FIN301

Lincoln Industries' current ratio is 0.5. Considered alone, which of the following actions would increase the company's current ratio?

Borrow using short-term notes payable and use the cash to increase inventories.

Refer to Exhibit 7.1. What is the firm's debt ratio (i.e., debt-to-assets ratio)?

29,400 - 12,600 = 16,800 total liabilities 16,800/42,000 = .4 or 40%

Vang Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30. What was its P/E ratio?

33.5/2.3= 14.57

Lindley Corp.'s stock price at the end of last year was $33.50, and its book value per share was $25.00. What was its market/book ratio?

33.5/25 = 1.34

Which of the following would be most likely to occur in the year after Congress, in an effort to increase tax revenue, passed legislation that forced companies to depreciate equipment over longer lives? Assume that sales, other operating costs, and tax rates are not affected, and assume that the same depreciation method is used for tax and stockholder reporting purposes.

Companies' cash positions would decline.

One problem with ratio analysis is that relationships can be manipulated. For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

FALSE; GAAP Guidelines can manipluiate numbers

Which of the following statements is CORRECT?

Free cash flow (FCF) is defined as follows: FCF = EBIT(1 − T) + Depreciation and Amortization − Capital expenditures required to sustain operations − Required changes in net operating working capital.

Which of the following statements is CORRECT?

If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.

You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT?

Its total assets turnover must be above the industry average.

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one method of measuring changes in a firm's performance over time.

TRUE

The retained earnings account on the balance sheet does not represent cash. Rather, it represents part of stockholders' claims against the firm's existing assets. This implies that retained earnings are in fact stockholders' reinvested earnings.

TRUE