Chapter 3
Quick Ratio
(CA-Inventory)/CL
Total Debt Ratio
(Total Assets - Total Equity) / Total Assets
Which one of the following accurately describes the three parts of the DuPont identity?
Equity multiplier, profit margin, and total asset turnover
The DuPont identity can be used to help managers answer which of the following questions related to a company's operations? I. How many sales dollars are being generated per each dollar of assets? II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generating per dollar of sales? IV. Does the company have the ability to meet its debt obligations in a timely manner?
I, II, and III only
ROA
Net Income/Total Assets
ROE
Net Income/Total Equity
Equity Multiplier
Total Assets/Total Equity or (1 + Debt-Equity Ratio)
RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?
Utilizing its total assets more efficiently than Sam's
DuPont Identity
popular expression breaking ROE into three parts: operating efficiency, asset use efficiency, and financial leverage ROE=PMxTATxEM
The accounts payable of a company changed from $136,100 to $104,300 over the course of a year. This change represents a:
use of $31,800 of cash as an operating activity.
Which one of the following is a source of cash?
Acquisition of debt
Which one of the following statements is correct?
An increase in the depreciation expense will not affect the cash coverage ratio
Current ratio
CA/CL
Cash Ratio
Cash/CL
Which one of the following ratios is a measure of a firm's liquidity?
Quick ratio
Total Asset Turnover
Sales/Total Assets
Common-Size Balance Sheets
compute all accounts as a percent of total assets
Common-Size Income Statements
compute all line items as a percent of sales
Standardized statements:
make it easier to compare financial information, particularly as the company grows.
Profit Margin
net income/net sales
