Chapter 3 Working With Financial Statements

Which one of these identifies the relationship between the return on assets and the return on equity? a. Profit margin. b. Profitability determinant. c. Balance sheet multiplier. d. DuPont identity. e. Debt-equity ratio.

d. DuPont identity.

The sources and uses of cash over a stated period of time are reflected on the: a. Income statement. b. Balance sheet. c. Tax reconciliation statement. d. Statement of cash flows. e. Statement of operating position.

d. Statement of Cash Flows

The Strong Box has sales of $859,700, cost of goods sold of $648,200, net income of $93,100, and accounts receivable of $102,300. How many days of sales are in receivables? A) 57.60 days B) 40.32 days C) 54.53 days D) 29.41 days E) 43.43 days

E Explanation: Days' sales in receivables = 365/($859,700/$102,300)Days' sales in receivables = 43.43

A firm has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 34 percent. What is the value of the cash coverage ratio? a. 15.21 b. 12.14 c. 17.27 d. 23.41 e. 12.68

a. 15.21 Explanation: Cash coverage ratio = ($96,400 − 53,800)/$2,800Cash coverage ratio = 15.21

TJ's has annual sales of $813,200, total debt of $176,000, total equity of $395,000, and a profit margin of 5.63 percent. What is the return on assets? a. 8.02 percent b. 6.48 percent c. 9.94 percent d. 7.78 percent e. 11.59 percent

a. 8.02 percent Explanation: ROA = [.0563 ($813,200)]/($176,000 + 395,000)ROA = .0802, or 8.02%

A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets? a. $6,128.05 b. $7,253.40 c. $9,571.95 d. $11,034.00 e. $13,358.77

e. $13,358.77 Total equity = $4,850/0.57 = $8,508.77Total assets = $4,850 + $8,508.77 = $13,358.77

Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 64 percent. What is the return on equity? a. 13.09 percent b. 16.04 percent c. 21.03 percent d. 18.56 percent e. 19.64 percent

e. 19.64 percent Explanation: ROE = [.0668 ($807,200)]/[$1,105,100 (1 − .64)]ROE = .1964, or 19.64%

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following? a. Current year sales. b. Current year total assets. c. Base-year sales. d. Base-year total assets. e. Base-year accounts receivables.

e. Base-year accounts receivables.

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: a. Total assets. b. Total equity. c. Net income. d. Taxable income. e. Sales.

e. sales

Best-Ever Chicken has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income? A) $44,200 B) $88,880 C) $85,748 D) $41,548 E) $74,909

C) $85,748 Explanation: Equity multiplier = 1 + Debt-equity ratio Equity multiplier = 1.94 ROE = .085(1.94) ROE = .1649 Net income = .1649($520,000) Net income = $85,748

Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit? a. 11.88 days b. 22.20 days c. 16.23 days d. 14.50 days e. 18.67 days

b. 22.20 days Explanation: Days' sales in inventory = 365/($64,003/$1,810)Days' sales in inventory = 10.322 daysDays' sales in receivables = 365/($138,609/$4,511)Days' sales in receivables = 11.879 daysTotal days in inventory and receivables = 10.322 + 11.879Total days in inventory and receivables = 22.20 days

Activities of a firm that require the spending of cash are known as: a. Sources of cash. b. Uses of cash. c. Cash collections. d. Cash receipts. e. Cash on hand.

b. Uses of Cash

A firm has a debt-equity ratio of 62 percent, a total asset turnover of 1.24, and a profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income? a. $28,079 b. $19,197 c. $50,159 d. $40,451 e. $52,418

c. $50,159 Explanation: ROE = .051(1.24)(1.62)ROE = .1024Net income = .1024($489,600)Net income = $50,159

The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? a. 74.19 days b. 84.69 days c. 118.08 days d. 106.46 days e. 121.07 days

c. 118.08 days InvTR = COGS/Inv 365/ InvTR = 118.08 days

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time? a. Statement of standardization. b. Statement of cash flows. c. Common-base year statement. d. Common-size statement. e. Base reconciliation statement.

c. Common-base year statement.

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. a. Increase in the cash ratio. b. Increase in the net working capital to total assets ratio. c. Decrease in the quick ratio. d. Decrease in the cash coverage ratio. e. Increase in the current ratio.

c. Decrease in the quick ratio.

Which one of the following accurately describes the three parts of the DuPont identity? a. Operating efficiency, equity multiplier, and profitability ratio. b. Financial leverage, operating efficiency, and profitability ratio. c. Equity multiplier, profit margin, and total asset turnover. d. Debt-equity ratio, capital intensity ratio, and profit margin. e. Return on assets, profit margin, and equity multiplier.

c. Equity multiplier, profit margin, and total asset turnover.