Finance Chapter 3

All else constant, which one of the following will decrease if a firm increases its net income?

Price-Earnings ratio

The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This cost improvement will increase which of the following ratios?

Profit magin Return on Assets Return on equity

The cash coverage ratio is used to evaluate the:

ability of a firm to pay the interest on its debt.

The Du Pont identity can be totally defined by which one of the following?

Equity multiplier and return on assets

The ratios that are based on financial statement values and used for comparison purposes are called:

financial ratios

Which one of the following statements is true concerning the price-earnings (PE) ratio?

A high PE ratio may indicate that a firm is expected to grow significantly

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?

Cash coverage ratio=2.6; debt-equity ratio=.3

Which one of the following transactions will increase the liquidity of a firm?

Credit sale of inventory at cost

Which one of the following will increase the profit margin of a firm, all else constant?

Decrease in the tax rate

Which one of the following is a measure of long-term solvency?

Equity multiplier

Kelso's Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of the following ratios would reflect this relationship?

Total asset turnover

Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has?

cash ratio

A firm has a current ratio of 1.4 and a quick ratio of 0.9. Given this, you know for certain that the firm:

has positive net working capital

The equity multiplier is equal to:

one plus the debt-equity ratio.

Blooming Gardens has an inventory turnover of 16. This means the firm:

sells its inventory in an average of 16 times each year

Common-size financial statements present all balance sheet account values as a percentage of:

total assets