Ch.3 Working with Financial Statement (LearnSmart)

What is the impact on the total asset turnover ratio if sales increase significantly while there is no change in any of the other variables?

The total asset turnover ration will increase. Formula: ( Sales / Total assets )

Alpha Co. has interest expense of $1.2 million, total assets of $84 million, sales of $76 million, long-term debt of $16.4 million, and net income of $12.1 million. How will interest expense be recorded in the common-size income statement?

1.58% ($1.2m / $75m) = 1.58%

Which of the following items are among the items used to compute the current ratio? A. Cash B. Earnings C. Equipment D. Accounts payable

A. Cash D. Accounts payable (Equipment = long-term asset)

Which of the following are sources of cash? A. Purchasing an asset B. A decrease in accounts receivable C. A decrease in notes payable D. An increase in notes payable

B. A decrease in accounts receivable D. An increase in notes payable

Which of the following are sources of cash? A. Purchasing an asset. B. A decrease in notes payable. C. An increase in notes payable. D. A decrease in accounts receivable.

C. An increase in notes payable. D. A decrease in accounts receivable. A & B are uses of cash.

Which one of the following is one way in which financial managers use a common-size balance sheet? A. To keep an eye on the firm's profit margin. B. To identify changes in operating costs. C. To track changes in a firm's capital structure. D. To monitor labor costs.

C. To track changes in a firm's capital structure.

Debt-equity ratio given total assets and equity

Total debt = Assets - Equity Debt/Equity = # of times ratio

Financial statements report

book values

An important accounting goal is to report financial information to users in a way that is useful for ______.

decision making

A common-base year financial statement presents items relative to a certain base, which is the:

dollar amount of each item during a common base year.

If a company has inventory, the quick ratio will always be _______ the current ratio.

less than

Return on equity (ROE) is a measure of ________.

profitability

A common-size income statement helps compare financial results over time by controlling for changes in ________.

sales

At the most fundamental level, firms generate cash and __________.

spend it