Acct 5312 Chap 11

Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $80. Firm C's dividend yield (rounded to one decimal) is:

$5 / $80 = 6.3%

Financial leverage refers to the use of (debt/equity/revenues) to finance the assets of an entity.

debt

To calculate the days' sales in accounts receivable, you divide the (beginning/ending/average) accounts receivable by the average day's (sales/CGS).

ending sales

It is difficult to develop reliable rules of thumb for the evaluation of ratio results because firms within a given industry may vary considerably over time in terms of their:

life cycle stage of development relative scale of operations

The ratios used to facilitate the interpretation of an entity's financial position and results of operations can be grouped into four categories:

liquidity profitability debt activity

The ratios used to facilitate the interpretation of an entity's financial position and results of operations can be grouped into four (4) categories:

liquidity, activity, profitability, and debt

The debt ratio is usually calculated by dividing the:

year-end liabilities by year-end liabilities + stockholders' equity.

Sales for Year 1 and Year 2 amounted to $500,000 and $600,000, respectively. Accounts receivable was $100,000 at the end of Year 1 and $120,000 at the end of Year 2. The days' sales in accounts receivable for Year 2 (rounded to one decimal) was:

$120,000 / ($600,000 / 365) = 73.0 days

Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. Firm A's dividend payout ratio (rounded to one decimal) is:

$2 / $5 = 40%

Total liabilities were $330,000 at the beginning of the year and $300,000 at the end of the year. Stockholders' equity was $270,000 at the beginning of the year and $240,000 at the end of the year. The debt/equity ratio at the end of the year (rounded to one decimal) was:

$300,000 / $240,000 = 125%

Cost of goods sold for Year 2 was $300,000. Sales for Year 2 were $600,000. Inventory was $40,000 at the end of Year 1 and $60,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to once decimal) was:

$300,000 / (($40,000 + $60,000) / 2) = 6.0 times

To calculate the accounts receivable turnover, you divide (sales/CGS) by the (beginning/ending/average) accounts receivable.

sales average

To calculate the accounts receivable turnover, you would divide:

sales by the average accounts receivable.

Total liabilities were $650,000 at the beginning of the year and $600,000 at the end of the year. Stockholders' equity was $300,000 at the beginning of the year and $400,000 at the end of the year. The debt ratio at the end of the year (rounded to one decimal) was:

$600,000 / ($600,000 + $400,000) = 60%

Cost of goods sold for Year 2 was $600,000. Sales for Year 2 were $1,000,000. Inventory was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. The inventory turnover for Year 2 (rounded to once decimal) was:

$600,000 / (($100,000 + $150,000) / 2) = 4.8 times

Sales for Year 2 were $800,000. Accounts receivable was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. The accounts receivable turnover for Year 2 (rounded to one decimal) was:

$800,000 / (($100,000 + $150,000) / 2) = 6.4 times

Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. Firm A's price/earnings ratio is:

$90 / $5 = $18 per share

Firm G's earnings before income taxes for the year was $140,000, income tax expense was $35,000, interest expense was $20,000, and net income was $105,000. Firm G's times interest earned for the year (rounded to one decimal) was:

($140,000 + $20,000) / $20,000 = 8.0 times

To calculate the inventory turnover, you divide (sales/CGS) by the (beginning/ending/average) inventory.

CGS average

Which of the following statements are true regarding the price/earning (P/E) ratio?

Firms with high P/E ratios generally have strong investor confidence. Low P/E ratios usually indicate poor earnings expectations. The P/E ratio reflects the amount an average investor is willing to pay per dollar of current earnings for a company. The P/E ratio should not be the sole, or even principal, consideration in an investment decision.

Identify a true statement about a leveraged buyout.

In a leveraged buyout, the company goes heavily into debt to obtain the funds needed to buy the shares of the public stockholders.

The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the:

LIFO reserve

Which of the following statements are true regarding the price/earning (P/E) ratio?

The P/E ratio is a measure of the relative expensiveness of a company's common stock. P/E ratios are shown in the stock listing tables of The Wall Street Journal. The P/E ratio is sometimes referred to as earnings multiple.

Identify the true statements about extra dividends.

They indicate to stockholders that they should not expect to receive the larger amount every year. They may be declared and paid after an especially profitable year.

Identify the true statements about extra dividends.

They may be declared and paid after an especially profitable year. They indicate to stockholders that they should not expect to receive the larger amount every year

A company desiring to increase its total asset turnover could do so by using:

an accelerated depreciation method and the LIFO cost flow assumption.

The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the LIFO (backlog/reserve/stockpile).

reserve

The use of an accelerated depreciation method and the LIFO inventory cost flow assumption will usually (increase/decrease) a company's total asset turnover relative to using the straight-line method and FIFO.

increase

A transaction in which the present top management of a publicly held firm buys the stock of the nonmanagement stockholders and the firm becomes "privately owned" is known as a(n) _____.

leveraged buyout

Financial leverage

magnifies the return to the owners (ROE) relative to the return on assets (ROI). is considered positive if the interest rate paid on borrowed money is less than the rate of return (ROI) earned on that money. is provided by debt and preferred stock because the interest cost (or dividend rate) is fixed. adds risk to the operation of the firm.

It is difficult to develop reliable rules of thumb for the evaluation of ratio results because firms within a given industry may vary considerably over time in terms of their:

market segmentation strategies selected accounting methods

Operating income is frequently substituted for net income in the calculation of ROI and ROE because:

operating income excludes interest expense, which varies from firm to firm based on their capital structure decisions. operating income is a more direct measure of the results of a firm's activities. operating income excludes the effects of discontinued operations and thus provides a more forward looking measure of the firm's profitability. operating income excludes income tax expense, which varies from firm to firm based on country-specific tax rates.

The P/E ratio is calculated by dividing the (dividends/price/earnings) per share of common stock by the (dividends/price/earnings) per share of common stock.

price earnings

Dividends that are stable, or gradually changing, and periodic in nature are known as _____ dividends.

regular

Earnings multiple is another term used to describe the price/earnings ratio. This term merely reflects that:

the market price of stock is equal to the earnings per share multiplied by the P/E ratio.