
365/receivables turnover
The price-earnings (PE) ratio is a Blank______ ratio.
?
A problem with the TIE ratio is that it is based on EBIT, which is not a measure of --- available to pay interest.
CASH
How is the inventory turnover ratio computed?
COGS/ inventory
Cal's Market has a return on equity (ROE) of 15 percent. What does this mean?
Cal's generated $.15 in profit for every $1 of book value of equity.
Which of the following items are used to compute the current ratio?
Cash Accounts Payable
True or false: The times interest earned ratio is EBIT minus interest.
FALSE... EBIT / INTEREST IS CORRECTv
True or false: Financial ratios are computed using only balance sheet information.
False
True or false: If a company has inventory, the quick ratio will always be greater than the current ratio.
False
True or false: The current ratio will decrease if current assets increase, while everything else remains unchanged.
False
Long-term solvency ratios measure what aspect of the firm's financial position?
Financial Leverage
If a company has inventory, the quick ratio will always be Blank______ the current ratio.
Less than
Which one of the following is the correct equation for computing return on assets (ROA)?
NI / total assets
return on equity
Net income/Total equity
The price-earnings ratio is
Price per earnings / earnings per share
The profit margin is equal to net income divided by Blank______.
Sales
Which of the following represents the receivables turnover ratio?
Sales / AR
In a common-size income statement, each item is expressed as a percentage of total ---
Sales/Revenue
What does it mean when a company reports ROA of 12 percent?
The company generates $12 in net income for every $100 invested in assets.
What does it mean when a firm has a days' sales in receivables of 45?
The firm collects its credit sales in 45 days on average.
True or false: The cash ratio is found by dividing cash by current liabilities.
True
True or false: The total debt ratio equals the total assets minus total equity divided total assets.
True
What is the impact on the total asset turnover ratio if sales increase significantly while there is no change in any of the other variables?
Will increase
The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes Blank______ to sell.
a long time
A firm with a market-to-book value that is greater than 1 is said to have Blank______ value for shareholders.
created
The current ratio computes the relationship between Blank______.
current assets and current liabilities
The cash ratio is found by dividing cash by:
current liabiliyies
Over the past year, the current assets account on the common-size balance sheet of a firm has decreased, while the current liabilities account on the common-size balance sheet of the same firm has increased. The firm has (increased OR decreased) its liquidity over the past year.
decreased
If sales increase while there is no change in accounts receivable, the receivables turnover ratio will Blank______.
increase
If a company has inventory, the quick ratio will always be Blank______ the current ratio.
less than
Which of the following items are used to compute the current ratio?
cash and ap
True or false: Financial ratios are computed using only balance sheet information.
Incorrect. Financial ratios can use information from all financial statements.
Which of the following items is added back to EBIT while calculating the cash coverage ratio, but not while calculating the times interest earned ratio?
noncash expenses ( like divedends )
What will happen to the current ratio if current assets increase, while everything else remains unchanged?
Increase
Which of the following best explains why financial managers use a common-size income statement?
The common-size income statement can show which costs are rising or falling as a percentage of sales.
Common-size statements are best used for comparing:
-year-to-year for your firm. -firms of different sizes. -competitors.
Which of the following are true of financial ratios?
They are developed from a firm's financial information. They are used for comparison purposes.
Which one of the following best explains why financial managers use a common-size balance sheet?
To track the firms capital structure
