FIN 3414 - Chapter 3

A firm with $600,000 in sales, cash on hand of $750,000, liabilities of $200,000 and total assets of $1 million has a total asset turnover of ______ times.

.60 (Sales/Total Assets)

Vera's has earnings per share of $3 and dividends per share of $1.20. The stock sells for $30 a share. What is the PE ratio?

10 times (Price per share/EPS)

A firm with $29,261 in sales, liabilities of $100,000 and total assets of $13,500 produces ______ in sales for each dollar invested in assets

2.17$ (Sales/Total Assets)

BC Corporation had sales of $1,000,000 and costs of goods sold of $450,000 for the year. Inventory at year end was $180,000. What is the inventory turnover?

2.5 times (COGS/Inventory)

Omega Co. has annual sales of $250,000, costs of goods sold of $168,000, and assets of $322,000. Accounts receivable are $86,200. What is the receivables turnover?

2.90 (Sales/Accounts Receivable)

BC Toys has total equity of $584,000. There are 35,000 shares outstanding at a market price of $54 per share. What is the market-to-book ratio?

3.24 times (Market Price of Share/[Total Equity/# of Shares outstanding])

AD corporation had sales of $750,000 and costs of goods sold of $350,000. Inventory at year end was $87,500. What is the inventory turnover?

4.00 times (COGS/Inventory)

BC Corporation has net income of $176,000, sales of $1,982,000 and total assets of $2.24 million. What is the return on assets?

7.86% (Net Income/Total Assets)

Braxton Industries has sales of $485,000, cost of goods sold of 290,000 and accounts receivables of $52,500. How many times does Braxton collect its outstanding credit accounts and lent the money during the year?

9.2 times (Sales/Accounts Receivables)

Which of the following items are used to compute the current ratio?

Cash Accounts payable

True or false: All financial statements for all firms worldwide are prepared in conformance with GAAP.

False

How is the price-earnings (PE) ratio computed?

Market price per share / Earnings price per share

Profit Margin Total Asset Turnover Equity Multiplier

Net Income/Sales Sales/Assets Assets/Total Equity

Which of the following are traditional financial ratio categories?

Profitability ratios Asset management ratios Market value ratios

Which three of the following are most apt to create problems when comparing financial statements for multiple firms?

Seasonality Differing fiscal years Differing accounting methods

________ financial statements provide for comparison of firms that differ in size.

Standardized

True or false: A good working knowledge of financial statements is desirable because such statements are the primary means of communicating financial information both within the firm and outside the firm.

True

The market-to-book ratio evaluates a company's current market value relative to its _______.

book value

The current ratio computes the relationship between ____.

current assets and current liabilities.

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

decision making

Which of the following is NOT one of the five categories of financial ratios?

dupont system

A times interest earned (TIE) ratio of 3.5 times means a firm has _____ that is(are) 3.5 times greater than the firm's interest expense.

earnings before interest and taxes

Banks prefer lend to firms whose times interest earned ratio indicates that earnings are _______ interest payments.

greater

The price-earnings (PE) ratio is a ____ ratio.

market value

How is market-to-book ratio measured?

market value per share/book value per share

The profit margin is equal to net income divided by ______.

sales

Common-size statements are used for comparing firms with differing ____.

sizes

The information needed to compute the profit margin can be found on the ____.

income statement

What does ROA equal?

ROE/Equity multiplier Profit margin × Total asset turnover