Finance Exam 1 - Chapter 3

Which one of these statements is true concerning the price-earnings (PE) ratio?

A high PE ratio may indicate that a firm is expected to grow significantly

The equity multiplier is equal to:

one plus the debt-equity ratio

The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship?

total asset turnover

Common-size financial statements present all balance sheet account values as a percentage of:

total assets

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

quick ratio

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0.

Cash payment of an account payable

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?

Common-size income statement

The ratios that are based on financial statement values and used for comparison purposes are called:

financial ratios

Which one of these transactions will increase the liquidity of a firm?

credit sale of inventory at cost

The cash ratio is used to evaluate the:

liquidity of a firm

Financial statement analysis:

provides useful information that can serve as a basis for forecasting future performance.

If a firm has an inventory turnover of 15, the firm:

sells its entire inventory an average of 15 times each year.