Chapter 3 Smart Book Questions

increasing prices than of improved performance.

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

True

An investor's secondary consideration is liquidity and debt utilization ratios. True false question.

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

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

debt to total assets turnover

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

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

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

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

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

a decrease in prices

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

False

Deflation typically enhances firms' profitability True false question.

True

Differences in firms' reporting of revenue, treatment of nonrecurring items and tax write-offs can make it difficult for analysts to accurately conduct industry analysis. True false question.

performance

Financial ratios are used to judge the operating ________ of the firm.

False

For bankers and trade creditors, their emphasis is on long-term debt to total assets. True false question.

Profitability ratios

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

16,000

If a company has a quick ratio of 1.25 times, current assets of $25,000 and inventory of $5,000, the current liabilities balance is equal to _______.

55.0%

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______. Multiple choice question. 55.0% 181.8% 72.7% 57.1%

better than

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. Multiple choice question. worse than better than

$1,500,000

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

worse than

If the company's debt to total assets ratio is 39% and the industry average is 35%, the company's debt to total assets ratio is Blank______ the industry average. Multiple choice question. worse than better than

better than

If the company's fixed asset turnover ratio is 9 and the industry average is 6, the company's fixed asset turnover ratio is Blank______ the industry average. Multiple choice question. worse than better than

better than

If the company's fixed charge coverage ratio is 8 times and the industry average is 6 times, the company's fixed charge coverage ratio is Blank______ the industry average. Multiple choice question. better than worse than

worse than

If the company's inventory turnover ratio is 10 times and industry average is 12 times, the company's inventory turnover ratio is Blank______ the industry average. Multiple choice question. worse than better than

worse than

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. Multiple choice question. 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. Multiple choice question. worse than better than

better than

If the company's return on assets is 13% and the industry average is 10%, the company's return on assets ratio is Blank______ the industry average. Multiple choice question. better than worse 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. Multiple choice question. better than worse than

better than

If the company's times interest earned ratio is 8 times and the industry average is 5 times, the company's times interest earned ratio is Blank______ the industry average. Multiple choice question. better than worse than

worse than

If the company's total asset turnover ratio is 3 times and the industry average is 7 times, the company's total asset turnover ratio is Blank______ the industry average. Multiple choice question. worse than better than

two times greater than

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

distortion

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

pay off short-term debt as it comes due

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

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

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

False

Ratio analysis should not include trend analysis because recent ratios are the only relevant information. True false question.

2.11

The company has total assets of $2,400,000, accounts receivable of $500,000, inventory of $600,000, cash & marketable securities of $20,000, and current liabilities of $530,000. The company's current ratio is ________ times (round to 2 decimals and enter only the number).

1.51 times

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? Multiple choice question. 1.51 times 2.11 times 2.64 times 2.5 times

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

Trend analysis can be described as which of the following? Multiple choice question. 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 pro forma financial statements over a number of years An analysis of the firm's ability to overcome inflation over a number of years

True

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

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

What does a current ratio of 2.5 times represent. Multiple choice question. 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. For every $1 in assets the company has $2.50 in liabilities. For every $1 in liabilities the company has $2.50 in total assets.

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

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

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

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

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

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

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

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

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

What does a receivables turnover of 7 times represent? Multiple choice question. The company took an average of 7 days to collect on their sales. The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year. 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 generates a profit of $12.5 for every $100 in total assets

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

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

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

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

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

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

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

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

What does an average collection period of 30 days indicate for a company? Multiple choice question. 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. The company sold off their accounts receivable in 30 days or less.

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

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

Fixed charge coverage Debt to total assets Times interest earned

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

quick ratio current ratio

Which of the following are liquidity ratios? Multiple select question. quick ratio current ratio receivable ratio debt ratio

Return on assets

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

Financial

________ ratios are used to weigh and evaluate the operating performance of the firm.