FSA 6

RGB, Inc.'s purchases during the year were $100,000. The balance sheet shows an average accounts payable balance of $12,000. RGB's payables payment period is closest to:

44 days

Which of the following equations least accurately represents return on equity?

(ROA)(interest burden)(tax retention rate).

Return on equity using the traditional DuPont formula equals:

(net profit margin) (total asset turnover) (financial leverage multiplier).

RGB, Inc. has a net profit margin of 12%, a total asset turnover of 1.2 times, and a financial leverage multiplier of 1.2 times. RGB's return on equity is closest to:

17.3%

RGB, Inc.'s income statement shows sales of $1,000, cost of goods sold of $400, pre-interest operating expense of $300, and interest expense of $100. RGB's interest coverage ratio is closest to:

3 times

A firm has a dividend payout ratio of 40%, a net profit margin of 10%, an asset turnover of 0.9 times, and a financial leverage multiplier of 1.2 times. The firm's sustainable growth rate is closest to:

6.5%

RGB, Inc.'s receivable turnover is ten times, the inventory turnover is five times, and the payables turnover is nine times. RGB's cash conversion cycle is closest to:

69 days

Paragon Co. has an operating profit margin (EBIT / revenue) of 11%; an asset turnover ratio of 1.2; a financial leverage multiplier of 1.5 times; an average tax rate of 35%; and an interest burden of 0.7. Paragon's return on equity is closest to:

9%

All other things held constant, which of the following transactions will increase a firm's current ratio if the ratio is greater than one?

Accounts payable are paid with funds from the cash account.

RGB, Inc. has a gross profit of $45,000 on sales of $150,000. The balance sheet shows average total assets of $75,000 with an average inventory balance of $15,000. RGB's total asset turnover and inventory turnover are closest to:

Asset turnover = 2.00 times; inventory turnover = 7.00 times

To study trends in a firm's cost of goods sold (COGS), the analyst should standardize the cost of goods sold numbers to a common-sized basis by dividing COGS by:

sales

Which of the following is least likely a limitation of financial ratios?

Data on comparable firms are difficult to acquire.

A company's current ratio is 1.9. If some of the accounts payable are paid off from the cash account, the:

denominator would decrease by a greater percentage than the numerator, resulting in a higher current ratio.

An analyst who is interested in a company's long-term solvency would most likely examine the:

fixed charge coverage ratio

A company's quick ratio is 1.2. If inventory were purchased for cash, the:

numerator would decrease more than the denominator, resulting in a lower quick ratio.

If RGB, Inc. has annual sales of $100,000, average accounts payable of $30,000, and average accounts receivable of $25,000, RGB's receivables turnover and average collection period are closest to:

receivables turnover = 4.0 times; average collection period = 91 days

An analyst who needs to model and forecast a company's earnings for the next three years would be least likely to:

use common-size financial statements to estimate expenses as a percentage of net income.