Chapter 3 Finance
Which of the following is the correct representation of the cash coverage ratio?
(EBIT+depreciation)/Interest expense
retention ratio
(NI-DIV)/NI
What is the formula for computing the internal growth rate (IGR).
(ROA x b)/(1-ROA x b) ROA=Return on Investment b= internal growth rate
sustainable growth rate
(ROE x b) / (1 - ROE x b) ROE= Return on equity b= retention rate (internal growth rate)
The quick ratio provides more of a reliable measure of liquidity than the current ratio especially when the company's inventory ___________ to sell
a long time
Inventory Turnover
cost of goods sold/average inventory
A firm with a market-to-book value that is greater than 1 is said to have _________ value for shareholders
created
Whenever ____________ information is available, it should be used instead of accounting data
marketing
Return on Assets Ratio
net income/average total assets
Profit Margin Ratio
net income/net sales
If a company has a negative earnings for several periods they might choose to use a ______________.
price-Sales ratio
Debt to Equity Ratio
Total Debt/Total Equity
Receivables Turnover Ratio
Net sales / avg net accounts receivable
Which of the following items is added back to EBIT while calculating the cash coverage ratio, but not while calculating the times interest earned ratio?
Non-cash expenses
Total Asset Turnover Ratio
Sales/Total Assets
Which are true of financial ratios
1) Are used for comparison purposes 2) Are developed from a firms financial statements
Which of the following would help a company take action to improve its ratios
1) comparing to its own historical ratios 2) Comparing to peer companies 3) comparing to major competators 4) comparing to aspirant competators
Based on the sustainable growth rate, which of the following factors affect a firms ability to sustain growth.
1) dividend policy 2) profit margin 3) Financial Policy
The inventory turnover ratios for Proctor and Gamble over the past 3 years are 5.09, 5.72, and 5.92 times respectively. Explaining the upward trend in the inventory turnover ratio requires...
1) further investigation 2)Examination as to whether the increase is due to declining inventory or increasing sales
Based on the DuPont Identity, an increase in sales, all else held equal, ____ ROE
1) may not change 2)may increase or decrease
Which of the following are traditional financial ratio categories?
1) profitability ratios 2) Financial Leverage Ratios 3) Turnover Ratios
Which of the following create problems with financial statement analysis?
1) the firm or its competitors are conglomerates 2) the firm or its competitors are global companies 3)The firm and its competitors operate under different regulatory environments
Which of the following items are used to compute the current ratio?
1)Cash 2) accounts payable
cash ratio
Cash / Current Liabilities
times interest earned ratio
EBIT/Interest or Operating Income/Interest
How is price-earnings share computed?
Market price per share/Earnings per share
Receivables Turnover Ratio
Net Credit Sales / Average Accounts Receivable
Return on Equity Ratio
Net Income / Average Stockholders' Equity
What does it mean when a firm has days' sales in receivables of 45?
The firm collects its credit sales in 45 days on average
If the company has inventory, the quick ratio will always be ___________ the current ratio.
less than
Long-term solvency ratios are also known as
financial leverage ratios
__________ _____________ are the prime source of information about a firm's financial health
financial statements
Cal's market has return on equity (ROE) of 15%. What does this mean?
generated $0.15 in profit for every $1 of book value equity
The information needed to compute the profit margin can be found on the _________.
income statement
What does it mean when a company reports ROA of 12%?
the company generates $12 in net income for every $100 invested in assets