FIN Chapter 3
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 Return on equity = . × (1 + 1.46) = .1948, or 19.48 percent
19.48 percent
Phil's Carvings sells its inventory in 93 days, on average. Costs of goods sold for the year are $187,200. What is the average value of the firm's inventory? Assume a 365-day year. A. $20,129 B. $47,698 C. $57,132 D. $61,096 E. $32,513 Inventory = $187,200 ×93/ 365 = $47,698
$47,698
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 Cash ratio = $5,800 / ($5,800 + 18,600 + 53,100 -2,100) = .08
.08
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? A. No new external financing of any kind B. No new debt but additional external equity equal to the increase in retained earnings C. New debt and external equity in equal proportions D. New debt and external equity, provided the debt-equity ratio remains constant E. No new external equity and a constant debt-equity ratio
No new external equity and a constant debt-equity ratio
Which ratio was primarily designed to monitor firms with negative earnings? A. Price-sales ratio B. Market-to-book ratio C. Profit margin D. ROE E. ROA
Price-sales ratio
Which one of the following statements is correct? A. Peer group analysis is easier when a firm is a conglomerate versus when it has only a single line of business. B. Peer group analysis is easier when seasonal firms have different fiscal years. C. Peer group analysis is simplified when firms use varying methods of depreciation. D. Comparing results across geographic locations is easier since all countries now use a common set of accounting standards. E. Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory
Adjustments have to be made when comparing the income statements of firms that use different methods of accounting for inventory
Which one of the following is the abbreviation for the US government coding system that classifies a firm by it specific type of business operations? A. BEC B. SED C. BID D. SIC E. SBC
SIC
A firm has total assets of $638,727, current assets of $203,015, current liabilities of $122,008, and total debt of $348,092. What is the debt-equity ratio? A. 1.03 B. 1.20 C. 1.31 D. 1.43 E. .87 Debt-equity ratio = $348,092/($638,727 -348,092) = 1.20
1.20
Healthy Foods has a book value per share of $32.68, earnings per share of $3.09, and a price-earnings ratio of 16.8. What is the market-to-book ratio? A. 1.08 B. 1.59 C. 1.99 D. 2.47 E. 2.16 Market-to-book ratio = ($3.09 ×16.8)/$32.68 = 1.59
1.59
Allison's Trees has total assets of $846,200 and total debt of $367,500. What is the equity multiplier? A. .46 B. .57 C. 2.17 D. 1.85 E. 1.77 Equity multiplier = $846,200/($846,200 -367,500) = 1.77
1.77
ABD common stock is selling for $36.08 a share. The company has earnings per share of $.34 and a book value per share of $12.19. What is the market-to-book ratio? A. 8.71 B. 7.69 C. 2.96 D. 3.97 E. 5.92 Market-to-book ratio = $36.08/$12.19 = 2.96
2.96
All else held constant, which one of the following will decrease if a firm increases its net income? A. Return on assets B. Profit margin C. Return on equity D. Price-sales ratio E. Price-earnings ratio
price-earnings ratio
Financial statement analysis: A. is primarily used to identify account values that meet the normal standards. B. is limited to internal use by a firm's managers. C. provides useful information that can serve as a basis for forecasting future performance. D. provides useful information to shareholders but not to debtholders. E. is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods
provides useful information that can serve as a basis for forecasting future performance
A firm has net income of $28,740, depreciation of 6,170, taxes of $13,420, and interest paid of $2,605. What is the cash coverage ratio? A. 8.78 B. 20.10 C. 14.14 D. 16.32 E. 19.55 Cash coverage ratio = ($28,740 + 13,420 + 2,605 + 6,170) /$2,605 = 19.55
19.55
A firm has sales of $811,000 for the year. The profit margin is 5.1 percent and the retention ratio is 56 percent. What is the common-size percentage for the dividends paid? A. 1.99 percent B. 2.86 percent C. 1.21 percent D. 2.24 percent E. 1.42 percent Dividends paid common-size percentage = [$811,000 ×051 × (1-56)] / $811,000 = .0224, or 2.24 percent
2.24 percent
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 Times interest earned ratio = $38,218/{$38,218 -[$14,042 /(1 -34)]} = 2.26
2.26
Fresh Foods has sales of $213,600, total assets of $198,700, a debt-equity ratio of 1.43, and a profit margin of 4.8 percent. What is the equity multiplier? A. .30 B. .43 C. 1.93 D. 2.43 E. 2.30 Equity multiplier = 1 + 1.43 = 2.43
2.43
The equity multiplier is equal to: A. one plus the debt-equity ratio. B. one plus the total asset turnover. C. total debt divided by total equity. D. total equity divided by total assets. E. one divided by the total asset turnover
one plus the debt-equity ratio
If a firm has an inventory turnover of 15, the firm: A. sells its entire inventory every 15 days. B. stocks its inventory only once every 15 days. C. delivers inventory to its customers every 15 days. D. sells its inventory by granting customers 15 days' of free credit. E. sells its entire inventory an average of 15 times each year
sells its entire inventory an average of 15 times a year
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due. A. Current ratio B. Debt ratio C. Cash coverage ratio D. Cash ratio E. Quick ratio
Quick ratio
Lookin'Up earns $.094 in profit on every $1 of sales and has $1.21 in assets for every $1 of sales. The firm pays out 45 percent of its profits to its shareholders. What is the internal growth rate? A. 6.37 percent B. 2.76 percent C. 3.82 percent D. 4.46 percent E. 2.65 percent Internal growth rate = [($.094/$1.21) × (1 -.45)]/{1 - [($.094/$1.21) × (1 -.45)]} = .0446, or 4.46 percent
4.46 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 Return on assets = (.043×;$680,300)/$589,100 = .0497, or 4.97 percent
4.97 percent
SRC, Inc., sells its inventory in an average of 43 days and collects its receivables in 3.6 days, on average. What is the inventory turnover rate? Assume a 365-day year. A. 8.49 B. 7.29 C. 8.68 D. 10.18 E. 7.13 Inventory turnover = 365 /43 = 8.49 times
8.49
Which one of the following will increase the profit margin of a firm, all else held constant? A. Increase in interest paid B. Increase in fixed costs C. Increase in depreciation expense D. Decrease in the tax rate E. Decrease in sales
Decrease in the tax rate
Donovan’s would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal? A. Return on assets B. Net income C. Retention ratio D. Dividend payout ratio E. Return on equity
Dividend payout ratio
Wiley’s has total equity of $679,400, long-term debt of $316,900, net working capital of $31,600, and total assets of $1,123,900. What is the total debt ratio? A. .53 B. .40 C. .67 D. .49 E. .63 Total debt ratio = ($1,123,900 -679,400/$1,123,900 = .40
.40
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 Total debt ratio = ($16,100 + 124,600)/$346,200 = .41
.41
The Gift Shoppe has total assets of $487,920 and an equity multiplier of 1.47. What is the debt-equity ratio? A. .68 B. .33 C. .52 D. .47 E. .67 Debt-equity ratio = 1.47-1 = .47
.47
The Dry Dock has inventory of $431,700, accounts payable of $94,200, cash of $51,950, and accounts receivable of $103,680. What is the cash ratio? A. .64 B. .55 C. .53 D. .98 E. 1.34 Cash ratio = $51,950 / $94,200 = .55
.55
You are analyzing a company that has cash of $8,800, accounts receivable of $15,800, fixed assets of $87,600, accounts payable of $40,300, and inventory of $46,900. What is the quick ratio? A. 1.20 B. .67 C. .83 D. .61 E. 1.64 Quick ratio = ($8,800 + 15,800) / $40,300 = .61
.61
The Fabric House has sales of $411,800, total equity of $237,400, and a debt-equity ratio of .55. What is the capital intensity ratio? A. .89 B. .83 C. 1.06 D. 1.20 E. 1.27 Capital intensity ratio = [(1 + .55) ×$237,400]/$411,800 = .89
.89
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 Current ratio = ($919,200 -682,800) / ($919,200 -264,- 466,900) = 1.26
1.26
. Whitt's BBQ has sales of $1,318,000, a profit margin of 7.4 percent, and a capital intensity ratio of .78. What is the total asset turnover rate? A. 1.04 B. 1.08 C. 1.13 D. 1.43 E. 1.28 Total asset turnover = 1/.78 = 1.28
1.28
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 Total asset turnover = $318,400/($154,500 + 89,500) = 1.30
1.30
A firm has net working capital of $6,800 and current assets of $21,800. What is the current ratio? A. .69 B. .60 C. 1.45 D. 1.67 E. .92 Current ratio = $21,800 / ($21,800 -6,800) = 1.45
1.45
Wilberton's has total assets of $537,800, net fixed assets of $412,400, long-term debt of $323,900, and total debt of $388,700. If inventory is $173,900, what is the current ratio? A. 2.01 B. .52 C. .84 D. 1.18 E. 1.94 Current ratio = ($537,800 -412,400) / ($388,700 -323,900) = 1.94
1.94
Briar Patch Fruits has sales of $529,600, cost of goods sold of $408,350, depreciation of $25,400, and interest expense of $9,100. The tax rate is 35 percent. What is the times interest earned ratio? A. 10.53 B. 9.46 C. 8.87 D. 4.38 E. 4.79 Times interest earned ratio = ($529,600 -408,350 -25,400) /$9,100 = 10.53
10.53
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 Accounts receivable turnover = ($387,600/.97) /$28,943 = 13.81
13.81
A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity ratio of .72. What is the return on equity? A. 11.67 percent B. 18.98 percent C. 14.45 percent D. 16.22 percent E. 15.06 percent Return on equity = .084 × (1 + .72) = .1445, or 14.45 percent
14.45 percent
. Mike's Place has total assets of $152,080, a debt-equity ratio of .62, and net income of $14,342 What is the return on equity? A. 13.48 percent B. 13.73 percent C. 15.74 percent D. 15.28 percent E. 14.61 percent Return on equity = ($14,342/$152,080) × (1 + .62) = .1528, or 15.28 percent
15.28 percent
Mistletoe Gifts has $93,840 in total assets, depreciation of $2,106, and interest of $1,214. The total asset turnover rate is .94. Earnings before interest and taxes are equal to 19 percent of sales. What is the cash coverage ratio? A. 6.33 B. 7.51 C. 15.54 D. 10.23 E. 13.98 Cash coverage ratio = [.19 ×94 ×$93,840)] + $2,106] / $1,214 = 15.54
15.54
The Blue Lagoon has a return on equity of 23.62 percent, an equity multiplier of 1.48, and a capital intensity ratio of 1.06. What is the profit margin? A. 15.06 percent B. 13.57 percent C. 15.84 percent D. 16.92 percent E. 14.60 percent Profit margin = .2362/[(1 / 1.06) ×1.48] = .1692, or 16.92 percent
16.92 percent
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 Return on equity = .132 ×1.54 ×1.06 = .2155, or 21.55 percent
21.55 percent
. It takes K’s Boutique an average of 53 days to sell its inventory and an average of 16.8 days to collect its accounts receivable. The firm has sales of $942,300 and costs of goods sold of $692,800. What is the accounts receivable turnover rate? Assume a 365-day year. A. 23.69 B. 11.41 C. 21.73 D. 24.23 E. 19.55 Accounts receivable turnover = 365/16.8 = 21.73
21.73
Jessica’s Sports Wear has $38,100 in receivables and $523,700 in total assets. The total asset turnover rate is 1.17 and the profit margin is 7.3 percent. How long on average does it take to collect the receivables? Assume a 365-day year. A. 26.91 days B. 19.45 days C. 11.68 days D. 31.07 days E. 22.70 days Days' sales in receivables = 365/[(1.17 ×$523,700)/$38,100] = 22.70 days
22.70 days
A firm has sales of $311,000 and net income of $31,600. The price-sales ratio is 3.24 and market price is $36 per share. How many shares are outstanding? A. 20,608 B. 27,990 C. 28,356 D. 30,515 E. 31,011 Price-sales ratio = 3.24 = $36/($311,000/Outstanding shares) Outstanding shares = 27,990
27,990
. 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 Profit margin = {[(.058 ×$137,000) -$4,700] × (1-.34)}/$137,000 = .0156, or 1.56 percent
1.56 percent
Bamp;C Co. has net income of $48,200, sales of $947,100, a capital intensity ratio of .87, and an equity multiplier of 1.53. What is the return on equity? A. 6.77 percent B. 5.93 percent C. 8.95 percent D. 12.21 percent E. 14.09 percent Return on equity = ($48,200/$947,100) × (1/.87) ×1.53 = .0895, or 8.95 percent
8.95 percent
Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? A. A decrease in the total asset turnover B. A decrease in the capital intensity ratio C. An increase in days' sales in receivables D. A decrease in the profit margin E. A decrease in the inventory turnover rate
A decrease in the capital intensity ratio
Which one of the following is a measure of long-term solvency? A. Price-earnings ratio B. Profit margin C. Cash coverage ratio D. Receivables turnover E. Quick ratio
Cash coverage ratio
You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future? A. Times interest earned = 1.7; debt-equity ratio = 1.6 B. Times interest earned = 1.5; debt-equity ratio = 1.2 C. Cash coverage ratio = .8; debt-equity ratio = .8 D. Cash coverage ratio = 2.6; debt-equity ratio = .3 E. Cash coverage ratio = .5; total debt ratio = .2
Cash coverage ratio = 2.6; debt-equity ratio = .3
11. Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. A. Cash purchase of inventory B. Cash payment on an account receivable C. Cash payment of an account payable D. Credit sale of inventory at cost E. Cash sale of inventory at a loss
Cash payment of an account payable
Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which of the following statements will best suit her purposes? A. Income statement B. Balance sheet C. Common-size income statement D. Common-size balance sheet E. Statement of cash flows
Common-size income statement
Which one of these transactions will increase the liquidity of a firm? A. Cash purchase of new production equipment B. Payment of an account payable C. Cash purchase of inventory D. Credit sale of inventory at cost E. Cash payment of employee wages
Credit sale of inventory at cost
The DuPont identity can be used to help a financial manager determine the I. degree of financial leverage used by a firm II. operating efficiency of a firm III. utilization rate of a firm's assets IV. rate of return on a firm's assets A. II and III only B. I and III only C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV
I, II, III, and IV
Outdoor Gear reduced its general and administrative costs this year. This cost improvement will increase which of the following ratios I. Profit margin II. Return on assets III. Total asset turnover IV. Return on equity A. I and II only B. I and III only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV
I, II, and IV only
Sweet Candies reduced its fixed assets this year without affecting the shop's operations, sales, or equity. This reduction will increase which of the following ratios? I. Capital intensity ratio II. Return on assets III. Total asset turnover IV. Return on equity A. I and II only B. II and III only C. II, III, and IV only D. I, II, and IV only
II and III only
The Wood Shop generates $.97 in sales for every $1 invested in total assets. Which one of the following ratios would reflect this relationship? A. Receivables turnover B. Equity multiplier C. Profit margin D. Return on assets E. Total asset turnover
Total asset turnover
A firm can increase its sustainable rate of growth by decreasing its: A. profit margin. B. dividends. C. total asset turnover. D. target debt-equity ratio. E. equity multiplier
dividends
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: A. pays cash for its inventory. B. has more than half its current assets invested in inventory. C. has more cash than inventory. D. has more current liabilities than it does current assets. E. has positive net working capital
has positive net working capital
A common-size balance sheet helps financial managers determine A. which customers are paying on a timely basis. B. if costs are increasing faster or slower than sales. C. if changes are occurring in a firm's mix of assets. D. if a firm is generating more or less sales per dollar of assets than in prior years. E. the rate at which the firm's dividend payout is changing
if changes are occurring in a firm's mix of assets
The sustainable growth rate is based on the premise that: A. an additional dollar of debt will be acquired only if an additional dollar in equity shares is issued. B. no additional equity will be added to the firm. C. the debt-equity ratio will be held constant. D. the dividend payout ratio will be zero. E. the dividend payout ratio will increase at a steady rate.
the debt-equity ratio will be held constant
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
total assets
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. Total debt ratio = (1.5 -1)/1.5 = .33
total debt ratio of .33
Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will: A. remain constant over time. B. be equal to the dividend amount divided by the net income. C. vary in direct relation to the net profit percentage. D. vary in direct relation to changes in the sales level. E. vary but not in direct relation to any other variable
vary in direct relation to the net profit percentage
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is: A. zero percent. B. 100 percent. C. equal to the ROA. D. negative. E. infinite
zero percent
Fast Kars has a return on equity of 22.3 percent, a profit margin of 14.2 percent, and total equity of $467,000. What is the net income? A. $69,608 B. $113,875 C. $104,141 D. $66,314 E. $109,897 Net income = .223 ×$467,000 = $104,141
$104,141
World Exports has total assets of $938,280, a total asset turnover rate of 1.18, a debt-equity ratio of .47, and a return on equity of 18.7 percent. What is the firm's net income? A. $119,359.43 B. $88,303.33 C. $104,624.14 D. $121,548.09 E. $92,236.67 Return on equity = .187 = (Net income/$938,280) × (1 + .47) Net income = $119,359.43
$119,359.43
. 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 Earnings per share = (.0587 ×$911,300)/18,500 = $2.89
$2.89
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 Sales = $318,456 ×1.68×.97 = $518,956
$518,956
Deep Sea Fisheries has current liabilities of $238,620, net working capital of $42,580, inventory of $262,750, and sales of $1,941,840. What is the quick ratio? A. .79 B. .34 C. .08 D. 2.94 E. 12.93 Quick ratio = ($42,580 + 238,620 -262,750) / $238,620 = .08
.08
Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860, accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio? A. .08 B. .25 C. .30 D. .46 E. .51 Cash ratio = $2,950 / $11,900 = .25
.25
Discount Outlet has net income of $389,100, a profit margin of 2.8 percent, and a return on assets of 8.6 percent. What is the capital intensity ratio? A. .33 B. .67 C. 1.49 D. 1.34 E. 3.07 Capital intensity ratio = ($389,100/.086) / ($389,100/.028) = .33
.33
City Plumbing has inventory of $287,800, equity of $538,800, total assets of $998,700, and sales of $1,027,400. What is the common-size percentage for the inventory account? A. 28.01 percent B. 33.66 percent C. 53.42 percent D. 28.82 percent E. 31.68 percent Inventory common-size percentage = $287,800/$998,700 = .2882, or 28.82 percent
28.82 percent
Dellf's has a profit margin of 3.8 percent on sales of $287,200. The firm currently has 5,000 shares of stock outstanding at a market price of $7.11 per share. What is the price-earnings ratio? A. 3.26 B. 8.02 C. 11.50 D. 5.93 E. 12.84 Price-earnings ratio = $7.11/[(.038 ×$287,200)/5,000] = 3.26
3.26
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 Days' sales in receivables = 365/($738,800/$86,700) = 42.83 days
42.83 days
Goshen Industrial Sales has sales of $487,600, total equity of $367,700, a profit margin of 5.1 percent, and a debt-equity ratio of .34. What is the return on assets? A. 5.89 percent B. 5.05 percent C. 6.76 percent D. 8.80 percent E. 7.33 percent Return on assets = (.051 ×$487,600)/[(1 + .34) ×$367,700)] = .0505, or 5.05 percent
5.05 percent
A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $32,600, total equity of $294,000, total assets of $503,000, and a 25 percent dividend payout ratio? A. 5.11 percent B. 4.88 percent C. 6.62 percent D. 7.67 percent E. 8.37 percent Internal growth rate = [($32,600/$503,000) × (1 -.25)]/{1 - [($32,600/$503,000) × (1 -.25)]} = .0511, or 5.11 percent
5.11 percent
. The Kids’ Mart has a market-to-book ratio of 3.3, net income of $87,100, a book value per share of $18.50, and 7,500 shares of stock outstanding. What is the price-earnings ratio? A. 4.34 B. 8.16 C. 5.61 D. 6.25 E. 5.26 Price-earnings ratio = (3.3×$18.50)/($87,100/7,500) = 5.26
5.26
Tessler Farms has a return on equity of 11.28 percent, a debt-equity ratio of 1.03, and a total asset turnover of .87. What is the return on assets? A. 5.56 percent B. 8.06 percent C. 13.67 percent D. 15.24 percent E. 17.41 percent Return on assets = .1128 /(1 + 1.03) = .0556, or 5.56 percent
5.56 percent
Good Foods has net income of $82,490, total equity of $518,700, and total assets of $1,089,500. The dividend payout ratio is .30. What is the internal growth rate? A. 2.32 percent B. 3.57 percent C. 5.60 percent D. 2.87 percent E. 4.94 percent Internal growth rate = [($82,490/$1,089,500) × (1 -.30)]/{1 - [($82,490/$1,089,500) × (1 -.30)]} = .0560, or 5.60 percent
5.60 percent
Delmont Movers has a profit margin of 7.1 percent and net income of $63,700. What is the common-size percentage for the cost of goods sold if that expense amounted to $522,600 for the year? A. 12.19 percent B. 23.50 percent C. 53.25 percent D. 61.06 percent E. 58.25 percent COGS common-size percentage = $522,600 / ($63,700 / .071) = .5825, or 58.25 percent
58.25 percent
Galaxy Sales has sales of $938,300, cost of goods sold of $764,500, and inventory of $123,600. How long on average does it take the firm to sell its inventory? A. 6.40 days B. 7.23 days C. 48.68 days D. 59.01 days E. 61.10 days Days' sales in inventory = 365/($764,500 /$123,600) = 59.01 days
59.01 days
Fried Donuts has sales of $764,900, total assets of $687,300, total equity of $401,300, net income of $68,200, and dividends paid of $27,000. What is the internal growth rate? A. 5.48 percent B. 6.38 percent C. 5.98 percent D. 7.34 percent E. 7.92 percent Internal growth rate = {($68,200/$687,300) × [($68,200 -27,000)/$68,200]}/(1 -{($68,200/$687,300) × [($68,200 -27,000)/$68,200]}) = .0638, or 6.38 percent
6.38 percent
Wiggle Pools has total equity of $358,200 and net income of $47,500. The debt-equity ratio is .68 and the total asset turnover is 1.2. What is the profit margin? A. 4.82 percent B. 5.23 percent C. 5.67 percent D. 6.58 percent E. 7.31 percent Profit margin = ($47,500/$358,200)/[1.2 × (1 + .68)] = .0658, or 6.58 percent
6.58 percent
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 Price-earnings ratio = $13/{[.062 × ($613,000 ×1.08)]/21,000} = 6.65
6.65
. If sales are $211,000, the profit margin is 6.3 percent, and the capital intensity ratio is .94, what is the return on assets? A. 4.42 percent B. 6.08 percent C. 6.39 percent D. 6.92 percent E. 6.70 percent Return on assets = (.063×$211,000)/(.94 ×$211,000) = .0670, or 6.70 percent
6.70 percent
DJ’s has a total asset turnover rate of 1.13, an equity multiplier of 1.46, a profit margin of 5.28 percent, a retention ratio of .74, and total assets of $138,000. What is the sustainable growth rate? A. 6.98 percent B. 6.89 percent C. 7.33 percent D. 7.04 percent E. 7.21 percent Sustainable growth rate = [(.0528 ×1.13 ×1.46) ×74]/{1 - [(.0528 ×1.13 ×1.46) ×74]} = .0689, or 6.89 percent
6.89 percent
UXZ has sales of $683,200, cost of goods sold of $512,900, and inventory of $74,315. What is the inventory turnover rate? A. 7.33 times B. 6.90 times C. 5.70 times D. 7.14 times E. 8.47 times Inventory turnover = $512,900 /$74,315 = 6.90 times
6.90 times
A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600. What is the common-size percentage of the equity? A. 70.60 percent B. 70.12 percent C. 66.87 percent D. 42.08 percent E. 68.75 percent Total assets = Total liabilities and equity = $1,250 + 16,600 + 46,500 + 318,650 = $383,000 Equity common-size percentage = ($383,000 -17,400 - 109,500) / $383,000 = .6687, or 66.87 percent
66.87 percent
Health Centers, Inc., has total equity of $948,300, sales of $1.523 million, and a profit margin of 4.4 percent. What is the return on equity? A. 4.21 percent B. 6.49 percent C. 7.18 percent D. 8.68 percent E. 7.07 percent Return on equity = (.044 ×$1,523,000)/$948,300 = .0707, or 7.07 percent
7.07 percent
Al’s Markets earns $.12 in profit for every $1 of equity and borrows $.65 for every $1 of equity. What is the firm's return on assets? A. 12.00 percent B. 7.27 percent C. 15.15 percent D. 13.75 percent E. 8.33 percent ROE= ($.12/$1) = ROA× [($1 + .65)/$1] ROA = .0727, or 7.27 percent
7.27 percent
Oil Field Services has net income of $120,400, total assets of $1,219,000, total equity of $694,100, and total sales of $1,521,700. What is the common-size percentage for the net income? A. 9.00 percent B. 7.91 percent C. 15.53 percent D. 12.10 percent E. 8.62 percent Net income common-size percentage = $120,400 / $1,521,700 = .0791, or 7.91 percent
7.91 percent
A firm has net income of $4,238 and interest expense of $898. The tax rate is 35 percent. What is the firm's times interest earned ratio? A. 7.33 B. 7.26 C. 5.38 D. 8.26 E. 9.33 Times interest earned ratio = {[$4,238/(1 -35)] + $898}/$898 = 8.26
8.26
The Inside Door has total debt of $208,600, total equity of $343,560, and a return on equity of 13.27 percent. What is the return on assets? A. 9.14 percent B. 8.26 percent C. 11.45 percent D. 9.61 percent E. 9.48 percent Return on assets = (.1327×$343,560)/($208,600 + 343,560)= .0826, or 8.26 percent
8.26 percent
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 high PE ratio may indicate that a firm is expected to grow significantly
The DuPont identity can be accurately defined as: A. Return on equity xTotal asset turnover xEquity multiplier. B. Equity multiplier xReturn on assets. C. Profit margin xReturn on equity. D. Total asset turnover xProfit margin xDebt-equity ratio. E. Equity multiplier xReturn on assets Profit margin.
equity multiplier x Return on assets
The ratios that are based on financial statement values and used for comparison purposes are called: A. financial ratios. B. industrial statistics. C. equity standards. D. accounting returns. E. analytical standards.
financial ratios
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A. DuPont rate B. External growth rate C. Sustainable growth rate D. Internal growth rate E. Cash flow rate
internal growth rate
The cash ratio is used to evaluate the: A. liquidity of a firm. B. speed at which a firm generates cash. C. length of time that a firm can pay its bills if no additional cash becomes available. D. ability of a firm to pay the interest on its debt. E. relationship between the firm's cash balance and its current liabilities
length of time that a firm can pay its bills if no additional cash becomes available