FIN3403 Chapter 3 Quiz

Which one of the following accurately describes the three parts of the DuPont identity? A. Debt-equity ratio, capital intensity ratio, and profit margin. B. Operating efficiency, equity multiplier, and profitability ratio. C. Equity multiplier, profit margin, and total asset turnover. D. Financial leverage, operating efficiency, and profitability ratio. E. Return on assets, profit margin, and equity multiplier.

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

Lenders probably have the most interest in which one of the following sets of ratios? A. Price-earnings and debt-equity. B. Return on equity and price-earnings. C. Long-term debt and times interest earned. D. Market-to-book and times interest earned. E. Return on assets and profit margin.

C. Long-term debt and times interest earned.

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. Base reconciliation statement. B. Statement of cash flows. C. Common-size statement. D. Common-base year statement. E. Statement of standardization.

D. Common-base year statement.

Which one of the following statements is correct? A. Book values should always be given precedence over market values. B. Reviewing financial information over time has very limited value. C. Financial statements are rarely used as the basis for performance evaluations. D. Historical information is useful when projecting a firm's future performance. E. Potential lenders place little value on financial statement information.

D. Historical information is useful when projecting a firm's future performance.

Lancaster Toys has a profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debt-equity ratio? A. .73 B. .81 C. .83 D. .64 E. .42

A. .73 CLUE: Equity multiplier = .162 / (.051 × 1.84) = 1.73 Debt-equity ratio = 1.73- 1 = .73

The sources and uses of cash over a stated period of time are reflected on the: A. Statement of cash flows. B. Tax reconciliation statement. C. Balance sheet. D. Statement of operating position. E. Income statement.

A. Statement of cash flows.

Use the below information to answer the following question. [IMAGE] What is the amount of the cash flow from investment activity for the year? A. $39,400 B. $51,150 C. $29,300 D. $21,850 E. $49,950

E. $49,950 CLUE: Cash flow from investment activity = $537,950 - 516,100 + 28,100 = $49,950

Ratios that measure a firm's liquidity are known as ________ ratios. A. Short-term solvency. B. Book value. C. Profitability. D. Long-term solvency. E. Asset management.

A. Short-term solvency.

Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio? A. 26.7 B. 24.3 C. 17.4 D. 21.9 E. 18.6

A. 26.7 CLUE: Price per share = 1.20 × ($328,000 / 8,000) = $49.20 Earnings per share = ($328,000 × .045) / 8,000 = $1.845 Price-earnings ratio = $49.20 / $1.845 = 26.7

Use the below information to answer the following question. [IMAGE] What is the net working capital to total assets ratio at year-end? A. 27.22 percent B. 2.90 percent C. 36.82 percent D. 37.79 percent E. 24.18 percent

A. 27.22 percent CLUE: Net working capital to total assets at year-end = ($43,700 + 86,150 + 214,600 - 104,300) / $882,400 = .2722, or 27.22 percent

Which one of the following is a use of cash? A. Decrease in accounts payable. B. Decrease in fixed assets. C. Decrease in accounts receivables. D. Decrease in inventory. E. Increase in long-term debt.

A. Decrease in accounts payable.

Which of the following can be used to compute the return on equity? I. Profit margin × Return on assets II. Return on assets × Equity multiplier III. Profit margin × Total asset turnover × Debt-equity ratio IV. Net income / Total assets A. II only. B. I, II, III, and IV. C. II and III only. D. II and IV only. E. I, II, and III only.

A. II only.

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. $19,197 B. $50,159 C. $40,451 D. $52,418 E. $28,079

B. $50,159 CLUE: Return on equity = .051 × 1.24 × (1 + .62) = .1024 Net income = $489,600 × .1024 = $50,159

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current: A. Financial ratios to the average ratios of all firms located within the same geographic area. B. Financial ratios to the firm's historical ratios. C. Financial statements to the projections that were created based on Tobin's Q. D. Financial statements to those of larger firms in unrelated industries. E. Financial statements to the financial statements of similar firms operating in other countries.

B. Financial ratios to the firm's historical ratios.

An increase in which of the following will increase the return on equity, all else constant? I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio. A. I only. B. I, II, and IV only. C. I, II, III, and IV. D. I, II, and III only. E. I and II only.

B. I, II, and IV only.

Tobin's Q relates the market value of a firm's assets to which one of the following? A. Average market value of similar firms. B. Today's cost to duplicate those assets. C. Initial cost of creating the firm. D. Average asset value of similar firms. E. Current book value of the firm.

B. Today's cost to duplicate those assets.

A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? A. $985 B. $776 C. $959 D. $922 E. $865

C. $959 CLUE: Net cash from operating activities = $911 + 47 + 15 - 28 + 14 = $959

Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends. A. I, II, and III only. B. I and II only. C. I, III, and IV only. D. I, II, III, and IV. E. II and III only.

D. I, II, III, and IV.

Which of these are factors to consider when comparing utility firms that generate electric power and have the same SIC code? I. Type of ownership. II. Regulatory considerations. III. Fiscal year end. IV. Methods of power generation. A. I, II, and III only. B. II, and III only. C. II, III, and IV only. D. III only. E. I, II, III, and IV.

E. I, II, III, and IV.

The U.S. government coding system that classifies a firm by the nature of its business operations is known as the: A. Centralized Business Index. B. Peer Grouping codes. C. Government Engineered Coding System. D. Governmental ID codes. E. Standard Industrial Classification codes.

E. Standard Industrial Classification codes.