Finance 3150 Business Finance Fall 2018 Chapter 3

A quick ratio that is much smaller than the current ratio reflects: A. a large portion of current assets is in inventory. B. that the firm will have a high return on assets. C. that the firm will have a high inventory turnover. D. a small portion of current assets is in inventory

A. a large portion of current assets is in inventory.

The Bubba Corp. had earnings before taxes of $400,000 and sales of $2,000,000. If it is in the 40% tax bracket, its after-tax profit margin is: A. 12%. B. 25%. C. 40%. D. 20%.

A. 12%.

Which of the following is not an asset utilization ratio? A. Return on assets B. Fixed asset turnover C. Average collection period D. Inventory turnover

A. Return on assets

Asset utilization ratios: A. relate balance sheet assets to income statement sales. B. measure the firm's ability to generate a profit on sales. C. are most important to stockholders. D. measure how much cash is available for reinvestment into current assets.

A. relate balance sheet assets to income statement sales.

ABC Co. has an average collection period of 90 days for its accounts receivable. If total credit sales for the year were $6,000,000, what is the balance in accounts receivable at year-end? Assume a 360-day calendar year. A. $2,250,000 B. $40,000 C. $1,500,000 D. $150,000

C. $1,500,000

A firm's long-term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities = $200,000. What are the firm's current ratio and quick ratio? A. Current ratio = 1.0; quick ratio = 2.0 B. Current ratio = 2.5; quick ratio = 2.0 C. Current ratio = 1.5; quick ratio = 1.25 D. Current ratio = 0.5; quick ratio = 1.25

C. Current ratio = 1.5; quick ratio = 1.25

Trend and industry analysis provide all of the following information except: A. a basis for decision making about capital structure. B. benchmarking. C. future information about the company. D. the progress of the company.

C. future information about the company.

A firm has total assets of $3,000,000 and stockholders equity is $1,000,000. What is the debt-to-total asset ratio? A. 55% B. 45% C. 75% D. 67%

D. 67%

In examining the liquidity ratios, the primary emphasis is the firm's: A. ability to earn an adequate return or profits. B. ability to effectively employ its resources. C. overall debt position. D. ability to pay short-term obligations on time.

D. ability to pay short-term obligations on time.

In addition to comparison with industry ratios, it is also helpful to analyze ratios using: A. only industry ratios provide valid comparisons. B. historical data C. future projections D. trend analysis and historical comparisons

D. trend analysis and historical comparisons