Ch2-3_FinMgt

Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios. A ) asset management B ) long-term solvency C ) short-term solvency D ) profitability E ) market value

A ) asset management

The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is the: A ) cash coverage ratio. B ) debt-equity ratio. C ) times interest earned ratio. D ) gross margin. E ) total debt ratio.

A ) cash coverage ratio. pg57

Enterprise value focused on: A ) market values of debt and equity. B ) book values of debt and assets. C ) market value of equity and book value of debt. D ) book value if debt and market value of equity. E ) book values of debt and equity.

A ) market values of debt and equity. pg 56

The financial ratio measured as net income divided by sales is known as the firm's: A ) profit margin. B ) return on assets. C ) return on equity. D ) asset turnover. E ) earnings before interest and taxes.

A ) profit margin.

The equity multiplier ratio is measured as total: A ) equity divided by total assets. B ) equity plus total debt. C ) assets minus total equity, divided by total assets. D ) assets plus total equity, divided by total debt. E ) assets divided by total equity.

E ) assets divided by total equity.

Which one of the following statements is correct? A ) Book values should always be given precedence over market values. B ) Financial statements are frequently the basis used for performance evaluations. C ) Historical information has no value when predicting the future. D ) Potential lenders place little value on financial statement information. E ) Reviewing financial information over time has very limited value.

B ) Financial statements are frequently the basis used for performance evaluations.

Which two of the following are most apt to cause a firm to have a higher price-earnings ratio? I. slow industry outlook II. high prospect of firm growth III. very low current earnings IV. investors with a low opinion of the firm A ) I and II only B ) II and III only C ) II and IV only D ) I and III only E ) III and IV only

B ) II and III only II. high prospect of firm growth III. very low current earnings

In the financial planning model, external funds needed (EFN) is equal to changes in A ) assets - (liabilities - equity). B ) assets - (liabilities + equity). C ) (assets + liabilities - equity). D ) (assets + equity - liabilities). E ) assets - equity.

B ) assets - (liabilities + equity). (I worked this by using A=L+E equation)

The current ratio is measured as: A ) current assets minus current liabilities. B ) current assets divided by current liabilities. C ) current liabilities minus inventory, divided by current assets. D ) cash on hand divided by current liabilities. E ) current liabilities divided by current assets.

B ) current assets divided by current liabilities.

Ratios that measure a firm's financial leverage are known as _____ ratios. A ) asset management B ) long-term solvency C ) short-term solvency D ) profitability E ) market value

B ) long-term solvency

Projected future financial statements are called: A ) plug statements. B ) pro forma statements. C ) reconciled statements. D ) aggregated statements. E ) none of the above.

B ) pro forma statements.

The receivables turnover ratio is measured as: A ) sales plus accounts receivable. B ) sales divided by accounts receivable. C ) sales minus accounts receivable, divided by sales. D ) accounts receivable times sales. E ) accounts receivable divided by sales.

B ) sales divided by accounts receivable. pg53

A firm's market capitalization is equal to: A ) total book value of assets less book value of debt. B ) par value of common equity. C ) firm's stock price multiplied by number of shares outstanding. D ) firm's stock price multiplied by the number of shares authorized. E ) the maximum value an acquirer would pay for a firm in an acquisition.

C ) firm's stock price multiplied by number of shares outstanding. pg56

he External Funds Needed (EFN) equation does not measure the: A ) additional asset requirements given a change in sales. B ) additional total liabilities raised given the change in sales. C ) rate of return to shareholders given the change in sales. D ) net income expected to be earned given the change in sales. E ) None of the above.

C ) rate of return to shareholders given the change in sales.

The financial ratio measured as net income divided by total equity is known as the firm's: A ) profit margin. B ) return on assets. C ) return on equity. D ) asset turnover. E ) earnings before interest and taxes.

C ) return on equity.

The financial ratio measured as the price per share of stock divided by earnings per share is known as the: A ) return on assets. B ) return on equity. C ) debt-equity ratio. D ) price-earnings ratio. E ) Du Pont identity.

D ) price-earnings ratio.

The financial ratio days' sales in inventory is measured as: A ) inventory turnover plus 365 days. B ) inventory times 365 days. C ) inventory plus cost of goods sold, divided by 365 days. D ) 365 days divided by the inventory. E ) 365 days divided by the inventory turnover.

E ) 365 days divided by the inventory turnover. (pg52)

The percentage of sales method: A ) requires that all accounts grow at the same rate. B ) separates accounts that vary with sales and those that do not vary with sales. C ) allows the analyst to calculate how much financing the firm will need to support the predicted sales level. D ) Both A and B. E ) Both B and C.

E ) Both B and C.

Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods for inventory purposes. IV. The two firms may be seasonal in nature and have different fiscal year ends. A ) I and II only B ) II and III only C ) I, III, and IV only D ) I, II, and III only E ) I, II, III, and IV

E ) I, II, III, and IV

The market-to-book ratio is measured as: A ) total equity divided by total assets. B ) net income times market price per share of stock. C ) net income divided by market price per share of stock. D ) market price per share of stock divided by earnings per share. E ) market value of equity per share divided by book value of equity per share.

E ) market value of equity per share divided by book value of equity per share.