Financial Chap 3

If the company's current ratio is 2.5 times and current liabilities are $600,000 what are current assets?

$1,500,000

If a company has a profit margin of 6% and sales are $1,800,000, what is the net income?

$108,000 $1,800,000 x 6%

If the company has an average collection period of 20 days and total assets of $2,520,000, what is the company's accounts receivable balance?

$140,000 AR/Avg Daily Sales $2,520,000/360 or 360/20 = 18 $2,520,000/18

If a company has a quick ratio of 1.25 times, current assets of $25,00.0 and inventory of $5,000, the current liabilities balance is equal to _

$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 _

$16,000 25,000 - 5,000 = 20,000 / 1.25

XYZ's receivables turnover is 4x. The accounts receivable at year-end are $600,000. The average collection period is 90 days. What was the sales figure for the year assuming all sales are on credit?

$2,400,000

If the company has a return on assets ratio of 25% and net income of $750,000, what is the total asset balance?

$3,000,000 $750,000/.25

If the company's inventory turnover ratio is 8 times and inventory is $400,000, what is the company's level of sales?

$3,200,000 $400,000 x 8%

Besides changing prices, other elements of distortion in the financial evaluation of a company may include which of the following:

*treatment of nonrecurring items *methods of reporting revenue *tax write-off policies

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?

10 times sales/FA $10,000,000/$1,000,000

Refer to the tables above. The firm's inventory turnover ratiois ____.

10x

Refer to the tables above. Times interest earned for Tew Company is ____.

11.5x

A firm has a debt-to-equity ratio of 40%, a debt of $250,000, and a net income of $100,000. The return on equity is

16%

Refer to the tables above. The firm's average collection period is (assume a 360-day calendar).

57.6 days

Refer to the tables above. Fixed charge coverage for Tew Company is ____.

8.0x

A company has earnings before interest and taxes of $1,500,000, its tax rate is 40%, interest is 30% of its debt of $600,000, and lease payments are $50,000. What is the company's times interest earned ratio?

8.3 times $1,500,000/($600,000 x .3)

A conservative company experiencing rapid price increases for its products would use LIFO to try to:

Allow the inventory that was just purchased at a higher price to remain in ending inventory values and move older inventory to cost of goods sold, showing a higher net income.

A firm's long-term assets = $100,000, total assets = $400,000, inventory = $50,000 and current liabilities = $200,000. What are the firm's current ratio and quick ratio?

Current ratio = 1.5; quick ratio = 1.25

A bondholder is likely to be primarily influenced by which of the following ratio categories?

Debt utilization ratios

Which of the following organizations provide industry data that can be used to evaluate a company's operating performance

Factset Moody's Corporation Bloomberg

What does a current ratio of 2.5 times represent

For every $1 in current liabilities the company has $2.5 in current assets

What does a return on equity of 15% represent?

For every $1 in stockholder's equity the company generates 15 cents in profit

What does a times interest earned ratio of 10 times indicate?

Income before interest and taxes covers the interest obligation of the firm by 10 times

What does an average collection period of 30 days indicate for a company?

The company collects on its issued trade credit in 30 days

What does a total asset turnover ratio of 105 times represent?

The company generated $1.5 in sales for $1 in total assets

What does a profit margin of 20% represent?

The company generates 20 cents in profit for every $1 in sales

What does a debt to total ratio of 50% indicate about a company?

The company is carrying half as much debt as it has total assets

What does a receivable turnover of 7 times represent?

The company issued and collected trade credit, all the level of its accounts receivable balance, 7 times during the year

Profitability ratios allow one to measure the ability of the firm to earn an adequate profit compared to sales, total assets, and invested capital.

True

Deflation can be described as

a decrease in prices

Disinflation may cause

a reduced required return demanded by investors on financial assets.

Trend analysis can be described as which of the following?

an analysis of the firm's performance over a number of years

If the company's average collection period is 25 days and industry average is 30 days, the company's average collection period is _ the industry average

better than

If the company's fixed charge coverage ratio is 8 times and the industry average is 6 times, the company's fixed charge coverage ratio 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

better than

A short-term creditor would be most interested in

liquidity ratios

An increasing average receivables collection period indicates

the company is becoming less efficient in its collection policy

As long as prices of products continue to rise faster than costs in an inflationary environment, reported profits will generally continue to rise.

true

During disinflation, stock prices tend to go up because the investor's required rate of return goes down.

true

Financial ratios are used to judge the operating performance of the firm

true

Financial ratios are used to weigh and evaluate the operational performance of the firm.

true

If a company has a debt to total assets ratio of 50% and total assets of $5,000,000, what amount of debt is the company carrying?

2,500,000

Refer to the tables above. The firm's fixed asset turnover ratio is ____.

2.0x

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 _

2.11 $20,000 + $500,000 + $600,000 / $530,000

The company has sales of $10,000,000, total assets of $2,400,000, stockholder's equity of $2,000,000, and net income of $500,000. The company's return on assets is

20.83% $500,000/$2,400,000 .2083 x 100

A firm has a debt-to-total assets ratio of 60%, $300,000 in debt, and a net income of $50,000. Calculate return on equity.

25%

If the company's return on equity is 18% and the industry average is 15%, the company's return on equity ratio is _ the industry average.

better than

Which of the following are liquidity ratios?

current ratio and quick ratio

A major problem during inflationary times is that profit may be more a function of

increasing prices than of improved performance

If the company's accounts receivable turnover is increasing, the average collection period

is going down

Debt utilization ratios indicate to what extent the firm is

using debt and the prudence with which it is being managed

If the company's total asset turnover ratio is 3 times and the industry average is 7 times, the company's total asset turnover ratio is _ the industry average

worse than

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 _

$100,000 450,000/4.5% 10,000,000/100

If the company's times interest earned ratio is 8 times and interest is $60,000, the company's earning before interest and taxes is equal to _

$4,800 8 x $60,000

If the company's times interest ratio is 8 times and interest is $600,000, the company's earnings before interest and taxes is equal to _

$480,000

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?

$625,000 $2,500,000/4%

If a company has a receivables turnover ratio of 10 and accounts receivable of $750,000, what is the company's level of sales on credit?

$7,500,000

The company has sales of $10,000,000, total assets of $2,400,000, stockholder's equity of $2,000,000, and net income of $500,000. What is the company's return on equity?

25% 500,000/2,400,000

A firm only has current assets and fixed assets. Its current assets are $100,000 and total assets are $300,000. The firm's sales are $900,000. The firm's fixed asset turnover is

4.5x

A company has earnings before interest and taxes of $1,500,000, interest is 30% of its total debt of $600,000, lease payments are $50,000, and its tax rate is 40%. What is the company's fixed charge coverage ratio?

6.74 times Int = $180,000 (600,000 x .3) (1,500,000 + 50,000)/(50,000 + 180,000) 1,550,000 / 230,000

What does a fixed asset turnover ratio of 4 times represent

The company generated $4 in sales for every $1 in fixed assets

If the company's times interest earned ratio is 8 times and the industry average is 5 times, the company's times interest earned is _ the industry average

better than

which of the following are debt utilization ratios?

debt to total assets times interest earned fixed charge coverage

Asset utilization ratios include all of the following except

debt to total assets turnover

Asset utilization ratios include all the following except: debt to total assets turnover receivable turnover inventory turnover fixed asset turnover

debt to total assets turnover

Profitability ratios measures the company's ability to

earn an adequate return on sales, total assets, and invested capital

Asset utilization ratios measure the net returns on various assets such as return on total assets.

false

Ratios are not misleading by inflation.

false

Which of the following are debt utilization ratios?

fixed charge coverage debt to total assets times interest earned

For ___________ ratios, the primary emphasis is on the firm's ability to pay off short-term obligations as they come due.

liquidity

From the investor's perspective, which ratio category is of primary importance?

profitability ratios

People in various functional areas of a business must be familiar with _ analysis

ratio

Profitability ratios are distorted by inflation because profits are stated in current dollars, while assets and equity are stated in historical dollars.

true

If the company's inventory turnover ratio is 10 times and industry average is 12 times, the company's inventory turnover ratio is _ the industry average

worse than