FinanceExam Ch1 & Ch2

Stryker Corporation's 2016 Revenue exceeded:

$11 billion.

Balance Sheet excerpts for Natural Beauty Cosmetics Company for the years ended December 31, 2016 and December 31, 2017 appear below: 2017 2016 Cash $370,000 $135,000 Accounts receivable (net) 175,000 200,000 Inventory 130,000 170,000 Property, plant and equipment 325,000 295,000 Total assets 1,000,000 800,000 Is Cash a source or use of cash in 2017 and in what amount?

$235,000 use (Whenever an asset, including Cash, increases, it's a use.)

Balance Sheet excerpts for Natural Beauty Cosmetics Company for the years ended December 31, 2016 and December 31, 2017 appear below: 2017 2016 Cash $370,000 $135,000 Accounts receivable (net) 175,000 200,000 Inventory 130,000 170,000 Property, plant and equipment 325,000 295,000 Total assets 1,000,000 800,000 Is Property, Plant and Equipment a source or use of cash in 2017 and in what amount?

$30,000 use

Assets on a balance sheet are listed from:

most liquid to least liquid.

For the Sutherland Consulting Company whose financial statements are below, what is the Profit Margin for 2018?

.17

If Greene Co. has the following account balances on its income statement for 2018 and Total Assets at the end of 2018 were $860,000, what is its Asset Turnover? Net Sales $171,000 Less: Cost of Goods Sold 63,000 Gross Profit 108,000 Less: Selling and Admin. Exp. 47,000 Earnings Before Interest and Tax: 61,000 Less: Interest Expense 10,000 Earnings Before Tax: 51,000 Less: Tax @ 35% 17,850 NET INCOME $33,150

.20

What is the Debt to Equity Ratio? MD 4 Quiz 1 Q3

1.75

If Greene Co. has the following account balances on its income statement for 2018, what is its Profit Margin? Net Sales $171,000 Less: Cost of Goods Sold 63,000 Gross Profit 108,000 Less: Selling and Admin. Exp. 47,000 Earnings Before Interest and Tax: 61,000 Less: Interest Expense 10,000 Earnings Before Tax: 51,000 Less: Tax @ 35% 17,850 NET INCOME $33,150

19.4%

For the Sutherland Consulting Company whose financial statements are below, What is the Quick Ratio for 2018?

2.19

If Sutherland's tax rate is 20% and principal payment due in 2018 is $50,000, what is its Times Burden Covered based on the financial statements below? Q2 Q6

2.54

What is the Assets to Equity Ratio? MD4 Quiz 1 Q6

2.75

For the Levinson Corp. whose income statement for 2018 is shown below, what is the Profit Margin? Levinson Corp.Income Statement Year Ended December 31, 2018 Revenue: Fees Earned $87,000 Less Expenses: Wages 17,000 Rent 12,000 Utilities 6,000 Insurance 5,000 Depreciation 2,000 Miscellaneous 750 54,750 Net Income $44,250

50.1%

What is Sutherland Consulting Company's Times Interest Earned in 2018 based on the information below? Quiz 2 Q5

6.5

If Greene Co. has the following account balances on its income statement for 2018, what is its Gross Margin? Net Sales $171,000 Less: Cost of Goods Sold 63,000 Gross Profit 108,000 Less: Selling and Admin. Exp. 47,000 Earnings Before Interest and Tax: 61,000 Less: Interest Expense 10,000 Earnings Before Tax: 51,000 Less: Tax @ 35% 17,850 NET INCOME $33,150

63.2%

Which items would be classified as liabilities?

Accounts payable, unearned revenue, pension liabilities

Interest

An expense to be paid to a lender on borrowed money

Which financial statement shows a snapshot of how much a business has in assets, liabilities and owner's equity?

Balance sheet

Accrual accounting

Matching revenue and expense for the same period

________________________ (Please fill in the blank.) allocates an expense each period related to the cost of property, plant and equipment over their useful lives.

Depreciation

The ratio that shows a business's ability to pay its obligations within the current year is called the:

Current Ratio

A declining Accounts Receivables Turnover ratio indicates:

Customers are paying what they owe the company more slowly.

A company should strive to maintain the same Return on Equity as all other competitors in the same industry.

False

Inventory Turnover is a ratio that is the same amount for every business.

False

Profitability may only be measured through the Profit Margin.

False

The Net Income figure on an income statement tells us how much the Cash account increased or decreased for the period covered.

False

This language of business that we are learning is only used in for profit businesses. A not-for-profit business would not use any of these statements or terms.

False

For the Levinson Corp. whose income statement for 2018 is shown below, how do you know it's a service business and not a retail store chain? Levinson Corp.Income Statement Year Ended December 31, 2018 Revenue: Fees Earned $87,000 Less Expenses: Wages 17,000 Rent 12,000 Utilities 6,000 Insurance 5,000 Depreciation 2,000 Miscellaneous 750 54,750 Net Income $44,250

Fees Earned is the revenue account and there is no Cost of Goods Sold

If Levitt Benefits Administrators, Inc. increased its Assets to Equity Ratio from 2.75 to 5.0, would this indicate the company took on more or less financial leverage?

More

The financial statement that shows the revenue a business earns with the expenses required to expenses required to earn that revenue over a period is called the:

Income statement

For the Levinson Corp. whose income statement for 2018 is shown below, what would increase profitability such as Profit Margin? Levinson Corp.Income Statement Year Ended December 31, 2018 Revenue: Fees Earned $87,000 Less Expenses: Wages 17,000 Rent 12,000 Utilities 6,000 Insurance 5,000 Depreciation 2,000 Miscellaneous 750 54,750 Net Income $44,250

Increase Fees Earned

For the Sutherland Consulting Company whose financial statements are below, has its Current Ratio shown more liquidity from 2017 through 2018? Q2 Q7

No (Current ratio is 4.6 in 2017 and 2.6 in 2018.)

Which part of the balance sheet shows the net worth that the owners have in the business?

Owner's equity

Retained earnings

Profits kept in the business and not paid in dividends

A business may try to borrow at a lower interest rate than its Return on Investments to amplify its:

Return on Equity.

Straight-line depreciation

Same expense each year for the useful life of a fixed asset

Which act of congress required publicly-traded companies to be independently audited on the effectiveness of their internal controls.

Sarbanes-Oxley Act (2002)

What federal agency specifies the financial reporting requirements of publicly-traded companies?

Securities and Exchange Commission (SEC)

A corporation is legally permitted to maintain two sets of financial statements, one for tax purposes and one for public reporting.

True

An investing activity, such as buying new equipment, may be financed with a five-year bank loan.

True

Even though a company may have a Times Interest Earned of 4.0, it is only required to pay the interest owed once.

True

Interest-bearing debt is a legal obligation that must be paid back in full and on time.

True

Profitability shows how well a company is doing with the resources it has available, such as assets or equity.

True

Return on Equity (ROE) is an overall measure of how well a business did for its owner(s) in a period.

True

Return on Equity is increased by increasing one or all of the levers of performance (profit margin, asset turnover, and financial leverage).

True

The Number of Days Sales in Cash tells us how long a business can sustain itself if the cash stopped flowing into the business.

True

The accounting equation states that a business's assets must always equal liabilities and owner's equity.

True

Working capital represents the dollar amount of current assets financed through non-current liabilities and/or equity.

True

Services provided to internal or external clients may be classified as revenue.

True (Human resources has historically only been a cost center generating expenses for a business. Today, human resource departments may offer services to internal and/or external clients on a fee basis, thereby earning revenue.)

The levers of performance are multiplied by each other to get Return on Equity.

True (Profit Margin X Asset Turnover X Financial Leverage = Return on Equity)

If the Human Resource Department prepays an outside consultant to do a climate survey next year, this prepaid expense is:

an asset.

Did Sutherland put profits back in the business in 2018? MD 4 Quiz 2 Q4

Yes

If the Long-term debt doubled and the Cash increased by the amount of the increased debt, would the Debt to Equity Ratio increase? MD4 Quiz 1 Q4

Yes ($4,445,000/$1,497,000 = 3.0)

A fixed asset has a useful life longer than one year and may be:

a building, piece of equipment or vehicle.

The server in the Human Resource Department owns in its HRIS Division is classified as:

a fixed asset.

Stryker's growth strategy is through:

acquiring other companies in its field.

Any liability listed as "current" on a balance sheet should be paid within one year:

after the balance sheet date.

A company's number of times it can pay interest, principal, and dividends from the Earnings Before Interest and Taxes of a period shows its:

coverage

Financial leverage involves financing assets with at least some amount of:

debt

Businesses want their asset turnover to be as _______________ as possible.

fast

A company paying cash dividends is an example of a use of cash for:

financing activities.

When a human resources department acquires a new talent management system that should be used for the next ten years, this is a(n):

investing activity.

If a company Number of Days Sales in Cash increases, it has:

more liquidity.

The most important type of cash flow period after period for a business should be from:

operating activities.(Operating activities are the basic business the company is engaged in and should be sustainable period after period.)

To get the context of how much financial leverage it has, Levitt should compare its Assets to Equity Ratio to:

the trend in its Assets to Equity Ratio over past years and how it compares to peers within benefits administration.

Sources of cash must equal:

uses of cash.

For an asset to be classified as current, it must liquidate:

within one year after the balance sheet date.