week 15

Firm D had total stockholders equity of $1,000,000 at the end of Year 1 and $1,400,000 at the end of Year 2. Throughout Year 2, there were 100,000 shares of common stock authorized, 60,000 shares issued, and 50,000 shares outstanding. Firm D's book value per share at the end of Year 2 was:

$1,400,000 / 50,000 = $28 per share

Firm B's common stock has a par value per share of $1, market value per share of $72, dividends per share of $4, earnings per share of $8, and a book value per share of $64. Firm B's price/earnings ratio is:

$72 / $8 = 9.0 per share

Firm E had total stockholders' equity of $600,000 at the end of Year 1 and $800,000 at the end of Year 2. Throughout Year 2, there were 100,000 shares of common stock authorized, 50,000 shares issued, and 40,000 shares outstanding. Firm E's book value per share at the end of Year 2 was:

$800,000 / 40,000 = $20 per share

Firm C's common stock has a par value per share of $10, earnings per share of $6, dividends per share of $5, a book value per share of $69, and a market value per share of $84. Firm C's price/earnings ratio is:

$84 / $6 = $14 per share

If net income = $20,000 and average stockholders' equity = $80,000, then ROE = percent.

25

Which of the following statements is true regarding the working capital calculation?

Accounts payable are included in current liabilities. Accounts receivable are included in current assets.

If stockholders' equity at the beginning of the year = $480,000, stockholders' equity at the end of the year = $520,000, and net income = $80,000, then:

Average stockholders' equity = $500,000, and ROE = 16%

Which of the following statements is true regarding the current ratio?

Cash is included in the numerator. Accounts payable are included in the denominator.

Identify the correct statements about vertical common size financial statement analysis.

Each financial statement is examined from top to bottom on an annual basis. Each stockholders' equity item is expressed as a percentage of total assets. Each asset is expressed as a percentage of total assets.

The LIFO reserve is the difference between the inventory valuation as reported under:

LIFO and the amount that would have been reported under FIFO.

Which of the following statements is true regarding the working capital calculation?

Merchandise inventory is part of current assets. Cash is part of current assets.

The amount of interest earned on an investment is calculated as:

Principal ($) x Rate (%) x Time (in years)

Financial leverage magnifies a firm's (ROI/ROE) relative to its (ROI/ROE). Listen to the complete question

ROE ROI

If sales = $500,000, turnover = 1.5, and net income = $75,000, then:

ROI = 22.5% and margin = 15%

Which of the following statements is true regarding the current ratio?

Rent payable is included in the denominator. The current ratio is calculated as current assets divided by current liabilities. Merchandise inventory is included in the numerator

Which of the following statements are true regarding a semilogarithmic graph?

Semilogarithmic graphs are frequently used to plot data that is expected to change significantly over time, such as a company's sales data. If the data increases at a constant rate over the period of time shown on the horizontal scale, the plot will be a straight line.

Which of the following statements are true regarding the acid-test ratio?

The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. The acid-test ratio is sometimes called the quick ratio. Temporary cash investments are included in the numerator of the acid-test ratio.

Which of the following statements is true regarding the acid-test ratio?

The acid-test ratio uses the same denominator as does the current ratio. The acid-test ratio excludes merchandise inventory from the numerator. The acid-test ratio is a more conservative measure of liquidity than is the current ratio.

Identify the correct statements about vertical common size financial statement analysis.

With vertical common size financial statement analysis, each item on the income statement is expressed as a percentage of sales. With vertical common size financial statement analysis, total current assets are expressed as a percentage of total assets.

A company desiring to increase its total asset turnover could do so by using:

an accelerated depreciation method and the LIFO cost flow assumption.

Working capital refers to the excess of a firm's:

current assets over its current liabilities.

Trend analysis:

for a company over several years generally leads to a more meaningful analysis than does the observation of a single year's ratio result.

Examples of physical or combined physical/financial measures of activity that are sometimes disclosed in the notes to the financial statements include:

gross profit per square foot of selling space sales in units number of employees

(horizontal/vertical) common size analysis, the base year selected impacts how the trends of a company's financial results in recent years are portrayed.

horizontal

With a semilogarithmic graph, the ... scale is arithmetic

horizontal

The use of an accelerated depreciation method and the LIFO inventory cost flow assumption will usually (increase/decrease) a company's total asset turnover relative to using the straight-line method and FIFO.

increase

Trend analysis of ratios:

is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios

Working capital:

is expressed as a dollar amount, rather than as a financial ratio. is the excess of a firm's current assets over its current liabilities.

A firm's liquidity refers to:

its ability to meet its current obligations as they become due.

Financial leverage is considered positive if the interest rate paid on borrowed money is (more/less) than the rate of return (ROI) earned on that money.

less

The ratios used to facilitate the interpretation of an entity's financial position and results of operations can be grouped into four (4) categories:

liquidity, activity, profitability, and debt

If sales = $100,000, turnover = 2.0, and ROI = 10 percent, then:

net income = $5,000 and margin = 5%

Operating income is frequently substituted for net income in the calculation of ROI and ROE because:

operating income excludes income tax expense, which varies from firm to firm based on country-specific tax rates. operating income excludes the effects of discontinued operations and thus provides a more forward looking measure of the firm's profitability.

Operating income is frequently substituted for net income in the calculation of ROI and ROE because:

operating income excludes interest expense, which varies from firm to firm based on their capital structure decisions. operating income is a more direct measure of the results of a firm's activities.

Examples of physical or combined physical/financial measures of activity that are sometimes disclosed in the notes to the financial statements include:

operating income per employee sales dollars per employee plant operating expenses per square foot

The P/E ratio is calculated by dividing the (dividends/price/earnings) per share of common stock by the (dividends/price/earnings) per share of common stock.

price earnings

Liquidity

refers to a firm's ability to meet its current obligations as they become due. is measured by relating current assets and current liabilities as reported on the balance sheet.

Liquidity:

refers to a firm's ability to meet its current obligations as they become due. is measured by relating current assets and current liabilities as reported on the balance sheet.

The difference between the inventory valuation as reported under LIFO and the amount that would have been reported under FIFO is called the LIFO (backlog/reserve/stockpile). Listen to the complete question

reserve

Earnings multiple is another term used to describe the price/earnings ratio. This term merely reflects that:

the market price of stock is equal to the earnings per share multiplied by the P/E ratio.

To calculate the amount of interest earned on an investment, you would need to know:

the principal amount invested the length of time the funds are invested for the interest rate per year

with a semilogarithmic graph, the ____ scale is logarithmic

vertical

Book value per share of common stock is usually calculated by dividing a company's (average/year-end) total stockholders' equity by the (average/year-end) number of shares of common stock (authorized/issued/outstanding).

year-end year-end outstanding