Chapter #3 Learn Smart

If the company has an average collection period of 20 days and total sales of $2,520,000, what is the company's accounts receivable balance? (Use a 360 day year). Multiple choice question. $350 $140,000 $50,400,000 $126,000

$140,000

If a company has a quick ratio of 1.25 times, current assets of $25,000 and inventory of $5,000, the current liabilities balance is equal to ____?

$16000

If a company has a debt to total assets ratio of 50% and total assets of $5,000,000, what amount of debt is the the company carrying? Multiple choice question. $10,000,000 $2,500,000 $250,000 $1,000,000

$2,500,000

If the company has a return on assets ratio of 25% and net income is $750,000, what is the total asset balance? Multiple choice question. $187,500 $937,500 $30,000,000 $3,000,000

$3,000,000

If the company's times interest earned ratio is 8 times and interest is $60,000, the company's earnings before interest and taxes is equal to ________?

$480000

If the company has a total asset turnover ratio of 4 times and sales of $2,500,000, what is the level of the company's total assets? Multiple choice question. $954,000 $625,000 $10,000,000 $160,000

$625,000

If a company has a receivables turnover ratio of 10 and accounts receivable of $750,000, what is the company's level of sales on credit? Multiple choice question. $75,000 $833,333 $7,500,000 $825,000

$7,500,000

If the company has a fixed asset turnover ratio of 4 and sales of $3,200,000, what is the level of the company's fixed assets? Multiple choice question. $800,000 $533,333 $756,000 $1,280,000

$800,000

The company has current liabilities of $530,000, long-term liabilities of $1,000,000, total assets of $2,400,000, and stockholders' equity of $870,000. The company's debt to total assets ratio is ___________.

.64

The company has total assets of $2,400,000, inventory of $600,000, fixed assets of $1,000,000, and current liabilities of $530,000. What is the company's quick ratio? Multiple choice question. 2.11 times 2.5 times 2.64 times 1.51 times

1.51 times

The company has sales of $10,000,000, total assets of $2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. What is the company's fixed asset turnover? Multiple choice question. 10 times 2.9 times 12 times 4.2 times

10 times

A company has earnings before interest and taxes of $1,500,000, interest is 30% of its total debt of $600,000, lease payments are $50,000, and its tax rate is 40%. What is the company's fixed charge coverage ratio? Multiple choice question. 6.52 times 6.30 times 6.74 times 30 times

6.74 times

Trend analysis can be described as which of the following? Multiple choice question. An analysis of the firm's pro forma financial statements over a number of years An analysis of the firm's management by objectives over a number of years An analysis of the firm's performance over a number of years An analysis of the firm's ability to overcome inflation over a number of years

An analysis of the firm's performance over a number of years

Which of the following is a profitability ratio? Multiple choice question. Return on assets Average collection period Receivable turnover Debt to total assets

Return on assets

T/F: For bankers and trade creditors, their emphasis is on long-term debt to total assets.

false (Reason: Bankers' and trade creditors' emphasis is on the firm's current ability to meet debt obligations)

T/F: Compustat provides financial statement data for U.S. securities only for a 5 year period.

false (Reason: Compustat provides financial statement data for global securities over a 20-year period)

T/F: Ratio analysis should not include trend analysis because recent ratios are the only relevant information.

false (Reason: Trend analysis should be utilized to capture changes and cycles over time to provide a more accurate picture of the firm.)

The company has return on equity of 30% and stockholders' equity of $4,000,000. What is the company's net income? Multiple choice question. $3,400,000 $1,200,000 $5,200,000 $13,333,333

$1,200,000

If the company's current ratio is 2.5 times and current liabilities are $600,000, what are current assets? Multiple choice question. $240,000 $480,000 $1,250,000 $1,500,000

$1,500,000

If the company's fixed charge coverage ratio is 4.5 times and income before fixed charges and taxes is $450,000, the company has a fixed charges balance of _________? Multiple select question. methods of reporting revenue tax write-off policies methods of constructing the financial statements treatment of nonrecurring items

$100000

If the company has a total asset turnover ratio of 4 times and sales of $2,500,000, what is the level of the company's total assets? Multiple choice question. $954,000 $10,000,000 $160,000 $625,000

$625,000

The company has sales of $10,000,000, total assets of $2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's inventory turnover ratio is ____________ times.

16.67

The company has the credit sales of $10,000,000, total assets of $2,100,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's average collection period is ________ days?

18

The company has total assets of $2,400,000, accounts receivable of $500,000, inventory of $600,000, cash & marketable securities of $20,000, and current liabilities of $530,000. The company's current ratio is _________ times.

2.11

The company has credit sales of $10,000,000, total assets of 2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. Calculate the company's receivables turnover. Multiple choice question. 20 times 10 times 8 times 12.5 times

20 times

The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. The company's return on assets is?

20.83%

The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. What is the company's return on equity? Multiple choice question. 31% 25% 21% 35%

25%

The company has sales of $10,000,000, total assets of $2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's total asset turnover is equal to _________?

4.17

The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. Calculate the company's profit margin. Multiple choice question. 20% 5% 25% 2%

5%

If a company has current assets of $800,000, total assets of $2,000,000, current liabilities of $500,000, and total liabilities of $1,100,000, its debt to total assets ratio is ______. Multiple choice question. 55.0% 181.8% 57.1% 72.7%

55.0%

A company has earnings before interest and taxes of $1,500,000, its tax rate is 40%, interest is 30% of its total debt of $600,000, and lease payments are $50,000. What is the company's times interest earned ratio? Multiple choice question. 5 times 3.8 times 4 times 8.3 times

8.3 times

A bondholder is likely to be primarily influenced by which of the following ratio categories? Multiple choice question. Liquidity ratios Profitability ratios. Asset utilization ratios Debt utilization ratios

Debt utilization ratios

T/F: Deflation typically enhances firms' profitability

False

T/F: Financial ratios are irrelevant to marketing managers' duties.

False (Reason: need to pay attention to inventory turnover)

What does a current ratio of 2.5 times represent. Multiple choice question. For every $1 in liabilities the company has $2.50 in total assets. For every $1 in current liabilities the company has $2.50 in current assets. For every $1 in assets the company has $2.50 in liabilities. For every $1 in current liabilities the company has $2.50 in current assets, not including inventory.

For every $1 in current liabilities the company has $2.50 in current assets.

What does a times interest earned ratio of 10 times indicate? Multiple choice question. The firm can cover the fixed charges 10 times. Income before interest and taxes covers the interest obligation of the firm by 10 times. The firm can pay off the interest obligations every 10 days. The firms debt is 10 times larger than the assets.

Income before interest and taxes covers the interest obligation of the firm by 10 times.

Which of the following organizations provide industry data that can be used to evaluate a company's operating performance? Multiple select question. Moody's Corporation Value Line Investment Survey FactSet The Wall Street Journal Bloomberg

Moody's Corporation Value Line Investment Survey FactSet Bloomberg

From the investor's perspective, which ratio category is of primary importance? Multiple choice question. Profitability ratios Liquidity ratios Debt utilization ratios Asset utilization ratios

Profitability ratios

Asset utilization ratios are used to measure management's ability to Multiple choice question. pay off long-term debt when it comes due earn an adequate return on sales pay off short-term debt when it comes due make the best use of the company's assets to generate revenue

Return on assets

What does a total asset turnover ratio of 1.5 times represent? The company generated $1.50 in sales for $1 in current assets. The company generated 50 cents in sales for every $1 in total assets. The company generated $1.50 in sales for $1 in total assets. The company generated $1 in sales for every $1.50 in total assets.

The company generated $1.50 in sales for $1 in total assets.

Which of the following are debt utilization ratios? Multiple select question. Times interest earned Fixed charge coverage Return on equity Debt to total assets

Times interest earned Fixed charge coverage Debt to total assets

Deflation can be described as ____________________. Multiple choice question. an increase in prices an increase in costs the result of inflation a decrease in prices

a decrease in prices (Reason: Deflation occurs when prices are actually decreasing over time. This can lead to a spiraling down of prices as buyers wait to make their purchases until prices fall even further.)

If the company's fixed asset turnover ratio is 9 and the industry average is 6, the company's fixed asset turnover ratio is _________ the industry average. Multiple choice question. worse than better than

better than (Reason: For the Fixed Asset Turnover ratio, higher (or faster) is better because it indicates how efficient the firm is at generating sales from the fixed assets it has invested its capital in.)

If the company's fixed charge coverage ratio is 8 times and the industry average is 6 times, the company's fixed charge coverage ratio is _____ the industry average. Multiple choice question. better than worse than

better than (Reason: Higher is better because it indicates that the firm is more effective in generating profits from its fixed charges than the industry as a whole.)

If the company's times interest earned ratio is 8 times and the industry average is 5 times, the company's times interest earned ratio is _____ the industry average. Multiple choice question. better than worse than

better than (Reason: The higher the better, since this indicates the firm is generating more income from the funds it is borrowing (and paying interest on).)

If the company's return on equity is 18% and the industry average is 15%, the company's return on equity ratio is ______ the industry average. Multiple choice question. worse than better than

better than (Reason: With ROE, higher is better because it indicates how effectively a firm is utilizing its shareholder's equity to generate profits and, accordingly, greater shareholders' wealth.)

Which of the following are liquidity ratios? Multiple select question. current ratio quick ratio receivable ratio debt ratio

current ratio quick ratio

Asset utilization ratios include all of the following except: Multiple choice question. receivable turnover inventory turnover debt to total assets turnover fixed asset turnover

debt to total assets turnover

Inflation is a source of _____ on the financial reporting of the firm. Multiple choice question. distortion wealth liability help

distortion

Profitability ratios measure the company's ability to Multiple choice question. earn an adequate return on sales, total assets, and invested capital pay off long-term debt when it comes due pay off short-term debt when it comes due sell inventory and collect on accounts receivable

earn an adequate return on sales, total assets, and invested capital

For bankers and trade creditors, their emphasis is on long-term debt to total assets.

false (Reason: Bankers' and trade creditors' emphasis is on the firm's current ability to meet debt obligations)

________ ratios are used to weigh and evaluate the operating performance of the firm.

financial

A major problem during inflationary times is that profit may be more a function of Multiple choice question. decreasing prices than of management performance. decreasing prices than of improved performance. increasing prices than of improved performance. management performance than of increasing prices.

increasing prices than of improved performance.

Besides changing prices, other elements of distortion in the financial evaluation of a company may include which of the following: Multiple select question. methods of reporting revenue tax write-off policies methods of constructing the financial statements treatment of nonrecurring items

methods of reporting revenue tax write-off policies treatment of nonrecurring items

Liquidity ratios are used to measure the company's ability to Multiple choice question. earn an adequate return on assets pay off short-term debt as it comes due pay off long-term debt as it comes due earn an adequate return on invested capital

pay off short-term debt as it comes due

Financial ratios are used to judge the operating __________ of the firm.

performance

People in various functional areas of a business must be familiar with _________ analysis.

ratio

T/F: A bondholder's secondary consideration is the capacity of the firms' profit to cover debt obligations.

true

T/F: An investor's secondary consideration is liquidity and debt utilization ratios.

true

T/F: Differences in firms' reporting of revenue, treatment of nonrecurring items and tax write-offs can make it difficult for analysts to accurately conduct industry analysis.

true

True or false: Bankers' and trade creditors' emphasis is on the firm's current ability to meet debt obligations.

true

If the current ratio is 2 times, then the firm's current asset balance is ____________ its current liabilities balance. Multiple choice question. two times less than half of equal to two times greater than

two times greater than

If the company's profit margin is 6% and the industry average is 9.5%, the company's profit margin is _____ the industry average. Multiple choice question. worse than better than

worse than

If the company's total asset turnover ratio is 3 times and the industry average is 7 times, the company's total asset turnover ratio is _____ the industry average. Multiple choice question. better than worse than

worse than (Reason: For TAT, higher (or quicker) is better because it is an indicator of how efficiently the firm is using its investments (assets) to generate sales.)

What does a return on equity of 15% represent? Multiple choice question. For every $1 in total assets the company generates 15 cents in stockholders' equity For every $1 in stockholders' equity the company generates 15 cents in profit For every $1 in stockholders' equity the company generates 15 cents in debt For every $1 in profit the company generates 15 cents in stockholders' equity

For every $1 in stockholders' equity the company generates 15 cents in profit

If the company's return on assets is 13% and the industry average is 10%, the company's return on assets ratio is _____ the industry average. Multiple choice question. better than worse than

Better than (Reason: With ROA, higher is better because it is an indicator of how well the firm is utilizing its assets (which tie up cash) to generate profits.)

What does a fixed charge coverage ratio of 8 times indicate? Multiple choice question. The firm can pay off the fixed charges in 8 days. Earnings after interest and taxes covers fixed charge obligations 8 times. Earnings before fixed charges and taxes covers the fixed charge obligation 8 times. Earnings before interest and taxes covers fixed charge obligations 8 times.

Earnings before fixed charges and taxes covers the fixed charge obligation 8 times.

What does an average collection period of 30 days indicate for a company? The company has a 30 day collection policy. Reason: The company collects on its issued trade credit in 30 days. The company collected on sales and re-loaned the money 30 times during the year. The company sold off their accounts receivable in 30 days or less. Reason:

The company collects on its issued trade credit in 30 days.

What does a fixed asset turnover ratio of 4 times represent? Multiple choice question. The company purchased $4 in fixed assets for $1 they made in sales. The company held 4 times as many fixed assets than the industry average. The company generated $4 in sales for every $1 in fixed assets. The company generated $1 in sales for every $4 in fixed assets.

The company generated $4 in sales for every $1 in fixed assets.

What does a profit margin of 20% represent? Multiple choice question. The company generates a $1 in profit for every 20 cents in sales The company generates 20 cents in profit for every $1 in sales The company generates 20 cents in profit for every $1 in equity The company generates 20 cents in profit for every $1 in assets

The company generates 20 cents in profit for every $1 in sales

What does a return on assets of 12.5% represent? Multiple choice question. The company generates a profit of $12.5 for every $1 in sales The company generates $12.5 for every $1 in equity The company generates $1 in profit for every $12.5 in total assets The company generates a profit of $12.5 for every $100 in total assets

The company generates a profit of $12.5 for every $100 in total assets

What does an inventory turnover ratio of 7 times represent? Multiple choice question. The company generates sales equivalent to 7 times its inventory value during the year. The company's inventory turnover is 7 times greater than the industry average. The company's inventory turnover is 7 times smaller than the industry average. The company collected on sales and repurchased its entire inventory in 7 days.

The company generates sales equivalent to 7 times its inventory value during the year.

What does a debt to total assets ratio of 50% indicate about a company? Multiple choice question. The company's current liabilities are half of its total assets. The company's debt is 50% greater than the company's equity. The company is carrying half as much debt as it has total assets. The company's earnings before interest and taxes are 50% greater than the company's debt.

The company is carrying half as much debt as it has total assets.

What does a receivables turnover of 7 times represent? Multiple choice question. The company took an average of 7 days to collect on their sales. The company's average accounts receivable collection period is 7 days. The company collected on their sales and sold the accounts receivable for 7 times their worth. The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year.

The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year.

If the company's average collection period is 25 days and industry average is 30 days, the company's average collection period is _____ the industry average. Multiple choice question. better than worse than

better than (Reason: Shorter (fewer days) is better with ACP because this is a measure of how long it takes the firm to collect trade credit from its customers.)

Debt utilization ratios indicate to what extent the firm is Multiple choice question. able to purchase its assets as they come due. able to pay off short-term debt as it comes due. using debt and the prudence with which it is being managed. able to earn an adequate return on invested capital.

using debt and the prudence with which it is being managed.

If the company's receivables turnover is 7 times and the industry average is 10 times, the company's receivables turnover is _____ the industry average.

worse than (Reason: Higher A/R turnover is better because it is an indicator of how efficiently the company is collecting on the trade credit it has issued to its customers.)

If the company's inventory turnover ratio is 10 times and industry average is 12 times, the company's inventory turnover ratio is _____ the industry average. Multiple choice question. worse than better than

worse than (Reason: Higher inventory turnover is better because it indicates how efficiently the firm is generating sales from the level of inventory that it is carrying.)