Multiple Choice Questions Financial Management

At the most fundamental level, firms generate cash and: Multiple choice question. a) spend it b) employ accountants c) delegate authority d) create jobs

a) spend it

Because we are almost always unable to obtain all of the market information we want, we rely on ________________ numbers for much of our financial information.

accounting

The ROE equals the net profit margin multiplied by the total ___________ turnover multiplied by the equity multiplier.

asset

True or false: A deteriorating time trend in a financial ratio is always a bad sign. True false question. a) True b) False

b) False

When the typical stock in the S&P 500 Index has a PE ratio 12, a company with a PE ratio of 15 may have ______ than average growth prospects, given similar earnings per share. Multiple choice question. a) lower b) higher

b) higher

Which one of the following does not affect ROE according to the DuPont identity? Multiple choice question. a) Asset use efficiency b) Financial leverage c) Investor sentiment d) Operating efficiency

c) Investor sentiment

________ financial statements provide for comparison of firms that differ in size. Multiple choice question. a) Original b) Compressed c) Standardized d) Restated

c) Standardized

The quick ratio is computed just like the __________ ratio, except that inventory is omitted.

current

A firm has a total debt ratio of 0.30 times. This means the firm has ___ in total debt for every $1 in total assets. Multiple choice question. a) $0.70 b) $0.03 c) $0.07 d) $0.30

d) $0.30

A firm with a profit margin of 6.8 percent generates ______ cents in net income for every one dollar in sales. Multiple choice question. a) 3.2 b) 0.32 c) 0.68 d) 6.8

d) 6.8

______ are the prime source of information about a firm's financial health. Multiple choice question. a) Stock brokers b) Historical returns c) Stock prices d) Financial statements

d) Financial statements

EBITDA multiple is equal to the enterprise value __________ (divided/multiplied) by EBITDA.

divided

Long-term debt ratio is equal to long-term debt divided by the sum of long-term debt and total __________ .

equity

The debt-equity ratio expresses the total debt divided by total equity, while the ___________ multiplier expresses the total assets divided by the total equity.

equity

The times interest earned ratio equals EBIT divided by ____________.

interest

The times interest earned ratio equals EBIT divided by _______________.

interest

The five categories of financial ratios include short-term solvency, long-term solvency, asset management, profitability, and ___________ value ratios.

market

The inventory _____________ is calculated as the COGS divided by the inventory. Listen to the complete question

turnover

Although Blank______ are often poor reflections of reality, they are often the best information available. Multiple choice question. a) accounting numbers b) intrinsic values c) market valuations

a) accounting numbers

The current ratio shows the relationship between ____. Multiple choice question. a) current assets and current liabilities b) current assets and long-term liabilities c) current and liquid assets d) current and long-term assets

a) current assets and current liabilities

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. Multiple choice question. a) earnings before interest and taxes b) sales c) additions to retained earnings d) net income

a) earnings before interest and taxes

he _________ identity can help to explain why two firms with the same return on equity may not be operating in the same way. Multiple choice question. a) dilution b) DuPont c) Bourne d) ratio

b) DuPont

True or false: There is only one method for preparing the statement of cash flows. True false question. a) True b) False

b) False

Which of the following are uses of cash? (Check all that apply.) Multiple select question. a) Decreases in accounts receivable b) Increases in inventory c) Decreases in accounts payable d) Decreases in property, plant and equipment e) Increases in property, plant and equipment

b) Increases in inventory e) Increases in property, plant and equipment

A useful way of standardizing financial statements is to choose a ____ and then express each item relative to the _____. Multiple choice question. a) benchmark company; that company's net income b) base year; base amount c) future year; estimated amount d) base year; estimated income

b) base year; base amount

Which of the following is the correct representation of the total debt ratio? Multiple choice question. a) Long-term debt/Total assets b) (Total assets - Total equity)/(Total assets) c) Total equity/Total long-term debt

b) (Total assets - Total equity)/(Total assets)

How is the price-earnings (PE) ratio computed? Multiple choice question. a) Book value per share/Earnings per share b) Market price per share/Earnings per share c) Total income/Earnings per share d) Sales price per unit/Earnings per share

b) Market price per share/Earnings per share

Which of the following are traditional financial ratio categories? Multiple select question. a) Real options ratios b) Profitability ratios c) Asset management ratios d) Market value ratios

b) Profitability ratios c) Asset management ratios d) Market value ratios

Which three of the following are most apt to create problems when comparing financial statements for multiple firms? Multiple select question. a) Differing levels of cash b) Seasonality c) Differing accounting methods d) Differing fiscal years

b) Seasonality c) Differing accounting methods d) Differing fiscal years

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. Multiple choice question. a) net income b) earnings before interest and taxes c) additions to retained earnings d) sales

b) earnings before interest and taxes

The price-earnings (PE) ratio is a ______ ratio. Multiple choice question. a) turnover b) market value c) liquidity d) leverage

b) market value

What will happen to the current ratio if current assets increase, while everything else remains unchanged? Multiple choice question. a) It will not be affected. b) It will decrease. c) It will increase. d) It may either increase or decrease.

c) It will increase.

Which one of the following equations defines the total asset turnover ratio? Multiple choice question. a) Sales/Fixed assets b) Current assets/Sales c) Sales/Total assets d) Total assets/Sales

c) Sales/Total assets

Which one of the following is one way in which financial managers use a common-size balance sheet? Multiple choice question. a) To identify changes in operating costs b) To monitor labor costs c) To track changes in a firm's capital structure d) To keep an eye on the firm's profit margin

c) To track changes in a firm's capital structure

A useful way of standardizing financial statements is to choose a ____ and then express each item relative to the _____. a) base year; estimated income b) benchmark company; that company's net income c) base year; base amount d) future year; estimated amount

c) base year; base amount

A firm with a market-to-book ratio that is greater than 1 is said to have ______ value for shareholders. Multiple choice question. a) reduced b) maintained c) created d) destroyed

c) created

A common-base year financial statement presents items relative to a certain base, which is the _____. Multiple choice question. a) revenue amount for a common base year b) sales forecast for a common base year c) dollar amount of each item during a common base year d) target level of each item

c) dollar amount of each item during a common base year

The inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times, respectively. Explaining the upward trend in the inventory turnover ratio requires: Multiple choice question. a) an audit by a CPA b) a congressional investigation c) further investigation d) redundant safety measures

c) further investigation

If a company has inventory, the quick ratio will always be ______ the current ratio. Multiple choice question. a) equal to b) greater than c) less than

c) less than

Common-size statements are used for comparing firms with differing ____. Multiple choice question. a) management styles b) capital structures c) sizes d) tax years

c) sizes

Common-size statements are used for comparing firms with differing ____. Multiple choice question. a) tax years b) capital structures c) sizes d) management styles

c) sizes

The EBITDA ratio is similar in spirit to: Multiple choice question. a) the quick ratio. b) the DuPont Identity. c) the PE ratio. d) inventory turnover.

c) the PE ratio.

Both the debt-equity ratio and the equity multiplier are calculated using _____ in the denominator. Multiple choice question. a) current assets b) net income c) total equity d) total debt

c) total equity

At the most fundamental level, firms generate _________ and spend it.

cash

The cash ratio is found by dividing __________ by current liabilities.

cash

Which of the following represents the receivables turnover ratio? Multiple choice question. a) Accounts receivable/Cost of goods sold b) Cost of goods sold/Accounts receivable c) Accounts receivable/Sales d) Sales/Accounts receivable

d) Sales/Accounts receivable

________ financial statements provide for comparison of firms that differ in currency type. a) Compressed b) Restated c) Original d) Standardized

d) Standardized

Total capitalization equals total equity plus total: Multiple choice question. a) current assets b) net income c) EBIT d) long-term debt

d) long-term debt

Whenever Blank______ information is available, it should be used instead of accounting data. Multiple choice question. a) trivial b) any other c) historical d) market

d) market

The cash ratio is found by dividing cash by: Multiple choice question. a) current liabilities b) current assets c) inventory d) shareholders' equity

a) current liabilities

True or false: Enterprise value equals total market value of the stock plus the book value of the liabilities plus cash. True false question. a) True b) False

b) False

Total capitalization equals total equity plus total: Multiple choice question. a) EBIT b) net income c) current assets d) long-term debt

d) long-term debt

Which of the following are sources of cash? (Check all that apply.) Multiple select question. a) A decrease in accounts receivable b) A decrease in notes payable c) Purchasing an asset d) An increase in notes payable

a) A decrease in accounts receivable d) An increase in notes payable

Which of the following items are among the items used to compute the current ratio? Multiple select question. a) Accounts payable b) Equipment c) Earnings d) Cash

a) Accounts payable d) Cash

How is the inventory turnover ratio computed? Multiple choice question. a) Cost of goods sold/Inventory b) Inventory/Cost of goods sold c) Current assets/Inventory d) Inventory/Total assets

a) Cost of goods sold/Inventory

Which of the following are uses of cash? (Check all that apply.) Multiple select question. a) Increases in property, plant and equipment b) Decreases in accounts receivable c) Decreases in accounts payable d) Decreases in property, plant and equipment e) Increases in inventory

a) Increases in property, plant and equipment c) Decreases in accounts payable e) Increases in inventory

What is the equation for enterprise value? Multiple choice question. a) Market value of stock + book value of liabilities − cash b) Cash − market value of stock − book value of assets c) Market value of stock + equity − cash d) Market value of stock - book value of liabilities − cash

a) Market value of stock + book value of liabilities − cash

If management has been unsuccessful at creating value for the company's stockholders, the market-to-book ratio will be ____. Multiple choice question. a) very high b) less than 1 c) rising d) greater than 1

b) less than 1

The statement of cash flows summarizes the sources and uses of cash, though which of the following is true of the statement? Multiple choice question. a) There are two opposing methods of preparing the statement. b) There are different methods of preparing it. c) There is one strict method of preparing the statement.

b) There are different methods of preparing it.

What does a current ratio of 1.2 mean? Multiple choice question. a) The firm has $1.20 in current assets for every $1 in fixed assets. b) The firm has $1.20 in current liabilities for every $1 in current assets. c) The firm has $1.20 in current liabilities for every $1 in long-term debt. d) The firm has $1.20 in current assets for every $1 in current liabilities.

d) The firm has $1.20 in current assets for every $1 in current liabilities.

What is the equation for enterprise value? Multiple choice question. a) Market value of stock + book value of liabilities − cash b) Cash − market value of stock − book value of assets c) Market value of stock - book value of liabilities − cash d) Market value of stock + equity − cash

a) Market value of stock + book value of liabilities − cash

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? Multiple choice question. a) The total asset turnover ratio will increase. b) The total asset turnover ratio will not be affected. c) The total asset turnover will decrease.

a) The total asset turnover ratio will increase.

True or false: In one way or another, the basic problem with financial statement analysis is that there is no underlying theory to help us identify which quantities to look at and to use in establishing benchmarks. True false question. a) True b) False

a) True

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the: Multiple choice question. a) common-size statements b) common-base year statements c) common-law statements

a) common-size statements

A ______ PE ratio may indicate that investors believe a company has better prospects for future growth in earnings. Multiple choice question. a) higher b) lower c) negative

a) higher

The information needed to compute the profit margin can be found on the ____. Multiple choice question. a) income statement b) balance sheet c) cash flow statement

a) income statement

A(n) ________ in net profit margin will increase ROE. Multiple choice question. a) increase b) decrease c) stagnation

a) increase

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______. Multiple choice question. a) increase b) remain unchanged c) decrease

a) increase

By combining common-size and base year analysis, we eliminate the effect of the _____. Multiple choice question. a) overall growth b) interest yield c) negative inflation d) possibility of a recession

a) overall growth