Chapter 03

Charlie's Chicken has a debt-equity ratio of 2.05. Given this, what is the firm's current capital structure?

32.79% Equity and 67.21% Debt D/E + 1 = EM ... 2.05 + 1 = EM Weight of Equity = 1/EM = 1/3.05 = 32.79% Equity Weight of Debt = 1 - .3279 = 67.21%

The Purple Martin has annual sales of $687,400, total debt of $210,000, total equity of $365,000, and a profit margin of 4.80 percent. What is the return on assets?

5.74% Total Assets = 210,000 + 365,000 = 575,000 NI = .048 * 687,400 = 32,995.20 ROA = 32,995.20 / 575,000 = 5.74%

Given the following financial statements, what is the Day's Sales in Receivables for 2018? *financial statements image on other side of card*

7.79 days Accounts receivable turnover for 2018 = $164000/$3500 = 46.86 Days' sales in receivables for 2018 = 365/46.86 = 7.79

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

0.5

Big Guy Subs has net income of $150,980, a price-earnings ratio of 12.8, and earnings per share of $0.87. How many shares of stock are outstanding?

173,540 Number of shares = $150,980/$0.87 = 173,540

Consider the Income Statements for two firms (ABC and XYZ) below. Using common-sized statements, which statement below is correct? *income statements provided on other side of card*

On a size-equivalent basis, Firm XYZ retains 19.5 cents more in profit than Firm ABC.

Given the following financial statements, which of the following is correct regarding the ROE for 2018? *financial statements on other side of card*

The firm has 40.45 cents profit for every dollar of equity. Return on equity for 2018 = 37130/91800 = 40.45%

Suppose a company issues the following statement: "Our Profit Margins are strong, and our Current Ratio is above all competitors and trending upwards. However, our Total Asset Turnover is too low and declining." Given this only, which of the following is an accurate statement? -The firm has an issue with profitability. -The firm is facing difficulties paying their long-term debt. -The firm should focus on improving asset utilization. -The firm has an issue in converting accounting value to market value.

The firm should focus on improving asset utilization.

Which one of the following accurately describes the three parts of the Du Pont identity? -operating efficiency, equity multiplier, and profitability ratio -financial leverage, operating efficiency, and profitability ratio -equity multiplier, profit margin, and total asset turnover -return on assets, profit margin, and equity multiplier -debt-equity ratio, capital intensity ratio, and profit margin

equity multiplier, profit margin, and total asset turnover

Ratios that measure how efficiently a firm manages its assets and operations to generate revenue are referred to as _____ ratios. -dividend -short-term solvency -profitability -long-term solvency -asset utilization

asset utilization