Chapter 3
The company has return on equity of 30% and stockholders' equity of $4,000,000. What is the company's net income? $3,400,000 $13,333,333 $1,200,000 $5,200,000
$1,200,000 Reason: ROE = NI / SE, so, NI = ROE X SE = 0.3 X $4M NI = $1,200,000
If the company's current ratio is 2.5 times and current liabilities are $600,000, what are current assets? -$1,500,000 -$1,250,000 -$240,000 -$480,000
$1,500,000 Reason: CR = CA/CL So, CA = CR X CL CA = 2.5 X $600K = $1.5M
If the company's current ratio is 2.5 times and current liabilities are $600,000, what are current assets? -$240,000 -$1,500,000 -$1,250,000 -$480,000
$1,500,000 Reason: CR = CA/CL So, CA = CR X CL CA = 2.5 X $600K = $1.5M
If a company has a profit margin of 6% and sales are $1,800,000, what is its net income? -$108,000 -$30,000,000 -$300,000 -$10,800,000
$108,000 Reason: NP = NI / Sales, so, NI = NP X Sales = 0.06 X $1.8M NI = $108,000
If a company has a profit margin of 6% and sales are $1,800,000, what is its net income? $300,000 $10,800,000 $108,000 $30,000,000
$108,000 Reason: NP = NI / Sales, so, NI = NP X Sales = 0.06 X $1.8M NI = $108,000
If the company has an average collection period of 20 days and total sales of $2,520,000, what is the company's accounts receivable balance? (Use a 360 day year). $140,000 $50,400,000 $126,000 $350
$140,000 Reason: ACP = AR/Avg Daily Sales 20 = AR / ($2.52M/360) AR = $140,000
If the company has an average collection period of 20 days and total sales of $2,520,000, what is the company's accounts receivable balance? (Use a 360 day year). -$350 -$126,000 -$140,000 -$50,400,000
$140,000 Reason: ACP = AR/Avg Daily Sales 20 = AR / ($2.52M/360) AR = $140,000
If the company has an average collection period of 20 days and total sales of $2,520,000, what is the company's accounts receivable balance? (Use a 360 day year). -$50,400,000 -$140,000 -$350 -$126,000
$140,000 Reason: ACP = AR/Avg Daily Sales 20 = AR / ($2.52M/360) AR = $140,000
If a company has a debt to total assets ratio of 50% and total assets of $5,000,000, what amount of debt is the the company carrying? -$1,000,000 -$250,000 -$2,500,000 -$10,000,000
$2,500,000 Reason: DTA = TD/TA So, TD = DTA X TA TD = 0.50 X $5M = $2.5M
If the company has a return on assets ratio of 25% and net income is $750,000, what is the total asset balance? -$937,500 -$3,000,000 -$30,000,000 -$187,500
$3,000,000 Reason: ROA = NI/TA. So, 0.25 = $750K/TA TA = $3M
If the company's inventory turnover ratio is 8 times and inventory is $400,000, what is the company's level of sales? -$4,600,000 -$50,000 -$440,000 -$3,200,000
$3,200,000 Reason: Inv TO = Sales / Inv 8 = Sales / $400K Sales = $3,200,000
If the company has a total asset turnover ratio of 4 times and sales of $2,500,000, what is the level of the company's total assets? $954,000 $625,000 $10,000,000 $160,000
$625,000 Reason: TAT = Sales/TA So, TA = Sales/TAT TA = $2.5M/4 TA = $625,000
If a company has a receivables turnover ratio of 10 and accounts receivable of $750,000, what is the company's level of sales on credit? $7,500,000 $833,333 $75,000 $825,000
$7,500,000 Reason: A/R TO = Sales (cr) / A/R, 10 = Sales (cr) / $750K, Sales (cr) =$7,500,000
If the company has a fixed asset turnover ratio of 4 and sales of $3,200,000, what is the level of the company's fixed assets? -$533,333 -$756,000 -$1,280,000 -$800,000
$800,000 Reason: FA TO = Sales / FA 4 = $3.2M / FA FA = $3.2M / 4 = $800,000
If the company's current ratio is 2.5 times and current liabilities are $600,000, what are current assets? -$1,250,000 -$240,000 -$480,000 -$1,500,000
-$1,500,000
The company has total assets of $2,400,000, inventory of $600,000, fixed assets of $1,000,000, and current liabilities of $530,000. What is the company's quick ratio? -2.5 times -1.51 times -2.11 times -2.64 times
1.51 times Reason: QR = (CA - Inven) / CL where, CA = TA - FA = $1.4M QR = ($1.4M - $600K) / $530K QR = 1.51 times
The company has sales of $10,000,000, total assets of $2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. What is the company's fixed asset turnover? 4.2 times 10 times 12 times 2.9 times
10 times Reason: FA TO = Sales / FA FA TO = $10M / $1M = 10 times
If the company's fixed charge coverage ratio is 4.5 times and income before fixed charges and taxes is $450,000, the company has a fixed charges balance of ____
100000
The company has sales of $10,000,000, total assets of $2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's inventory turnover ratio is ____ times (enter only the number and round to 2 decimals).
16.66
If a company has a quick ratio of 1.25 times, current assets of $25,000 and inventory of $5,000, the current liabilities balance is equal to ___
16000
The company has the credit sales of $10,000,000, total assets of $2,100,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's average collection period is ___ days
18
The company has the credit sales of $10,000,000, total assets of $2,100,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's average collection period is ____ days (use 360 days)
18
The company has the credit sales of $10,000,000, total assets of $2,100,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's average collection period is days ____ (use a 360 day year and round to the nearest whole number).
18
The company has total assets of $2,400,000, accounts receivable of $500,000, inventory of $600,000, cash & marketable securities of $20,000, and current liabilities of $530,000. The company's current ratio is _____ times (round to 2 decimals and enter only the number).
2.11
The company has total assets of $2,400,000, accounts receivable of $500,000, inventory of $600,000, cash & marketable securities of $20,000, and current liabilities of $530,000. The company's current ratio is times (round to 2 decimals and enter only the number).
2.12
The company has credit sales of $10,000,000, total assets of 2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. Calculate the company's receivables turnover. -20 times -10 times -8 times -12.5 times
20 times Reason: A/R Turnover = Sales (cr) / A/R, =$10M / $500K = 20 times
The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. The company's return on assets is ___ (give the answer in percent with % sign and round the answer to two decimal places).
20.83%
The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. The company's return on assets is _____ (give the answer in percent with % sign and round the answer to two decimal places).
20.83%
The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. What is the company's return on equity? 25% 35% 31% 21%
25%
The company has sales of $10,000,000, total assets of $2,400,000, fixed assets of $1,000,000, inventory of $600,000, and accounts receivable of $500,000. The company's total asset turnover is equal to times ____(enter only the number, rounded to two decimals).
4.16
If the company's times interest earned ratio is 8 times and interest is $60,000, the company's earnings before interest and taxes is equal to ____
480000
The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. Calculate the company's profit margin. 25% 5% 2% 20%
5%
The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. Calculate the company's profit margin. 20% 5% 25% 2%
5% Reason: NP = NI / Sales = $500K / $10M = 5%
The company has sales of $10,000,000, total assets of $2,400,000, stockholders' equity of $2,000,000, and net income of $500,000. Calculate the company's profit margin. Multiple choice question. 5% 2% 25% 20%
5% Reason: NP = NI / Sales = $500K / $10M = 5%
If a company has current assets of $800,000, total assets of $2,000,000, current liabilities of $500,000, and total liabilities of $1,100,000, its debt to total assets ratio is Blank______. -72.7% -55.0% 57.1% -181.8%
55.0% Reason: DTA = TD/TA = $1.1M/$2.0M DTA = 0.55 = 55.0%. Current assets are included in total assets and current liabilities are included in total liabilities (or total debt).
If a company has current assets of $800,000, total assets of $2,000,000, current liabilities of $500,000, and total liabilities of $1,100,000, its debt to total assets ratio is Blank______. 55.0% 181.8% 72.7% 57.1%
55.0% Reason: DTA = TD/TA = $1.1M/$2.0M DTA = 0.55 = 55.0%. Current assets are included in total assets and current liabilities are included in total liabilities (or total debt).
he company has current liabilities of $530,000, long-term liabilities of $1,000,000, total assets of $2,400,000, and stockholders' equity of $870,000. The company's debt to total assets ratio is ___
63.75
A company has earnings before interest and taxes of $1,500,000, its tax rate is 40%, interest is 30% of its total debt of $600,000, and lease payments are $50,000. What is the company's times interest earned ratio? -3.8 times -5 times -4 times -8.3 times
8.3 times Reason: =EBIT/Interest =$1.5M/($600K X 0.3) =8.3 times
Which of the following may have a negative impact on the times interest earned ratio? -An increase in the gross profit ratio -An increase in the debt-to-assets ratio -An increase in the current ratio -A decrease in net income -An increase in return on assets
An increase in the debt-to-assets ratio A decrease in net income
__ ratios are used to weigh and evaluate the operating performance of the firm.
Financial
Which of the following are debt utilization ratios? -Fixed charge coverage -Return on equity -Debt to total assets -Times interest earned
Fixed charge coverage Debt to total assets Times interest earned
What does a current ratio of 2.5 times represent. -For every $1 in current liabilities the company has $2.50 in current assets. -For every $1 in assets the company has $2.50 in liabilities. -For every $1 in current liabilities the company has $2.50 in current assets, not including inventory. -For every $1 in liabilities the company has $2.50 in total assets.
For every $1 in current liabilities the company has $2.50 in current assets.
What does a current ratio of 2.5 times represent. -For every $1 in current liabilities the company has $2.50 in current assets. -For every $1 in assets the company has $2.50 in liabilities. -For every $1 in liabilities the company has $2.50 in total assets. -For every $1 in current liabilities the company has $2.50 in current assets, not including inventory.
For every $1 in current liabilities the company has $2.50 in current assets.
What does a return on equity of 15% represent? -For every $1 in stockholders' equity the company generates 15 cents in profit -For every $1 in total assets the company generates 15 cents in stockholders' equity -For every $1 in profit the company generates 15 cents in stockholders' equity -For every $1 in stockholders' equity the company generates 15 cents in debt
For every $1 in stockholders' equity the company generates 15 cents in profit
What does a return on equity of 15% represent? -For every $1 in stockholders' equity the company generates 15 cents in profit -For every $1 in total assets the company generates 15 cents in stockholders' equity -For every $1 in stockholders' equity the company generates 15 cents in debt -For every $1 in profit the company generates 15 cents in stockholders' equity
For every $1 in stockholders' equity the company generates 15 cents in profit
From the investor's perspective, which ratio category is of primary importance? -Profitability ratios -Debt utilization ratios -Liquidity ratios -Asset utilization ratios
Profitability ratios
Which of the following is a profitability ratio? -Average collection period -Receivable turnover -Return on assets -Debt to total assets
Return on assets
What does an average collection period of 30 days indicate for a company? -The company sold off their accounts receivable in 30 days or less. -The company collected on sales and re-loaned the money 30 times during the year. -The company has a 30 day collection policy. -The company collects on its issued trade credit in 30 days.
The company collects on its issued trade credit in 30 days.
What does a total asset turnover ratio of 1.5 times represent? -The company generated $1.50 in sales for $1 in current assets. -The company generated $1.50 in sales for $1 in total assets. -The company generated 50 cents in sales for every $1 in total assets. -The company generated $1 in sales for every $1.50 in total assets.
The company generated $1.50 in sales for $1 in total assets.
What does a fixed asset turnover ratio of 4 times represent? -The company generated $4 in sales for every $1 in fixed assets. -The company held 4 times as many fixed assets than the industry average. -The company generated $1 in sales for every $4 in fixed assets. -The company purchased $4 in fixed assets for $1 they made in sales.
The company generated $4 in sales for every $1 in fixed assets.
What does a profit margin of 20% represent? -The company generates 20 cents in profit for every $1 in assets -The company generates 20 cents in profit for every $1 in sales -The company generates 20 cents in profit for every $1 in equity -The company generates a $1 in profit for every 20 cents in sales
The company generates 20 cents in profit for every $1 in sales
What does a return on assets of 12.5% represent? -The company generates $1 in profit for every $12.5 in total assets -The company generates a profit of $12.5 for every $100 in total assets -he company generates a profit of $12.5 for every $1 in sales -The company generates $12.5 for every $1 in equity
The company generates a profit of $12.5 for every $100 in total assets
What does a return on assets of 12.5% represent? -The company generates a profit of $12.5 for every $100 in total assets -The company generates $1 in profit for every $12.5 in total assets -The company generates a profit of $12.5 for every $1 in sales -The company generates $12.5 for every $1 in equity
The company generates a profit of $12.5 for every $100 in total assets
What does an inventory turnover ratio of 7 times represent? -The company's inventory turnover is 7 times smaller than the industry average. -The company's inventory turnover is 7 times greater than the industry average. -The company collected on sales and repurchased its entire inventory in 7 days. -The company generates sales equivalent to 7 times its inventory value during the year.
The company generates sales equivalent to 7 times its inventory value during the year.
What does a debt to total assets ratio of 50% indicate about a company? -The company is carrying half as much debt as it has total assets. -The company's current liabilities are half of its total assets. -The company's debt is 50% greater than the company's equity. -The company's earnings before interest and taxes are 50% greater than the company's debt.
The company is carrying half as much debt as it has total assets.
What does a receivables turnover of 7 times represent? -The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year. -The company took an average of 7 days to collect on their sales. -The company collected on their sales and sold the accounts receivable for 7 times their worth. -The company's average accounts receivable collection period is 7 days.
The company issued and collected trade credit, at the level of its accounts receivable balance, 7 times during the year.
An investor's secondary consideration is liquidity and debt utilization ratios. True False
True
If the company's average collection period is 25 days and industry average is 30 days, the company's average collection period is Blank______ the industry average. worse than better than
better than
If the company's fixed asset turnover ratio is 9 and the industry average is 6, the company's fixed asset turnover ratio is Blank______ the industry average. -better than -worse than
better than
If the company's return on assets is 13% and the industry average is 10%, the company's return on assets ratio is Blank______ the industry average. worse than better than
better than
If the company's return on equity is 18% and the industry average is 15%, the company's return on equity ratio is Blank______ the industry average. better than worse than
better than
If the company's return on equity is 18% and the industry average is 15%, the company's return on equity ratio is Blank______ the industry average. worse than better than
better than
If the company's fixed asset turnover ratio is 9 and the industry average is 6, the company's fixed asset turnover ratio is Blank______ the industry average.
better than Reason: For the Fixed Asset Turnover ratio, higher (or faster) is better because it indicates how efficient the firm is at generating sales from the fixed assets it has invested its capital in.
Asset utilization ratios include all of the following except: -fixed asset turnover -inventory turnover -debt to total assets turnover -receivable turnover
debt to total assets turnover
Asset utilization ratios include all of the following except: -receivable turnover -debt to total assets turnover -inventory turnover -fixed asset turnover
debt to total assets turnover
Profitability ratios measure the company's ability to -earn an adequate return on sales, total assets, and invested capital -pay off short-term debt when it comes due -pay off long-term debt when it comes due -sell inventory and collect on accounts receivable
earn an adequate return on sales, total assets, and invested capital
A major problem during inflationary times is that profit may be more a function of -decreasing prices than of management performance. -management performance than of increasing prices. -decreasing prices than of improved performance. -increasing prices than of improved performance.
increasing prices than of improved performance.
Asset utilization ratios are used to measure management's ability to -make the best use of the company's assets to generate revenue -pay off short-term debt when it comes due -pay off long-term debt when it comes due -earn an adequate return on sales
make the best use of the company's assets to generate revenue
Liquidity ratios are used to measure the company's ability to -earn an adequate return on invested capital -pay off long-term debt as it comes due -pay off short-term debt as it comes due -arn an adequate return on assets
pay off short-term debt as it comes due
Disinflation occurs when: price increases are slowing (the inflation rate is declining) prices are declining the economy is slowing but prices are increasing price increases are speeding up (the inflation rate is spiking)
price increases are slowing (the inflation rate is declining)
Which of the following are liquidity ratios? -quick ratio -current ratio -receivable ratio -debt ratio
quick ratio current ratio
If the current ratio is 2 times, then the firm's current asset balance is Blank______ its current liabilities balance. two times less than two times greater than equal to
two times greater than
Debt utilization ratios indicate to what extent the firm is -using debt and the prudence with which it is being managed. -able to earn an adequate return on invested capital. -able to purchase its assets as they come due. -able to pay off short-term debt as it comes due.
using debt and the prudence with which it is being managed.
If the company's inventory turnover ratio is 10 times and industry average is 12 times, the company's inventory turnover ratio is Blank______ the industry average. better than worse than
worse than
If the company's profit margin is 6% and the industry average is 9.5%, the company's profit margin is Blank______ the industry average. worse than better than
worse than
If the company's receivables turnover is 7 times and the industry average is 10 times, the company's receivables turnover is Blank______ the industry average. better than worse than
worse than
If the company's total asset turnover ratio is 3 times and the industry average is 7 times, the company's total asset turnover ratio is Blank______ the industry average. worse than better than
worse than
f the company's receivables turnover is 7 times and the industry average is 10 times, the company's receivables turnover is Blank______ the industry average. better than worse than
worse than