FIN 134 CSUS ch3
Turner's return on equity is 12 percent and its retention ratio is 60 percent. What is its sustainable growth rate?
(.12 × .60)/(1 -(.12 × .60)) = 7.76% sustainable growth ratio= ROE*b/1-(ROE*b)
Swenson's return on assets is 14 percent and its plowback ratio is 40 percent. What is the internal rate of growth?
(.14 × .40)/(1 -(.14 × .40)) = 5.93%
Which of the following is the correct representation of the cash coverage ratio?
(EBIT+ Non-cash expenses)/Interest expense
Which of the following is the correct representation of the total debt ratio?
(Total assets - Total equity)/(Total assets)
Jensen's has $800 in total assets and $540 in total equity. What is the total debt ratio if long-term debt is $200? Multiple choice question.
.33 Reason: ($800 - 540)/$800 = .33
Assume current assets = $48; fixed assets = $125, current liabilities = $42, and equity= $100. What is the total debt ratio?
.42(answer) Debt ratio is Debt/Total Assets. subtract equity from assets. Debt =($48 + 125 - 100) = $73, and Assets = ($48 + 125) =$173, and debt ratio =$73/$173 = 0.42
Place the following items in the order they are placed from top to bottom on the liabilities and equity side of the Statement of Financial Position.
1) Accounts payable 2) Notes payable 3) Long-term debt 4) Owners equity
Place the following items in the order they are placed from top to bottom on the liabilities and equity side of the balance sheet.
1) accounts payable 2) notes payable 3) long-term debt 4) owners equity
Which of the following are traditional financial ratio categories?
1)Liquidity ratios 2)Financial leverage ratios 3)Turnover ratios
Which of the following are traditional financial ratio categories?
1)Market value ratios 2)Profitability ratios 3)Asset management ratios
What is the debt-equity ratio for a company with $3.5 million in total assets and $1.4 million in equity?
1.50 Reason: Total Debt = Assets - Equity ($3.5m - 1.4m)=$2.1 m Debt/Equity = $2.1m/$1.4m = 1.50
BC Corporation has 1,800 shares outstanding and earned $2,700 last year on assets of $2 million and equity of $1.5 million. What is the PE ratio if the stock is currently selling at $18 per share?
12 times PE ratio= price per share/earnings per share. 18/(2700/1800)=12 times
BK Trucking has total equity of $25,380 and 1,500 shares outstanding.Its stock is currently selling at $38 per share. What is the market-to-book ratio?
2.25 38/(25,380/1,500)
A firm has an operating profit (EBIT) of $600 on sales of $1,000. Interest expense is $250 and taxes are $120. What is the times interest earned ratio?
2.4 times interest ratio ebit/interest 600/250=2.4
Moore's generated $140,000 in net income and $1.6 million in sales on $2.7 million in assets. The firm has a capital intensity ratio of ______.
2.7m/1.6m=1.69 assets/sales
If a firm has a receivables turnover of 13.65 times and accounts receivables of $200. What is the sales?
2730 13.65*200=
A banker considering loaning money to a firm for ten years would most likely prefer the firm have a debt ratio of _______, and a times interest earned ratio of _______.
40, 1.75
Alpha Star's net income is $300 on $2,000 of sales. The company has $5,000 in assets and equity of $3,000. The firm paid out $125 in cash dividends. What is the dividend payout ratio?
41.67% Payout ratio = Cash dividends/Net income = $125/$300 = 41.67%
Rock Construction has current assets of $45 million, total liabilities and equity of $67 million, and sales of $59 million. How would current assets be expressed on a common-size balance sheet?
45/67=.0.67 67%
A firm with a profit margin of 6.8 percent generates ______ cents in net income for every one dollar in sales.
6.8 cents
Alpha Manufacturing has interest expense of $12 million, total assets of $184 million, sales of $176 million, long-term debt of $16.4 million, and net income of $15 million. How will interest expense be recorded in the common-size income statement?
6.82% Reason:$12m/$176m = 6.82%
Cal's Market has 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.
The _________ identity can help to explain why two firms with the same return on equity may not be operating in the same way.
Dupont
What is the EBITDA margin if a firm's EBITDA is $175, sales are $540, and net income is $60?
EBITDA margin = EBITDA/sales 175/540=.32407= 32.41%
All else equal, when the rate of growth in sales or assets in a financial plan is higher, external financing needs will be:
Greater
The price-earnings (PE) ratio is a ____ ratio.
Market value
BC Corporation had net income of $3.5 million and paid out $700,000 in cash dividends to stockholders. Their plowback ratio is ______%.
PB = ($3.5m - $0.7m)/$3.5m= 80%
learn them
Profit Margin- Net Income/Sales Total Asset Turnover- Sales/Assets Equity Multiplier-Assets/TotalEquity
What does ROE equal?
ROA × Equity multiplier
Common-size statements allow comparison of companies of different:
Size
What does it mean if a company's capital intensity ratio is 2.4?
The firm requires $2.40 in assets to generate $1 in sales.
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?
The total asset turnover ratio will increase.
A firm with $600,000 in sales, cash on hand of $750,000, liabilities of $200,000 and total assets of $1 million has a total asset turnover of ______ times.
Total asset turnover=$600,000/$1m = .60
The capital intensity ratio is the reciprocal of the total ____________ turnover ratio.
assets
Utilization ratios measure how efficiently a firm uses
assets
Typically, enterprise value uses _____ value of debt because it is widely available.
book value
Financial statements report: book value market value
book values
The enterprise value multiple allows for comparing the value of firms with different ______ structures.
capital
The ratio of total assets to sales is known as the _____.
capital intensity ratio
The enterprise value multiple allows for comparing the value of firms with different:
capital structures taxes capital spending amounts
The standardized statements used for the purpose of comparing the financial statements of different companies are called _____.
common-size statements
The difference between ROA and ROE reflects the use of________ financing.
debt
The cash coverage ratio adds ______ to operating earnings (EBIT) for a better measure of how much cash is available to meet interest obligations.
depreciation and amortization
Which of the following are non-cash expenses on the income statement?
depreciation expense Amortization expense
Financial analysis uses EBITDA over EBIT because the former adds back ______ and _____ and is thus a better measure of pretax operating cash flow.
depreciation expense amortization expense
In the DuPont identity, financial leverage is measured by:
equity multiplier
All else equal, when the rate of growth in sales or assets in a financial plan is higher,___________ financing needs will be greater.
external
Given an internal growth rate of 5%, for a firm to grow by 10%, it will need:
external financing
Given an internal growth rate of 3 percent, a firm can _____.
grow by 3 percent or less without any additional external financing
As long as all sales requests are being met, a ______ inventory turnover ratio is better.
higher Reason: A higher turnover implies more efficient operations provided there is sufficient inventory to meet demand.
When the typical stock in the S&P 500 Index has a PE ratio 12, a company with a PE ratio of 15 may have ______ than average growth prospects, given similar earnings per share.
higher(answer) higher pe ratio means higher growth in the company
An increase in a firm's total asset turnover will ______ the sustainable growth rate.
increase
If a firm increases its debt-equity ratio it will _____ its sustainable rate of growth.
increase
If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______.
increase
AD corporation had sales of $750,000 and costs of goods sold of $350,000. Inventory at year end was $87,500. What is the inventory turnover?
inventory turn over= CGS/Interest 350,000/87500=4
Which one of the following does not affect ROE according to the DuPont identity?
investor sentiment
Long-term debt on the common-size balance sheet of Solid Rock Construction over the past three years is 30%, 34%, and 40%, respectively. This indicates that the firm has increased its ______
leverage
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%. This indicates the firm has increased its ______.
liquidity
Generally, the ______ the inventory turnover ratio, the ______ efficiently the firm is managing inventory.
lower; less higher; more
How is the price-earnings (PE) ratio computed?
market price per share/earnings per share
How is the market-to-book ratio measured?
market value per share/book value per share
Which ratios use information that is not contained in financial statements?
market value ratios
Enterprise value is the sum of a firm's market capitalization and the ____ value of its interest-bearing debt ______ any cash on hand.
market/less Enterprise value is the sum of a firm's market capitalization and the market value of its interest-bearing debt less any cash on hand.
The income statement measures ______ over a specified period.
performance
EBITDA is a measure of _____ operating cash flow.
pretax
In the DuPont identity, operating efficiency is measured by:
profit margin
Better Life Inc. had net income of $375,000 on sales of $3.5 million and assets of $4.1 million this year. What is the profit margin?
profit margin= net income/sales 375000/3500000=10.71%
Return on equity (ROE) is a measure of _____.
profitability
Market value measures can be calculated for:
publicity traded companies
Financial ______________ allow users to compare a companies' performance over time.
ratios or ratio
Omega Co. has annual sales of $250,000, costs of goods sold of $168,000, and assets of $322,000. Accounts receivable are $86,200. What is the receivables turnover?
receivables turnover = sales/AR 250,000/86200
Alder Inc. has net income of $403,000, operating earnings of $640,000, sales of $1.23 million, and total assets of $1.48 million. What is the return on assets?
return on assets= net income/total assets 403,000/1,480,000= 27.23%
BC Corporation has net income of $176,000, sales of $1,982,000 and total assets of $2.24 million. What is the return on assets?
return on assets= net income/total assets 7.86%
Net income divided by total equity is defined as:
return on equity
Nestor's has net income of $315,000, total sales of $3.52 million, total assets of $4.4 million, and total equity of $1.98 million. What is the return on equity?
return on equity= net income/total equity 315,000/1980000=15.91%
A common-size income statement helps compare financial results over time by controlling for changes in ______.
sales
The profit margin is equal to net income divided by ______.
sales
Which of the following represents the receivables turnover ratio?
sales/accounts receivable
Which one of the following equations defines the total asset turnover ratio?
sales/total assets
The maximum rate at which a firm can grow while maintaining a constant debt-equity ratio is best defined by its:
sustainable rate of growth.
What does an inventory turnover ratio of 5 mean?
the entire inventory was sold and replaced 5 times during the year
In the DuPont identity, ASSET use efficiency is measured by:
total asset turnover
A common-size balance sheet expresses accounts as a percentage of ______.
total assets
Financial managers use a common-size income statement to determine ___.
which costs are rising or falling as a percentage of sales
A firm with $.25 in debt for every $1 in assets has an equity multiplier of ______.
$1/($1 - .25) = 1.33
Last year, Benton Inc. had net income of $3.5 million and paid out $700,000 in cash dividends. If income this year is $4.1 million and the dividend payout ratio is held constant, how much will be paid in dividends?
$4.1m($700,000/$3.5m) = $820,000
BC Corporation had sales of $1,000,000 and costs of goods sold of $450,000 for the year. Inventory at year end was $180,000. What is the inventory turnover?
$450,000/$180,000 = 2.5