Chapter 3 (FINC 350)
-Bloomberg -Factset -Moody's Corporation
Which of the following organizations provide industry data that can be used to evaluate a company's operating performance?
The company generated $4 in sales for every $1 in fixed assets.
What does a fixed asset turnover ratio of 4 times represent?
Earnings before fixed charges and taxes
What does a fixed charge coverage ratio of 8 times indicate?
The company generates 20 cent in profit for every $1 in sales
What does a profit margin of 20% represent?
For every $1 in stockholders' equity the company generates 15 cents in profit
What does a return on equity of 15% represent?
Income before interest and taxes covers the interest obligation of the firm by 10 times. Times Interest Earned=EBIT/Int.
What does a times interest earned ratio of 10 times indicate?
The company generated $1.50 in sales for $1 in total assets
What does a total asset turnover ratio of 1.5 times represent?
The company generates sales equivalent to 7 times its inventory value during the year.
What does an inventory turnover ration of 7 times represent?
-Debt to total assets -Fixed charge coverage -Times Interest earned
Which of the following are debt utilization ratios?
-quick ratio -current ratio
Which of the following are liquidity ratios?
EBIT/Interest =$1.5M/($600k X 0.3) =8.3 times
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?
-treatment of nonrecurring items -methods of reporting revenue -tax write-off policies
Besides changing prices, other elements of distortion in the financial evaluation of a company may include which of the following:
NP=NI/SALES, so NI=NP X SALES= 0.06 X $1.8M NI=$108,000
If a company has a profit margin of 6% and sales are $1,800,000, What is its net income?
QR=CA-INVENTORY/CL $25K-$5K/1.25 $16,000
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 _______________.
ROA=NI/TA so, 0.25=$750k/TA TA=$3M
If the company has a return on assets ratio of 25% and net income is $750,000, what is the total asset balance?
TAT=Sales/TA So, TA=Sales/TAT TA=$2.5/4 TA=$625,000
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?
$1,500,000 CR=CA/CL So, CA=CR X CL CA=2.5 X $600K=$1.5M
If the company's current ratio is 2.5 times and current liabilities are $600,000, what are current assets?
better than
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.
Fixed charge coverage=income before fixed charges and taxes/fixed charges=$100,000
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 _____________.
worse than
If the company's inventory turnover ratio is 10 times and industry average is 12 times, the company's inventory turnover is _________ the industry average.
better than
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.
$480,000 (8 X $60,000)
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 ___________
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 ration is ________ the industry average.
pay off short-term debt as it comes due
Liquidity ratios are used to measure the company's ability to
ROE=NI/SE, so, NI=ROE X SE= 0.3 X $4M NI=$1200,000
The company has a return on equity of 30% and stockholders' equity of $4,000,000. What is the company's net income?
TAT=SALES/TA TAT=$10M/$2.4M TAT=4.17 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. The company's total asset turnover is equal to ________ times (enter on the number, rounded to two decimals)
10 times FA TO=Sales/FA FA TO=$10M/$1M=10 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?
ROA=NI/TA ROA=$500K/$2.4M ROA=0.2083=>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. The company's return on assets is ______ (give the answer in percent with % sign and round the answer to two decimal places)
ROE=NI/SE ROE=$500K/$2M=25%
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?
ACP=AR/Avg Daily CR Sales ACP=$500K/($10M/360) ACP=18 Days
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 _________
CR=CA/CL CR=($20K+$500K+$600K/$530K CR=2.11
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.
QR=(CA-Inventory)/CL where, CA=TA-FA=$1.4M QR=($1.4M-$600K)/$530K QR=1.51 times
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?
