exam 1, ch 3, smartbook

Common-size statements are best used for comparing: Multiple select question. firms in different industries. year-to-year for your firm. competitors. firms of different sizes.

-competitors -firms of different sizes -year to year for your firm

A firm with a profit margin of 10 percent generates Blank______ in net income for every dollar in sales. 10 dollars 10 cents 1 dollar 90 cents

10 cents

______ financial statements enable one to compare firms that differ in size. Compressed Original Standardized Restated

Standardized

Which of the following would help a company take action to improve its ratios? comparing to DOW 30 companies comparing to peer companies comparing to its own historical ratios comparing to major competitors comparing to aspirant companies

comparing to peer companies comparing to its own historical ratios comparing to major competitors comparing to aspirant companies

The current ratio computes the relationship between Blank______. current assets and long-term liabilities current and liquid assets current and long-term assets current assets and current liabilities

current assets and current liabilities

The _____ payout ratio equals cash dividends divided by net income.

dividend

True or false: Financial ratios are computed using only balance sheet information.

false

True or false: If a company has inventory, the quick ratio will always be greater than the current ratio

false

True or false: The dividend payout ratio equals cash dividends divided by sales

false

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will Blank______. decrease increase remain unchange

increase

If a company has inventory, the quick ratio will always be Blank______ the current ratio. equal to greater than less than

less than

Short-term solvency ratios are also called ____ ratios.

liquidity

The price-earnings (PE) ratio is a Blank______ ratio. turnover liquidity market value leverage

market value

Return on equity (ROE) is a measure of Blank______. utilization leverage profitability liquidity

profitability

Receivables turnover is ______ divided by accounts receivable.

sales

True or false: A way to establish a benchmark for ratio analysis is to identify a peer group.

true

True or false: In a common-size income statement, each item is expressed as a percentage of total sales.

true

True or false: Profit margin equals net income divided by sales.

true

True or false: The total debt ratio equals the total assets minus total equity divided total assets

true

What will happen to the current ratio if current assets increase, while everything else remains unchanged? Multiple choice question. It will increase. It may either increase or decrease. It will decrease. It will not be affected.

It will increase.

What does it mean when a company reports ROA of 12 percent? The company generates $12 in net income for every $100 invested in assets. The company generates $12 in sales for every $100 of debt. The company generates $12 in net income for every $100 of debt. The company generates $12 in sales for every $100 invested in assets.

The company generates $12 in net income for every $100 invested in assets.

Which one of the following best explains why financial managers use a common-size balance sheet?

To track changes in a firm's capital structure

Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent, while current liabilities have decreased from 29 to 25 percent. This indicates the firm has increased its Blank______. production efficiency size earnings outlook liquidity

liquidity

_____ ______ group analysis is a way to establish a benchmark when using ratios. Multiple choice question. Peer Control

peer

One of the most important uses of financial statement information within the firm is: competitor analysis. investment analysis. credit analysis. performance evaluation.

performance evaluation.

Which of the following are traditional financial ratio categories? turnover ratios real options ratios competition ratios profitability ratios financial leverage ratios

profitability ratios turnover ratios financial leverage ratios

Which of the following items are used to compute the current ratio? Multiple select question. earnings accounts payable equipment cash

accounts payable cash

Days' sales in receivables is given by the following ratio: 365/sales 365/receivables turnover receivables turnover/365 accounts receivable/365

365/receivables turnover

In a common-size income statement, each item is expressed as a percentage of total ______

sales

Over the past year, the current assets account on the common-size balance sheet of a firm has decreased, while the current liabilities account on the common-size balance sheet of the same firm has increased. The firm has _______ (increased/decreased) its liquidity over the past year.

decreased

True or false: Receivables turnover is cost of goods sold divided by accounts receivable.

false

True or false: The current ratio will decrease if current assets increase, while everything else remains unchanged.

false

True or false: There is a solid and prescriptive method to select which ratios to use in financial statement analysis

false

Which of the following represents the receivables turnover ratio? Sales/Accounts receivable Accounts receivable/Cost of goods sold Accounts receivable/Sales Cost of goods sold/Accounts receivable

Sales/Accounts receivable

How is the price-earnings (PE) ratio computed? Sales price per unit/Earnings per share Book value per share/Earnings per share Market price per share/Earnings per share Market capitalization/Earnings per share

Market price per share/Earnings per share

Which of the following is the correct equation for return on equity? Sales/Net income Net income/Total equity Net income/Sales Total equity/Net income

Net income/Total equity

Which of the following is the correct representation of the total debt ratio? Total equity/Total long-term debt (Total assets − Total equity)/(Total assets) Long-term debt/Total assets

(Total assets − Total equity)/(Total assets)

What does it mean when a firm has a days' sales in receivables of 45? The firm is able to collect 55 percent of its credit sales. The firm collects its credit sales in 320 (365 − 45) days on average. The firm collects its credit sales in 45 days on average. The firm is able to collect 45 percent of its credit sales.

The firm collects its credit sales in 45 days on average.

Return on assets equals net income ________ by total assets.

divided

Which of the following create problems with financial statement analysis? The firm and its competitors are approximately the same size. The firm or its competitors are conglomerates. The firm or its competitors are global companies. The firm and its competitors operate under different regulatory environments

- The firm or its competitors are global companies. - The firm or its competitors are conglomerates - The firm and its competitors operate under different regulatory environments.

Which of the following are true of financial ratios? They are computed in the same manner by all firms. They always reflect market values. They are used for comparison purposes. They use only balance sheet data. They are developed from a firm's financial information

- They are developed from a firm's financial information. - They are used for comparison purposes.

A common-size balance sheet expresses accounts as a percentage of Blank______. Multiple choice question. total assets total equity total liabilities sales

total assets