CFA - FSA Book 3 LM 3 & 4
The following information ($ million) was summarized from a firm's year-end financial statements. Income Statement Item12/31/12Net Income10Depreciation1 Balance Sheet Item12/31/1112/31/12ChangeAccounts receivable1311(2)Inventory572Accounts payable473 What are the total net adjustments that the company would make to net income in order to derive operating cash flow?
Add $4 million.
The following data ($ million) was summarized from a firm's year-end financial statements. Income Statement Item12/31/12Net Income15Depreciation 3 Balance Sheet Item12/31/1112/31/12ChangeAccounts receivable1311(2)Inventory 5 72Accounts payable 4 73 What are the total net adjustments that the company would make to net income in order to derive operating cash flow?
Add $6 million.
The indirect method of reporting cash flows calculates operating cash flow by which of the following methods?
Start with net income for the period, adjust for all noncash expenses/revenues, adjust for nonoperating items included in net income and then adjust for changes in the balance of operating asset and liability accounts.
A statement of cash flows most likely enhances the reliability of the:
Statement of financial position.
A company that is going through a rapid growth phase often has:
Negative operating cash flows as inventories and receivables increase.
A computer manufacturing company has very short days of inventory on hand compared with its competitors. This could be explained by the fact that:
The company runs a just-in-time manufacturing system.
The net operating cycle of a company is least likely to indicate:
The company's ability to generate profits from its resources.
A company uses International Accounting Standards (IAS) generally accepted accounting principles (GAAP) for their cash flow classification for interest and dividend payments and receipts. Which of the following statements is most accurate?
The company's cash flow from financing may be lower than if the company had used U.S. GAAP.
A company's balance sheet indicates that it has sufficient cash and short-term investments. However, its payables turnover ratio remains low. This most likely suggests that:
The company's suppliers offer it lenient credit terms.
The following equations are DuPont models for calculating ROE, except for one. Which is it?
Net Profit Margin × Interest Burden × Tax Retention Rate
Which of the following is a reason to not use a P/E ratio?
Net income can be manipulated.
Which of the following is most likely to appear in the operating section of a cash flow statement, assuming the indirect method?
Net income.
Which of the following transactions of Adosso Inc. is least likely to be recorded as a cash flow in a cash flow statement?
Patent purchased worth $1 million in exchange for shares to the seller.
Which of the following is the most accurate impact on a firm's return on equity? ActionEffectA.Increase in tax rateReturn on equity will increaseB.Increase in interest rateReturn on equity will decreaseC.Decrease in depreciation rateReturn on equity will decrease
Row B
Which of the following classifications of ratios is most likely to be used to evaluate a firm's ability to meet its long-term debt obligations?
Solvency ratios
The following information relates to Green Power Corporation (in thousands): Quarter 1Quarter 2Sales$ 1,800$ 1,750Purchases1,1371,060Average trade payables683630Number of days in the period9091 Catherine Teresa, CFA, suspects Green Power of manipulating its net operating cycle from quarter 1 to quarter 2. Based solely on the given information, the company's net operating cycle most likely:
is not affected.
Given the following information for a company, its CFO is closest to: Net income$1,000Decrease in interest payable$85Gain on sale of equipment$45Increase in accounts payable$90Decrease in inventory$35Increase in prepaid assets$105Depreciation$85Increase in taxes payable$125
$1,100
Net income = $1,120,000 Depreciation expense for the year = $27,000 Decrease in inventory = $13,800 Increase in taxes payable = $1,500 Issuance of common stock = $60,000 Dividends paid = $32,300 Purchase of land = $28,300 Investment in associate = $58,000 Purchase of held-for-trading securities = $7,200 Sale of available-for-sale securities = $84,700 Assume the company uses U.S. GAAP to prepare its financial statements. The company's cash flow from operations is closest to:
$1,155,100
Views Inc. presents a total cash flow from operations in the amount of $2,387,000. In addition, it incurred a depreciation expense of $870,000. Balance sheet items also changed. Accounts receivable increased by $286,000, inventory decreased by $398,000, and accounts payable decreased by $54,000. How much is net income?
$1,459,000
Use the information below to answer the following questions. Information regarding the Coffee Company is as follows: Balance sheet: December 31January 1Accounts payable$ 450,000$ 780,000Inventory210,000560,000Accounts receivable756,000999,000Prepaid expenses399,000578,000 Income statement: Depreciation expense$850,000Gain from sale of land276,000 Cash flows: Cash collected from customers$10,500,000Cash paid for inventory5,650,000Cash paid for other expenses1,354,000 All purchases were made on account.
$10,257,000 $5,320,000 $5,670,000 $3,496,000 $2,659,000
Solitaire Inc. prepares its financial statements according to U.S. GAAP. During 2009, the company earned net income amounting to $102 million. During the year, it purchased machinery worth $22 million and recognized a total depreciation expense of $2.4 million. The company also paid an annual dividend amounting to $1.5 million. Based on this information, the company's cash flow from operations is closest to:
$104.4 million.
Piccadilly Group reported other operating expenses of $50 million. Prepaid insurance expense increased by $2.5 million and accrued utilities payable decreased by $10 million. Insurance and utilities comprise the only components of other operating expenses for the company. How much cash did the company pay out for other operating expenses?
$62.5 million.
PLC Group reported other operating expenses of $10 million. Prepaid insurance expense increased by $1.5 million and accrued utilities payable decreased by $1 million. Insurance and utilities comprise the only components of other operating expenses for the company. How much cash did the company pay out for other operating expenses?
$12.5 million.
A company has a current and quick ratio of 2.8 and 1.6, respectively. If the company's current liabilities amount to $120 million, the amount of inventory that the company has is closest to:
$144 million.
A company has a net income of $150, an increase in accounts receivable of $30, depreciation of $55, and a decrease in accounts payable of $25. Its operating cash flow is closest to:
$150
Net income = $1,120,000 Depreciation expense for the year = $27,000 Decrease in inventory = $13,800 Increase in taxes payable = $1,500 Issuance of common stock = $60,000 Dividends paid = $32,300 Purchase of land = $28,300 Investment in associate = $58,000 Purchase of held-for-trading securities = $7,200 Sale of available-for-sale securities = $84,700 Assume the company uses U.S. GAAP to prepare its financial statements. The company's cash flow from financing activities is closest to:
$27,700
The following information relates to XYZ Company for 2009: Net income$2,050Depreciation$345Interest expense$150Tax rate30%Net capital expenditure$1,500Net debt repayment$20Working capital investment$325Net borrowing$1,500 XYZ's free cash flow to equity for 2009 is closest to:
$2,050
Use the following information to answer the following questions. The following information pertains to Compass Inc. for the fiscal year 2004: Proceeds from sale of equipment:340,000Proceeds from the sale of treasury shares (CA = 650,000):750,000Purchase of bond investment:1,670,000Gain on sale of equipment:70,000Dividends paid:460,000Dividends declared:560,000Amortization of bond discount (Face value = 2,000,000):20,000 i. How much is Compass's net cash provided by financing activities?
$290,000 ($1,330,000)
Cape Cod Crunch, a fictitious company, reported interest expense of $5 million and taxes of $2 million. Over the period, interest payable increased by $2 million and taxes payable decreased by $2.5 million. How much cash did the company pay for interest and taxes, respectively?
$3 million in interest and $4.5 million in taxes.
Tiara Corporation reported net income of $8 million for the year 2009. Total revenue and cost of goods sold for the period amounted to $35 million and $20 million respectively. If accounts receivable is increased by $5 million during the period, cash received from customers during the period was closest to:
$30 million.
The following information relates to XYZ Company for 2009: Net income$2,050Depreciation$345Interest expense$150Tax rate30%Net capital expenditure$1,500Net debt repayment$20Working capital investment$325Net borrowing$1,500 XYZ's free cash flow to the firm for 2009 is closest to:
$675
North Company uses U.S. GAAP and provides the following financial statements: 2016 Income Statement (in $ thousand)Sales5,400COGS(4,600)Depreciation(200)Interest expense(55)Gain on sale of old machinery30Income before taxes575Income tax expense(175)Net income after taxes400 Balance Sheet (in $ thousand)End 2016Beg 2016Assets:Cash895100Accounts receivable260200Inventory500800Property, plant & equipment net of acc. depreciation300500Total assets1,9551,600Liabilities:Accounts payable370350Bank notes0100Deferred taxes9040Common stock1,0001,000Retained earnings495110Total liabilities1,9551,600 Total dividends of $15,000 were paid. Old machinery was sold; the machinery had already been fully depreciated. The cash flow from investments in 2016 for North Company is:
$30,000.
Revenue = $85 million Cost of goods sold = $44 million Decrease in inventory = $7 million Increase in accounts payable = $4 million Decrease in accounts receivable = $5 millions Cash paid to suppliers is closest to:
$33 million.
The following information relates to Alpha Inc.: Opening inventory = $47,000 Ending inventory = $28,000 Sales = $77,000 Cost of goods sold = $54,000 The amount of purchases made by the company is closest to:
$35,000
A company recorded the following activities for the quarter: Proceeds from the issuance of equity$200,000Purchase of building$150,000Loss on sale of equipment$$50,000Proceeds from sale of long-term debt$150,000Earnings from affiliate$350,000 What are the cash flows from financing?
$350,000
Magma Industries Ltd. reported a net profit of $104 million for 2009, with revenues of $500 million and COGS of $270 million. During the period, Magma made purchases worth $40 million. If the company's accounts payable increased by $4 million, cash paid to the company's suppliers was closest to:
$36 million.
A company reported other operating expenses of $27 million. Prepaid insurance expense increased by $1.5 million and accrued utilities payable decreased by $10 million. Insurance and utilities comprise the only components of other operating expenses for the company. How much cash did the company pay out for other operating expenses?
$38.5 million.
Extracts from the financial statements of Phoenix Supply Corporation (in millions) are as follows: 201420132012Net income$2,410$2,650Interest expense250275Tax expense810880Net cash provided by operating activities2,5002,750Total cash inflow for investing activities750450Total cash outflow for investing activities1,100650Total cash inflow for financing activities600660Total cash outflow for financing activities800870Accounts payable (year-end balances)2,2002,110$2,150Interest payable (year-end balances)757979Tax payable (year-end balances)525552 Cash outflow and inflow for investing activities occurred for the sale and the purchase of equipment. Cash outflow for financing activities includes retirement of common stock of $200 million for 2014 and $220 million for 2013 and the retirement of long-term debt of $400 million for 2014 and $450 million for 2013. All cash inflows for financing activities are from the issuance of additional stock. From 2013 to 2014, assuming a tax rate of 30%, Phoenix Supply's free cash flow to the firm decreased by:
$415.
Net income = $880,000 Cost of goods sold = $600,000 Depreciation expense = $49,000 Interest expense = $27,000 Investment in fixed assets = $32,000 Investment in working capital = $13,000 Funds borrowed = $16,000 Debt repaid = $10,000 Marginal tax rate = 40% Free cash flow to the firm is closest to:
$900,200
The following data (in thousands of dollars) are extracted from the financial statements of Hunter Company for the year ended 20X6: Interest Expense = 50 Cost of Goods Sold = 3,000 Sales Revenue = 5,000 Common Dividends Declared = 500 Salaries and Wages Expense = 670 Depreciation Expense = 80 Income before Taxes = 1,210 Total Expenses = 3,800 Income from Continuing Operations = 1,200 Gain on Sale of Land = 10 Income Tax Expense = 950 Net Income = 260 Cash, 20X6 = 1,800 Cash, 20X5 = 1,620 Accounts Receivable, 20X6 = 800 Accounts Receivable, 20X5 = 750 Inventory, 20X6 = 720 Inventory, 20X5 = 980 Accounts Payable, 20X6 = 820 Accounts Payable, 20X5 = 560 Salaries and Wages Payable, 20X6 = 290 Salaries and Wages Payable, 20X5 = 730 Interest Payable, 20X6 = 90 Interest Payable, 20X5 = 80 Income Tax Payable, 20X6 = 970 Income Tax Payable, 20X5 = 950 Dividends Payable, 20X6 = 200 Dividends Payable, 20X5 = 160 Based on the information given above, how much should Hunter Company report as cash flow from operations?
$430,000 inflow
The following information pertains to Mode Company: Cash paymentsWages and operating expenses$2,600,000Insurance350,000Dividends120,000Taxes760,000Equipment purchase430,000Cash receiptsIssuance of shares$5,060,000Sale to customers4,000,000Dividends on long term investments165,000 Repayment of loan from Din Company 4,350,000 How much is the net cash provided by operating activities?
$455,000
I.W.S. Inc. uses U.S. GAAP and supplied the following financial data: $ millionCash payment for salaries23Purchase of land15Cash payment for interest3Retirement of common stock12Cash collection from customers115Cash payment to suppliers43Depreciation expense10Dividend payment8Sale of equipment6 I.W.S. Inc.'s cash flow from operating activities was:
$46 million.
The following information relates to Gamma Corporation: Payables turnover = 8 Average trade payables = $11,000 Sales = $95,000 Cost of goods sold = $74,000 Opening inventory = $32,000 The company's ending inventory is closest to:
$46,000
A company reported the following information: Cash received from customers = $27,300 Cash paid to suppliers = $11,400 Cash paid for other operating expenses = $7,400 Cash paid for income taxes = $3,250 The company's cash flow from operating activities is closest to?
$5,250
Runway, a fashion clothing company, reported annual revenue of $500 million, total expenses of $100 million, and net income of $20 million. If accounts receivable decreased by $25 million, how much cash did the company receive from its customers?
$525 million.
The following information relates to Rori Publishers Inc. (in thousands): December 31, 2012December 31, 2013Inventory$12,000$10,500Accounts receivable4,0003,500Accounts payable3,8004,200 Assuming the cost of goods sold was $78,000, how much cash did the company pay to its suppliers?
$76,100.
Rest Company entered into a credit sales transaction for $98,000. Assuming beginning and ending accounts receivable are $15,000 and $25,000, how much is total cash collections?
$88,000
North Company uses U.S. GAAP and provides the following financial statements: 2016 Income Statement (in $ thousand)Sales5,400COGS(4,600)Depreciation(200)Interest expense(55)Gain on sale of old machinery30Income before taxes575Income tax expense(175)Net income after taxes400 Balance sheet (in $ thousand)End 2016Beg 2016Assets:Cash895100Accounts receivable260200Inventory500800Property, plant & equipment net of acc. depreciation300500Total assets1,9551,600Liabilities:Accounts payable370350Bank notes0100Deferred taxes9040Common stock1,0001,000Retained earnings495110Total liabilities1,9551,600 Total dividends of $15,000 were paid. Old machinery was sold; the machinery had already been fully depreciated. The cash flow from operations in 2016 is:
$880,000.
Revenue = $85 million Cost of goods sold = $44 million Decrease in inventory = $7 million Increase in accounts payable = $4 million Decrease in accounts receivable = $5 millions Cash received from customers is closest to:
$90 million.
North Company uses U.S. GAAP and provides the following financial statements: 2016 Income Statement (in $ thousand)Sales5,400COGS(4,600)Depreciation(200)Interest expense(55)Gain on sale of old machinery30Income before taxes575Income tax expense(175)Net income after taxes400 Balance Sheet (in $ thousand)End 2016Beg 2016Assets:Cash895100Accounts receivable260200Inventory500800 Property, plant & equipment net of acc. depreciation 300500Total assets1,9551,600Liabilities:Accounts payable370350Bank notes0100Deferred taxes9040Common stock1,0001,000Retained earnings495110Total liabilities1,9551,600 Total dividends of $15,000 were paid. Old machinery was sold; the machinery had already been fully depreciated. The cash flow from financing in 2016 for North Company is:
($115,000).
A company recorded proceeds from issuance of long-term debt of $150 million, purchase of equipment of $15 million, and equity earnings of an affiliate of $10 million. The company's cash flows from investing are closest to:
($15 million).
I.W.S. Inc. uses U.S. GAAP and supplied the following financial data: $ millionCash payment for salaries23Purchase of land15Cash payment for interest3Retirement of common stock12Cash collection from customers115Cash payment to suppliers43Depreciation expense10Dividend payment8Sale of equipment6 I.W.S. Inc.'s cash flow from financing was:
($20 million).
A company recorded proceeds from issuance of long-term debt of $350 million, purchase of equipment of $35 million, and equity earnings of an affiliate of $10 million. The company's cash flows from investing are closest to:
($35 million).
JP Company is following the US GAAP. It entered into various transactions during the year. It acquired 7,000 shares of Mix Company for $3,700,000, sold an investment in Tom Inc. for $2,100,000 when the carrying value was $3,300,000, and acquired a $4,001,000, four-year certificate of deposit from a bank. During the year, interest of $500,000 was paid to JP Company, and collected dividends of $187,000 on share investments. How much would be reported as net cash used in investing activities in the statement of cash flows?
($5,601,000)
I.W.S. Inc. uses U.S. GAAP and supplied the following financial data: $ millionCash payment for salaries23Purchase of land15Cash payment for interest3Retirement of common stock12Cash collection from customers115Cash payment to suppliers43Depreciation expense10Dividend payment8Sale of equipment6 I.W.S. Inc.'s cash flow from investing was:
($9 million).
GUPP, Inc. had an average number of days of payables of 34 in the most recent year. For next fiscal year, the company wants to match the industry average of 30 days of payables. Purchases in the most recent fiscal year were €825 million, and GUPP expects purchases to increase to €950 million in the next fiscal year. To achieve GUPP's goal of decreasing its number of days of payables, the change in the average accounts payable balance that must occur is closest to:
+€1.0 million.
A company reports a negative free cash flow to equity shareholders. This could be explained by the company having:
Finished a major replacement project of its machinery.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's debt-to-assets ratio for 2008 is closest to:
0.25
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's debt-to-capital ratio for 2009 is closest to:
0.38
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's debt-to-equity ratio for 2009 is closest to:
0.62
ABC Corporation provides you with the following information: Income Statement ($ million)Balance sheetAverage over Period$ millionSales150Cash90Accounts payable30COGS(75)Accounts receivable10Short-term bank notes25Gross profit75Inventory70Long-term debt60SGA expenses(20)Property, P&E150Operating profit55Depreciation(70)Common stock50Interest expense(15)Investment30Retained earnings115Tax(10)Net income30Total assets280Total liabilities & equity280 Inventory turnover is closest to:
1.07.
National Telecoms Corp. provides the following information: Income Statement 2016Balance Sheet End 2016$ millionAverage over period $ millionCredit sales1050Cash90Accounts payable50COGS(780)Accounts receivable170Accrued expenses125Gross profit270Inventory200Long-term debt300SGA expenses(150)Property, P&E375Op. profit120Depreciation(85)Common stock140Interest expense(45)Retained earnings65Tax(25)Net Income50Total Assets500Total Liabilities & Equity500Dividends Paid12 Inventory level unchanged from 2015 levels. National Telecoms Corporation's operating cycle in 2016 is closest to:
153 days.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's cash ratio for 2009 is closest to:
1.09
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's total asset turnover for 2009 is closest to:
1.13
The following are extracts from the balance sheet of Jonathan Industries. Current AssetsCash and cash equivalents$75,000Trade receivables125,000Prepaid expenses12,500 Current LiabilitiesAccrued expenses$15,000Deferred income65,000Notes payable75,000 What is the current ratio of Jonathan Industries?
1.37
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's financial leverage ratio for 2009 is closest to:
1.54
Which of the following ratios is least affected by the purchase of Treasury stocks?
Interest coverage ratio.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's number of days of inventory on hand for 2009 is closest to:
10.26 days.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's number of days of payables for 2009 is closest to:
10.47 days.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's net profit margin for 2009 is closest to:
14.66%
ABC Corporation provides you with the following information: Income Statement ($ million)Balance SheetAverage over Period$ millionSales150Cash90Accounts payable30COGS(75)Accounts receivable10Short-term bank notes25Gross profit75Inventory70Long-term debt60SGA expenses(20)Property, P & E150Operating profit55Depreciation(70)Common stock50Interest expense(15)Investment30Retained earnings115Tax(10)Net income30Total assets280Total liabilities & equity280 The return on total invested capital of ABC Corporation is closest to:
16.5%.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's return on assets for 2009 is closest to:
16.56%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's adjusted return on assets for 2009 is closest to:
17.00%
The following information refers to Word Inc. Tax Retention Rate70%Interest Burden0.8Operating Profit Margin12%Asset Turnover Ratio1.5Gross Profit Margin80%Assets / Equity1.7 Word wants to determine its return on equity. It is closest to:
17.14%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's return on total capital for 2008 is closest to:
19.46%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's working capital turnover for 2009 is closest to:
19.66
An analyst has gathered the following three years of data (in ₤ millions) for a company: 20X320X220X1Select Data from Balance SheetsTotal current assets300250200Fixed assets, net600570560Short-term debt100100100Total current liabilities330220200Long-term debt120100105Equity450400355Total liabilities and equity900820660 The 20X3 financial leverage ratio that should be used in a DuPont analysis is closest to:
2.0
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's quick ratio for 2008 is closest to:
2.00
An analyst has gathered the following income statement data (in $ millions) for a company: 20X320X220X1Revenue175160146Earnings before taxes and interest (EBIT) 35 32 29Interest expense (paid) 16 15 12Taxes 6 5 5Profit for year 10 10 10 The company's interest coverage for 20X3 is closest to:
2.2
ABC Corporation provides you with the following information: Income Statement ($ million)Balance SheetAverage over Period$ millionSales150Cash90Accounts payable30COGS(75)Accounts receivable10Short-term bank notes25Gross profit75Inventory70Long-term debt60SGA expenses(20)Property, P & E150Operating profit55Depreciation(70)Common stock50Interest expense(15)Investment30Retained earnings115Tax(10)Net income30Total assets280Total liabilities & equity280 The payables turnover ratio, assuming there is no change in inventory levels over the year, of ABC Corporation is closest to:
2.5.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 20x8 ($ '000)200x9 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 20x8 ($ '000)20x9 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's fixed asset turnover for 20x9 is closest to:
2.84
The following information relates to questions 96−99: Living Systems Inc. is a pharmaceutical company operating primarily in the United States and Europe. The company uses U.S. GAAP to prepare its financial reports. Income Statement of Living Systems Inc. for the year ended December 31, 2012 (in millions of dollars): Net revenues$13,200Cost of goods sold7,120Gross profit6,080Selling, general and administrative expenses2,720Amortization400Earnings before interest and taxes2,960Interest expense160Income before tax2,800Income tax840Net income$ 1,960 Extracts from the balance sheet of Living Systems Inc. as on December 31, 2012 (in millions of dollars) are as follows: Current assetsCash and cash equivalents$ 160Short-term marketable securities1,120Accounts receivable1,300Inventories2,100Deferred tax assets400 Additional note: Selling, general and administrative expenses include $700 of research and $650 of development costs. Cost of goods sold includes $750 of depreciation. The interest expense of $160 and tax of $840 was paid at the year end.
22% 102 days. higher. Operating activities.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's operating profit margin for 2008 is closest to:
22.31%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's pre-tax margin for 2008 is closest to:
22.64%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's operating return on assets for 2009 is closest to:
23.41%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's interest coverage ratio for 2008 is closest to:
25.76 times.
The information from the financial statements of Erbium Products Inc. for the year 2013 is as follows: Total assets$10,750Total liabilities3,000Total revenues2,100Total expenses2,200Contributed capital6,750Gross profit200Operating profit(200)Dividends100 The debt-to-capital ratio of Erbium Products is closest to:
27.91%.
The following information relates to Rose Inc.: Net profit margin = 15.7% Return on assets = 20.57% Financial leverage = 1.42 Asset turnover = 1.31 Rose Inc.'s return on equity is closest to:
29.21%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's current ratio for 2008 is closest to:
3.13
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's payables turnover for 2009 is closest to:
34.88
ollowing financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer Question Magma Corporation's inventory turnover for 2009 is closest to:
35.59
The following information relates to Blue Inc.: Revenue = $442,200 Cost of goods sold = $239,100 Net income = $53,100 Total assets at the beginning of the period = $544,000 Total assets at the end of the period = $775,000 Financial leverage ratio = 0.55 Blue Inc.'s return on equity for the period is closest to:
4.43%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's fixed charge coverage ratio for 2009 is closest to:
4.79
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's return on common equity for 2009 is closest to:
46.4%
The following information is related to Best Breweries Inc. Total assets$11,000Current assets$4,300Contributed capital$3,500Beginning retained earnings$1,700Net sales$8,750Net income$700Dividends$200 Calculate the company's total debt ratio.
48.18%.
The following information relates to Fly High Corporation: Revenue = $17 million Cost of goods sold = $5.5 million Other expenses = $4.2 million Interest expense = $2.4 million Tax expense = $3.3 million Asset turnover = 1.24 Total shareholders' equity at the beginning of the period = $30 million Assuming that shareholders' equity remains the same during the period, Fly High's ROE for the period is closest to:
5.33%
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's receivables turnover for 2009 is closest to:
57.45
A creditor will most likely consider an increase in which of the following ratios to be positive news?
Interest coverage.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's cash conversion cycle for 2009 is closest to:
6.15 days.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer Question Magma Corporation's number of days of sales outstanding for 2009 is closest to:
6.35 days
A company provides the following information: Credit sales$125 millionCost of goods sold$80 millionAvg. Accounts receivable$15 millionBeginning inventory$16 millionEnding inventory$22 millionAvg. Accounts payable$13 million The net operating cycle for this company is closest to:
75.3 days
The following financial information is given for a company: Net profit margin= 3% Operating profit margin= 10% Asset turnover = 1.5 Financial leverage = 1.8 Interest burden = 0.8 The return on equity is closest to:
8.1%.
Which of the following is least likely classified as a financing activity under U.S. GAAP?
A bank receiving interest payments on a loan
Which of the following is most likely a source of cash flow (outflow) for a company?
A decrease in accounts payable
Assuming the price remains constant, an increase in the treasury stock of a company will most likely cause:
A decrease in its price-to-earnings ratio.
Which of the following is most likely to suggest that a company's low receivables turnover is due to credit management issues?
A history of higher bad debts than competitors
Which of the following is least likely an investing activity under IFRS?
A manufacturing firm investing in held-for-trading securities
Which of the following companies is least likely to report a low fixed-asset turnover ratio?
A mature company operating in a labor-intensive business environment
Which of the following is most likely to indicate that a company has too many resources tied up in inventory?
A relatively high number of days of inventory on hand
An analyst wanting to use cross-sectional analysis to analyze R&G Industrials' will most likely prepare which of the following documents?
A vertical common-size balance sheet that compares R&G to another company.
Which of the following items is most likely subtracted from net income when using the indirect method to determine the cash flow from operating activities?
Amortization of bond premium.
Aquamarine Inc. is a manufacturer of perfumes and has several retail outlets throughout Europe. The company uses IFRS to report its financial statements and it recently entered into the following transactions: Transaction 1: Borrowed money from a bank for the purchase of inventory worth $180,000. Transaction 2: Made sales amounting to $990,000, of which $38,000 were made on credit. Transaction 3: Invested excess cash amounting to $12,000 in securities classified as held-for-trading and $8,000 in securities classified as held-to-maturity. Transaction 4: Paid dividends amounting to $130,000. Which of the following is the least likely effect on Aquamarine's financial statements due to Transaction 2?
An increase in cash flow from operating activities of $990,000.
Which of the following is most likely a use of cash for a company?
An increase in inventory
Assuming no changes in other inputs of the extended Dupont formula for return on equity, which of the following would decrease return on equity?
An increase in the effective tax rate.
An analyst is using a DuPont analysis to review the underlying components of ROE. Which of the following component changes will most likely result in an improved ROE?
An increase in the value of the interest burden component (EBT/EBIT).
Which of the following statements regarding the classification of cash flows is not true?
As per U.S. GAAP, interest received is classified as an investing activity.
The following data were computed based on Ross Company's performance in the current and previous year. Industry performance data are presented as well. 20x620x5IndustryCurrent ratio1.802.201.50Quick ratio0.921.130.90Days sales outstanding18.5518.8018.00Inventory turnover10.0010.7012.00Total asset turnover2.002.302.40Working capital turnover13.3014.5011.80Gross profit margin25%27.4%29.3%Net profit margin5%5.8%6.5%Return on total capital19.4%21.1%22.4%Return on common equity21.1%24.1%19.8%Debt-to-equity80.9%99.4%35.7%Interest coverage7.005.909.20 Mike, Belle, and John made the following conclusions regarding Ross: MikeLow asset turnover and high profit margin causes return on total capital to be low.BelleThe solvency ratio gives signals that Ross is trying to get its debt level at par with the industry.JohnLess use of leverage causes return on equity to be higher than industry benchmarks. Who among the three is most accurate?
Belle
Julie Williamson, CFA, is analyzing the financial statements of three companies that operate in the same tax rate of 30% for the year ended December 31, 2012. The following information is available (in millions): Mars CorporationGreen CorporationEris CorporationGross profit$18,500$15,600$17,500Selling, general, and administrative expenses5,2505,6004,000Research and development5,2502,4003,450Net income4,2003,9904,760 There were no nonrecurring or nonoperating items reported during the period. Based solely on the given information, which of the following companies performed best in terms of generating income for meeting the periodic debt obligations in the short run?
Both Mars and Green.
Consider the following statements: Statement 1: The number of days of sales outstanding is always inversely related to revenue. Statement 2: The number of days of inventory is directly related to average inventory. Which of the following is most likely?
Both statements are correct.
Under U.S. GAAP, interest and dividends received may be classified as:
CFO only.
Under IFRS, interest paid may be classified as:
CFO or CFF.
Under IFRS, dividends received may be classified as:
CFO or CFI.
Proceeds from sale of securities held for trading are classified as:
CFO.
An increase in interest expense will least likely affect the:
Cash flow from investing activities.
A firm's fixed charge coverage has risen from five to seven times. This is least likely to be explained by the firm having:
Changed its policy and has started using operating lease arrangements to acquire the use of fixed assets.
City Foods Inc. shows the following information: 201420132012Net income$1,200$1,400$1,500Tax200200200EBIT1,7001,9001,800Average total assets11,50010,90010,300 Based solely on the given information, which of the following conclusions about City Foods is valid?
City Foods' capital structure has varied substantially during the period.
Which of the following represents a cash transaction that might appear on a firm's cash flow statement?
Collection of a receivable.
During 2009, Royal Superstores saw its accounts receivable and inventory increase by $5,600 and $3,700 respectively. At the same time, its accounts payable increased by $2,500. Based only on this information, the company's cash flow from operations will most likely:
Decrease by $6,800.
If the interest payable decreased over an accounting period, under U.S. GAAP, it will:
Decrease operating cash flow.
If a company declares a total dividend of $6 million and increases dividend payables by $4 million in an accounting period, under U.S. GAAP, it will:
Decrease the financing cash flow by $2 million.
Extracts from the financial statements of Phoenix Supply Corporation (in millions) are as follows: 201420132012Net income$2,410$2,650Interest expense250275Tax expense810880Net cash provided by operating activities2,5002,750Total cash inflow for investing activities750450Total cash outflow for investing activities1,100650Total cash inflow for financing activities600660Total cash outflow for financing activities800870Accounts payable (year-end balances)2,2002,110$2,150Interest payable (year-end balances)757979Tax payable (year-end balances)525552 Cash outflow and inflow for investing activities occurred for the sale and purchase of equipment. Cash outflow for financing activities includes the retirement of common stock of $200 million for the year 2014 and $220 million for the year 2013 and retirement of long-term debt of $400 million for the year 2014 and $450 million for the year 2013. All cash inflow for financing activities came from the issuance of additional stock. For 2014, Phoenix Supply's free cash flow to the equity is:
Decreased by $350.
Which of the following ratios is least likely to be used in credit analysis?
Dividend payout ratio.
Assuming U.S. GAAP, which of the following is most likely classified as a financing activity by a trading company?
Dividends paid
Big Company acquired real estate with financing provided by the seller. At times, it also exchanges debt for equity. How should Big treat these items in the financial statements?
Do not report the transactions in the cash flow statement, but disclose it in either a footnote or supplemental schedule.
Some analysts prefer to use earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than earnings per share to value a company's performance. Which of the following would support this preference?
EBITDA does not take into account the cost of using fixed assets.
Which of the following amounts is used to compute for interest coverage ratios?
Earnings before interest and taxes
An analyst collects the following information on Jupiter Corporation for the year ended December 31, 2012: Net income$100Net profit margin20%Return on equity10%Debt-to-equity ratio1.2Total asset turnover20% Which of the following conclusions is most accurate about Jupiter for the year ended 2012?
Every $1 in total equity supported $2.5 in total assets, on average.
Which of the following equations is the most accurate expression to calculate free cash flow to equity (FCFE)?
FCFE = Cash flow from operations - Fixed capital investment + Net borrowing.
An increase in which of the following ratios most likely suggests an improvement in a company's solvency position?
Fixed charge coverage ratio
A creditor will most likely consider a decline in which of the following ratios to be negative news?
Fixed charge coverage.
Which of the following formulas is incorrect as to the formula for computing free cash flow?
Free cash flow to equity = Cash flows from operations − Fixed capital investment − Net borrowing
A higher working capital turnover most likely indicates:
Higher operating efficiency.
Which of the following is least likely to be a positive indicator of a firm's efficiency and liquidity?
Higher payable turnover ratio and higher net operating cycle.
Which of the following is most likely to be used to conduct trend analysis?
Horizontal common-size financial statements
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Over 2009, Magma Corporation's ability to service its debt obligations (as measured by its interest coverage ratio) has most likely:
Improved.
If a company decides to change from a policy of leasing plant and equipment through operating leases to purchasing its own plant and equipment this will:
Increase operating cash flows.
Green Inc. operates a chain of supermarkets in Europe. Assuming IFRS, which of the following is least likely classified as a financing activity by Green?
Interest received
Whoop Company is a U.S. company following the U.S. GAAP. In which category of activities in the Statement of Cash Flows would Whoop include loans that it made to others?
Investing activities
Sparta Inc. is a manufacturer of heavy machinery, but frequently invests in securities that it classifies as held-to-maturity. The outflow of cash for these investments is most likely classified as a(n):
Investing activity.
Gamma Corporation is involved in the manufacture of parts for the aerospace industry. Assuming U.S. GAAP applies, which of the following is least likely classified as an investing activity by the firm?
Investing in securities classified as held for trading
A company has reported net income of $15 million. The company has no outstanding debt, and the following information (in $ million) is available from the company's year-end financial statements. Balance Sheet Item12/31/1112/31/12ChangeCommon stock15227Additional paid-in capital15172Retained earnings152510Total stockholder's equity456419 What would be the appropriate value of the company's financing cash flows for year ending 2012?
Issuance of common stock of $9 million and dividends of $5 million.
A company has reported net income of $35 million. The company has no outstanding debt and the following information (in $ million) is available from the company's year-end financial statements. Balance Sheet Item12/31/1112/31/12ChangeCommon stock15020050Additional paid-in capital15022070Retained earnings150125−25Total stockholders' equity45054595 What would be the most appropriate value of the company's financing cash flows for year ending 2012?
Issuance of stock of $120 million and dividends of $60 million.
Which of the following BEST explains the effect of a payment of an accounts payable on the current ratio, which is currently at 1.2?
It increases current ratio.
Aquamarine Inc. is a manufacturer of perfumes and has several retail outlets throughout Europe. The company uses IFRS to report its financial statements and it recently entered into the following transactions: Transaction 1: Borrowed money from a bank for the purchase of inventory worth $180,000. Transaction 2: Made sales amounting to $990,000, of which $38,000 were made on credit. Transaction 3: Invested excess cash amounting to $12,000 in securities classified as held-for-trading and $8,000 in securities classified as held to-maturity. Transaction 4: Paid dividends amounting to $130,000. Which of the following statements is most accurate regarding Transaction 3?
It will decrease cash flow from operating activities by $12,000.
Which of the following will most likely result in a better credit rating?
Low debt-to-capital ratio.
Which of the following is least likely a limitation of ratio analysis?
Most companies around the world subscribe to the same set of accounting standards.
Which section of the cash flow statement may be prepared following either the direct or indirect method?
Operating.
An increase in which of the following will most likely result in a decrease in a company's cash conversion cycle?
Number of days of payables
David Douglas, CFA, is analyzing the financial statements of three companies as part of an investment appraisal. David uses return on assets, calculated as net income divided by average total assets, as a significant ratio while analyzing the long-term profitability of the companies. Which of the following is most likely a drawback of this approach?
Numerator is determined after interest expense.
Consider the following two statements: Statement 1: Companies should ideally have net income that exceeds operating cash flows. Statement 2: The variability of operating cash flow and net income is an important determinant of the overall risk inherent in the company. Which of the following is most likely?
Only Statement 2 is correct.
A company slows its payments on its accounts payables. The freed up cash from this effort is then used to buy back equity and this causes the company's leverage (average total assets / average total equity) to rise. Assuming no changes in other variables, what is the most likely effect(s) on the company's ROA and ROE?
ROA will be unchanged and ROE increase.
Which of the following is least accurate about ratio analysis?
Ratios are not affected by different accounting treatments used by companies.
Jenson Electronics commenced business on January 1, Year 1. During the year, it made sales worth $1 million. An internal estimate of the marketing department pegs the amount of uncollectible sales at $50,000. The company uses a direct write-off method to recognize credit losses on customer receivables. The partial financial statement reported at the end of the year is as follows: Net income$100,000Average working capital$750,000Total assets$1,250,000Fixed assets$250,000Current assets$1,000,000Current liabilities$250,000 Which of the following statements is true of Jenson Electronics for the current year?
Return on assets for Jenson Electronics is 16.00% for the current year.
King, analyst for Town Company, is in the process of identifying trends and forecasting future cash flows. On which items will the relevant common-size cash-flow statement be based?
Revenue
A company has employed a new financial controller who has installed a new system to improve the efficiency of inventory management, and who has written off a large amount of uncollectible receivables. This is likely to: Inventory TurnoverReceivables TurnoverA.IncreaseIncreaseB.IncreaseDecreaseC.DecreaseIncrease
Row A
Roof Company's financial statements is based on U.S. GAAP. During the year, it paid out dividends to shareholders of record and taxes to regulatory agencies. Under which classification in the Statement of Cash Flows would these transactions fall? DividendsTaxesa.FinancingOperatingb.OperatingOperatingc.OperatingFinancing
Row A
A company provides the following information: Year 1Year 2Return on equity8.9%9.4%Return on total assets4.5%4.2%Total asset turnover1.51.7 The numbers could be explained by: Financial LeverageNet Profit MarginA.IncreasedIncreasedB.IncreasedDecreasedC.DecreasedIncreased
Row B
A manufacturing company acquires a smaller competitor. The acquirer combines the inventory of the two companies, which will be sold to generate future sales. This is most likely to have the following effect on the acquiring company's cash flows: Operating Cash FlowFinancing Cash FlowA.No effectUnderstatedB.OverstatedNo effectC.UnderstatedNo effect
Row B
In which of the following circumstances will sustainable growth rate most likely be the highest? HighLowA.Dividend payout ratioRetention rateB.Return on equityDividend payout ratioC.Retention rateReturn on equity
Row B
Capital One Bank provided $2.5 million to Pharma One Pvt. Ltd. (a pharmaceutical company) as a loan to be repaid in 5 years. Which of the following is the most accurate classification of this transaction by both the parties? Capital OnePharma OneAFinancing activityFinancing activityBFinancing activityInvesting activityCOperating activityFinancing activity
Row C
Which of the following is the correct classification of cash flows under IFRS and U.S. GAAP? IFRSU.S. GAAPA.OperatingInterest paidDividends paidB.InvestingInterest receivedInterest receivedC.FinancingTaxes paidDividends paid
Row C
Howard Inc. (a manufacturing concern) uses U.S. GAAP to report its financial statements. Which of the following is most likely to be classified as an investing activity by this firm?
Sale of securities classified as available for sale.
Which of the following is least likely a financial sector ratio?
Same store sales
An analyst wants to evaluate the use of ratio analysis in analyzing the financial performance and condition of Go Inc. Which one is not a limitation of the use of ratio analysis?
Similar accounting practices and policies can distort comparisons.
Bellatrix, an analyst, wants to assess the firm's ability to meet long-term obligations and its risk and return profile. Which financial ratios should she look into?
Solvency ratios
Which of the following classifications of ratios is least likely to be used to evaluate a firm's operating efficiency?
Solvency ratios
Which of the following is a suitable method for computing free cash flow to the firm?
Sum of operating cash flow and after tax interest payments minus capital expenditures.
Which of the following correctly describes the five-way DuPont analysis?
Tax retention rate, interest burden, operating profit margin, financial leverage, and asset turnover
An analyst observes an increase in a company's payables turnover. Which of the following would most likely explain this trend?
The company adopted a new policy to take advantage of early payment discounts.
An analyst observes that a company's days of inventory on hand (DOH) has declined from one fiscal year to the next. Which of the following would most likely explain this decline?
The company became more efficient in its current fiscal year by using a new inventory management system.
If a manufacturing company has a very low total asset turnover compared to its competitors, this could be explained by which of the following?
The company has too much capital invested in assets for the size of its revenue.
A company's ability to meet its daily cash expenditures using only its liquid assets is most likely measured using:
The defensive interval ratio.
Which of the following differences is least accurate when comparing the direct and indirect methods of presenting a cash flow statement?
The direct method results in higher operating cash flow than the indirect method.
Which of the following statements is true?
The starting point under the indirect method is the "bottom line" of the income statement.
An analyst has calculated several ratios for a company and he is comparing, by category, the ratio results. In completing this comparison the analyst has made several observations. Which one of the following observations is most likely indicating that the analyst has calculated one or more ratios in error?
The total asset turnover is greater than the fixed asset turnover.
An analyst has compiled the following data for a company: 20X320X220X1Net profit margin2.9%2.8%2.6%ROA (return on total assets)8.7%8.9%9.1%Debt-to-equity ratio0.250.220.20Financial leverage1.551.571.60 Based only on the information above, which of the following is the most appropriate conclusion for the 20X1 to 20X3 period?
Total asset turnover and ROE have decreased.
Which of the following statements is least accurate about reporting standards?
Under U.S. GAAP, dividends paid are financing cash flows whereas under IFRS, dividends paid can be investing cash flows.
Apple, an analyst, is tasked to model and forecast a company's earnings for the next three years. Which method would Apple least likely use?
Use common-size financial statements to forecast expenses, based on a certain percentage of net income.
Bishop Steel Manufacturing reported little change in net income, whereas the operating cash flows rose sharply. This might be explained by the company:
Using inventory to meet their customers' orders and minimizing raw material purchases.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's solvency position over 2009 (as measured by its debt-to-assets ratio) has most likely:
Weakened.
The following financial statements relate to Magma Corporation: INCOME STATEMENT: 2008 ($ '000)2009 ($ '000)Total revenue242,500367,700Cost of goods sold(112,300)(197,500)Gross profit130,200170,200Depreciation(12,900)(16,800)Salaries and wages(7,700)(8,100)Electricity(11,100)(13,500)Administrative expenses(13,200)(16,300)Marketing(17,200)(22,200)Operating lease payments(14,000)(17,100)Operating income54,10076,200Interest income2,9003,100Interest expense(2,100)(2,400)Income before taxes54,90076,900Provision for income taxes(24,000)(23,000)Net income30,90053,900 BALANCE SHEET: 2008 ($ '000)2009 ($ '000)AssetsLong-term AssetsProperty, plant, and equipment105,700153,700Investment in associates68,60080,600Goodwill47,10054,100Other long-term assets38,50044,500Total Long-term Assets259,900332,900Current AssetsInventory4,9006,200Accounts receivable5,3007,500Short-term marketable securities6,2008,300Prepaid expenses4,7004,500Cash5,5005,100Total Current Assets26,60031,600Total Assets286,500364,500Shareholders' Equity and LiabilitiesShareholders' EquityCommon stock100,000100,00010% Preferred stock75,00075,000Retained earnings31,00042,500Total Shareholders' Equity206,000217,500LiabilitiesLong-term debt72,000134,700Current LiabilitiesAccounts payable4,7006,700Accrued expenses3,8005,600Total Current Liabilities8,50012,300Total Shareholders' Equity and Liabilities286,500364,500 Using the above information and assuming a tax rate of 40%, answer the following question Magma Corporation's liquidity position over 2009 (as measured by its current ratio) has most likely:
Worsened.
Chovita Inc. has raised $100,000 by issuing $100 par value bonds with an interest rate of 10% that can be converted into common equity shares. Each bond can be converted to one $100 par value, common equity share. Assuming the tax rate is 30%, if the holders of convertible debentures exercise the option, free cash flow to equity will most likely:
increase.
When determining a company's price-to-book value ratio, the book value amount is most likely based on the book value per share of the company's
common equity.
An investor worried about a company's short-term liquidity would most likely examine its:
current ratio.
An increase in bad debts will most likely result in a(n):
decrease in net operating cycle.
If a firm issues convertible debt securities and these convertible debt securities are exercised, the growth rate will most likely:
decrease.
Zuddy Inc. reduces the credit period given to its customers for making payments. The net operating cycle will most likely:
decrease.
The sale of property would be classified as:
investing cash flow.
An analyst has gathered the following three years of data (in ₤ millions) for a company: 20X320X220X1Select Data from Income StatementsRevenue800770700Earnings before taxes and interest (EBIT)807567Interest expense (paid)111010Taxes192017Profit for year504540Select Data from Balance SheetsCash and equivalents857060Receivables908055Prepaid assets302025Inventory958060Total current assets300250200Fixed assets, net600570560Short-term debt100100100Total current liabilities (including short-term debt)330315305Long-term debt120105100Equity450400355Total liabilities and equity900820760 In addition to the data above, the analyst has estimated that the company's total annual cash expenditures for 20X3, 20X2, and 20X1 were ₤550, ₤520, and ₤480 million, respectively. Comparing 20X3 with 20X2, the most reasonable conclusion an analyst might make about the company's efficiency is that it:
deteriorated, as indicated by the total asset turnover falling from 0.97 in 20X2 to 0.93 in 20X3.
An analyst has gathered the following three years of data (in $ millions) for a company: 20X320X220X1Select Data from Income StatementsRevenue175160146Earnings before taxes and interest (EBIT)353229Interest expense (paid)161512Taxes655Profit for year101010Select Data from Balance SheetsCash and equivalents1075Receivables151312Inventory201513Total current assets453530Fixed assets, net425405340Total current liabilities343230Total short- and long-term debt320300240Equity116108100Total liabilities and equity470440370 Comparing 20X3 with 20X2, the most reasonable conclusion an analyst might make about the company's efficiency is that it:
deteriorated, as indicated by the working capital turnover falling in 20X3 from its 20X2's level.
An analyst calculating a company's inventory turnover is most likely assessing the company's:
efficiency at completing its day-to-day tasks.
An analyst observes that a company's year-end debt-to-equity ratio is 2.5 and its year-end debt-to-total assets ratio is 0.5. Using year-end data only, the analyst can most likely determine that the company's:
financial leverage ratio is approximately 5.0.
An analyst wishing to determine a company's solvency will most likely calculate the company's:
fixed charge coverage.
An analyst calculates that a company's quick ratio is exactly 1.0. As a result of this calculation, the analyst can most likely conclude that current ratio must be:
greater than or equal to 1.0 and the cash ratio is less than or equal to 1.0.
Utseya Taibu, CFA, has collected the following information on two companies, Elara and Deimos, for the quarter ended March 31, 2012: Elara Goods Inc.Deimos Goods Inc.Inventory turnover18.0015.00Receivables turnover5.006.00Payables turnover7.506.00 Based solely on the given information, Deimos' ability to convert cash to support liquidity, as compared to Elara, is:
higher.
An analyst has calculated a company's turnover ratios for the last two years: 20X320X2Inventory turnover16.519.8Receivables turnover12.010.5Payables turnover10.512.3 Based on this data, the analyst will most likely conclude that the company's cash conversion cycle:
improved in 20X3 as compared to 20X2.
An analyst has gathered the following balance sheet data (in $ millions) for a company: 20X320X220X1Cash and equivalents1075Receivables151712Inventory201113Total current assets453530Fixed assets, net425405340Total current liabilities343230Total short and long-term debt320300240 Comparing 20X3 with 20X2, the most reasonable conclusion an analyst might make about the company's liquidity is that it:
improved, as indicated by the cash ratio rising to 0.294 in 20X3 from 0.219 in 20X2.
An analyst has gathered the following information for a company: FY13FY12Effective tax rate (tax expense/EBT)25.0%28.0%Interest paid/EBIT20.0%18.5%EBIT margin12.8%13.6%Asset turnover1.51.6Leverage1.21.1 In comparing the company's FY13 ROE to its FY12 ROE, an analyst will most likely conclude that the FY13 ROE is:
lower.
An analyst is assessing a company's efficiency and liquidity. In looking at efficiency, the analyst has calculated the following turnover ratios for the last two years: 20X320X2Inventory turnover12.213.6Receivables turnover10.811.0Payables turnover11.212.3 Based on this data, the analyst will most likely conclude that the company's:
management of payables has contributed to improved liquidity.
An analyst is comparing the solvency and liquidity levels for two companies and she gathers the following data (in $ millions) for these companies: Company ACompany BCurrent assets150200Current liabilities150300Total debt400500Total liabilities and equity800900 Based on using only the current ratio and the debt-to-assets ratio, the analyst will most likely conclude that Company A is:
more solvent and more liquid than Company B.
A common-size cash flow statement shows each line item as a percentage of:
net revenues.
Extracts from the financial statements of Phoenix Supply Corporation (in millions) are as follows: 201420132012Net income$2,410$2,650Interest expense250275Tax expense810880Net cash provided by operating activities2,5002,750Total cash inflow for investing activities750450Total cash outflow for investing activities1,100650Total cash inflow for financing activities600660Total cash outflow for financing activities800870Accounts payable (year-end balances)2,2002,110$2,150Interest payable (year-end balances)757979Tax payable (year-end balances)525552 Cash outflow and inflow for investing activities occurred for the sale and purchase of equipment. Cash outflow for financing activities includes the retirement of common stock of $200 million for the year 2014 and $220 million for the year 2013 and retirement of long-term debt of $400 million for the year 2014 and $450 million for the year 2013. All cash inflow for financing activities came from issuance of additional stock. Phoenix Supply has most likely increased its ability to:
pay debts with operating cash flows.
An analyst is evaluating a company's profitability and he has collected the following annual data (in millions of Swiss francs): 20X320X220X1Gross profit332312284Net income195177161Total assets2,6252,4582,021 The analyst will most likely conclude that the company's:
return on assets (ROA) decreased in 20X3 relative to its 20X2 level.
An analyst wishing to assess a company's ability to use its resources to generate profits will most likely calculate the company's:
return on equity.
When analysts are developing forecasts of future performance they should most likely:
use judgment in the process, as it allows analysts to provide more of their own insight.
Net income = $1,120,000 Depreciation expense for the year = $27,000 Decrease in inventory = $13,800 Increase in taxes payable = $1,500 Issuance of common stock = $60,000 Dividends paid = $32,300 Purchase of land = $28,300 Investment in associate = $58,000 Purchase of held-for-trading securities = $7,200 Sale of available-for-sale securities = $84,700 Assume the company uses U.S. GAAP to prepare its financial statements. The company's cash flow from investing activities is closest to:
−$1,600
Beta Inc. is an exporter of refined sugar. During 2009, it earned net income of $104,000, purchased inventory worth $13,000, and invested in new machinery worth $28,000. The company had previously invested in available-for-sale securities which were sold during the year for $8,000. The company's cash flow from investing activities is closest to:
−$20,000
Using the following information and assuming that U.S. GAAP applies, the company's CFI is closest to: Proceeds from sale of equipment$32,000Loss on equipment sale$9,000Dividends paid$12,500Purchase of office premises$100,000Common stock repurchases$45,000Dividends received$8,500Interest received$1,200Supplier accounts paid$3,700Cash collections from customers$14,200Ending cash balance$98,000
−$68,000
