504 Ch. 3 Quiz - Working with Financial Statements

Motor Works has total assets of $919,200, long-term debt of $264,500, total equity of $466,900, net fixed assets of $682,800, and sales of $1,021,500. The profit margin is 6.2 percent. What is the current ratio? A. .79 B. .84 C. 1.01 D. 1.26 E. 1.19

D. 1.26 Current ratio = ($919,200 - 682,800) / ($919,200 - 264,500 - 466,900) = 1.26

The Saw Mill has a return on assets of 7.92 percent, a total asset turnover rate of 1.18, and a debt-equity ratio of 1.46. What is the return on equity? A. 14.26 percent B. 13.64 percent C. 12.28 percent D. 19.48 percent E. 12.03 percent

D. 19.48 percent Return on equity = .0792 ×(1 + 1.46) = .1948, or 19.48 percent

Western Hardwoods has total equity of $318,456, a profit margin of 3.79 percent, an equity multiplier of 1.68, and a total asset turnover of .97. What is the amount of the firm's sales? A. $518,956 B. $473,550 C. $195,420 D. $190,839 E. $639,440

A. $518,956 Sales = $318,456 ×1.68 ×.97 = $518,956

Common-size financial statements present all balance sheet account values as a percentage of: A. the forecasted budget. B. sales. C. total equity. D. total assets. E. last year's account value.

D. total assets.

BR Trucking has total sales of $911,300, a total asset turnover of 1.1, and a profit margin of 5.87 percent. Currently, the firm has 18,500 shares outstanding. What are the earnings per share? A. $2.92 B. $2.97 C. $2.86 D. $2.58 E. $2.89

E. $2.89 Earnings per share = (.0587 ×$911,300)/18,500 = $2.89

Assume earnings before interest and taxes of $38,218 and net income of $14,042. The tax rate is 34 percent. What is the times interest earned ratio? A. 2.08 B. 1.73 C. 3.09 D. 2.59 E. 2.26

E. 2.26 Times interest earned ratio = $38,218 / {$38,218 - [$14,042 / (1 - .34)]} = 2.26

Computer Geeks has sales of $618,900, a profit margin of 13.2 percent, a total asset turnover rate of 1.54, and an equity multiplier of 1.06. What is the return on equity? A. 18.91 percent B. 12.67 percent C. 18.28 percent D. 22.11 percent E. 21.55 percent

E. 21.55 percent Return on equity = .132 ×1.54 ×1.06 = .2155, or 21.55 percent

Spring Falls Gifts has sales of $680,300, total assets of $589,100, and a profit margin of 4.3 percent. What is the return on assets? A. 4.30 percent B. 6.54 percent C. 3.83 percent D. 7.01 percent E. 4.97 percent

E. 4.97 percent Return on assets = (.043 ×$680,300)/$589,100 = .0497, or 4.97 percent

A firm has an equity multiplier of 1.5. This means that the firm has a: A. debt-equity ratio of .67. B. debt-equity ratio of .33. C. total debt ratio of .50. D. total debt ratio of .67. E. total debt ratio of .33.

E. total debt ratio of .33. Total debt ratio = (1.5 - 1) / 1.5 = .33

Which one of these statements is true concerning the price-earnings (PE) ratio? A. A high PE ratio may indicate that a firm is expected to grow significantly. B. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. C. PE ratios are unaffected by the accounting methods employed by a firm. D. The PE ratio is classified as a profitability ratio. E. The PE ratio is a constant value for each firm.

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

The Wood Shed has cash of $5,800, accounts receivable of $18,600, inventory of $53,100, and net working capital of $2,100. What is the cash ratio? A. .11 B. .08 C. .26 D. .21 E. .45

B. .08 Cash ratio = $5,800 / ($5,800 + 18,600 + 53,100 - 2,100) = .08

Towne Realty has total assets of $346,200, net fixed assets of $277,400, current liabilities of $16,100, and long-term liabilities of $124,600. What is the total debt ratio? A. .47 B. .41 C. .68 D. .56 E. .52

B. .41 Total debt ratio = ($16,100 + 124,600) / $346,200 = .41

Bed Bug Inn has annual sales of $137,000. Earnings before interest and taxes is equal to 5.8 percent of sales. For the period, the firm paid $4,700 in interest. What is the profit margin if the tax rate is 34 percent? A. -2.43 percent B. 1.56 percent C. 3.33 percent D. -5.29 percent E. -6.11 percent

B. 1.56 percent Profit margin = {[(.058 × $137,000) - $4,700] × (1 - .34)} / $137,000 = .0156, or 1.56 percent

Kessler Cleaners has accounts receivable of $28,943, total assets of $387,600, cost of goods sold of $317,400, and a capital intensity ratio of .97. What is the accounts receivable turnover rate? A. 12.63 B. 13.81 C. 12.42 D. 14.61 E. 10.97

B. 13.81 Accounts receivable turnover = ($387,600 / .97) / $28,943 = 13.81

A fire has destroyed a large percentage of the financial records of the Strongwell Co. You have the task of piecing together information in order to release a financial report. You have found the return on equity to be 13.8 percent. Sales were $979,000, the total debt ratio was .42, and total debt was $548,000. What is the return on assets? A. 6.92 percent B. 8.00 percent C. 8.45 percent D. 9.03 percent E. 9.29 percent

B. 8.00 percent Debt-equity ratio = .42/(1 -.42) = .72414 Return on assets = .138/(1 + .72414) = .0800, or 8.00 percent

The DuPont identity can be accurately defined as: A. Return on equity × Total asset turnover × Equity multiplier. B. Equity multiplier × Return on assets. C. Profit margin × Return on equity. D. Total asset turnover × Profit margin × Debt-equity ratio. E. Equity multiplier × Return on assets × Profit margin.

B. Equity multiplier × Return on assets.

Sunshine Rentals has a debt-equity ratio of .67. The return on assets is 8.1 percent, and total equity is $595,000. What is the net income? A. $82,147.09 B. $81,311.29 C. $80,485.65 D. $78,887.02 E. $83,013.69

C. $80,485.65 Net income = .081 ×(1 + .67) ×$595,000 = $80,485.65

AZ Sales has total revenue of $318,400, cost of goods sold equal to 72 percent of sales, and a profit margin of 8.1 percent. Net fixed assets are $154,500 and current assets are $89,500. What is the total asset turnover rate? A. 1.08 B. 1.38 C. 1.30 D. 1.24 E. 1.28

C. 1.30 Total asset turnover = $318,400 / ($154,500 + 89,500) = 1.30

KBJ has total assets of $613,000. There are 21,000 shares of stock outstanding with a market value of $13 a share. The firm has a profit margin of 6.2 percent and a total asset turnover of 1.08. What is the price-earnings ratio? A. 6.38 B. 7.99 C. 6.65 D. 5.12 E. 7.41

C. 6.65 Price-earnings ratio = $13 /{[.062 ×($613,000 ×1.08)]/21,000} = 6.65

Leisure Products has sales of $738,800, cost of goods sold of $598,200, and accounts receivable of $86,700. How long on average does it take the firm's customers to pay for their purchases? Assume a 365-day year. A. 8.65 days B. 11.28 days C. 25.01 days D. 42.83 days E. 45.33 days

D. 42.83 days Days' sales in receivables = 365 / ($738,800 / $86,700) = 42.83 days