Chapter 3 - Working with Financial Statements - Qz 01

During the past two years, both the cost per unit and the selling price per unit remained constant at The Floor Store. The firm was able to increase the quantity of goods it sells while holding the amount of inventory on hand at a constant level. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

Decrease in the days' sales in inventory

Happy Pets has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a net profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

26.7 Explanation Price per share = 1.20($328,000/8,000)Price per share = $49.20EPS = [.045($328,000)]/8,000EPS = $1.845PE ratio = $49.20/$1.845PE ratio = 26.7

Muro Press has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars' worth of sales are generated from every $1 in total assets?

$1.08 Explanation Total asset turnover = $31,350/($2,715 + 22,407 + 3,908)Total asset turnover = 1.08Every $1 in total assets generates $1.08 in sales.

For the past year, Zhao Events had taxable income of $198,600, beginning common stock of $68,000, beginning retained earnings of $318,750, ending common stock of $71,500, ending retained earnings of $316,940, interest expense of $11,300, and a tax rate of 21 percent. What is the amount of dividends paid during the year?

$158,704 Explanation Net income = $198,600(1 − .21)Net income = $156,894Dividends paid = $156,894 − ($316,940 − 318,750)Dividends paid = $158,704

Cain's has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income?

$85,748 Explanation Equity multiplier = 1 + Debt-equity ratioEquity multiplier = 1.94ROE = .085(1.94)ROE = .1649Net income = .1649($520,000)Net income = $85,748

Shen & Sanchez Engineering is an all-equity firm that has net income of $96,200, depreciation expense of $6,300, and an increase in net working capital of $2,800. What is the amount of the net cash from operating activity?

$99,700 Explanation Net cash from operating activity = $96,200 + 6,300 − 2,800Net cash from operating activity = $99,700

A firm has inventory of $29,406, accounts receivable of $46,215, net working capital of $4,507, and current liabilities of $90,549. What is the quick ratio?

.75 Explanation Current Assets = Current Liabilities + Net Working CapitalCurrent Assets = $90,549 + 4,507 = $95,056 Quick ratio = ($95,056 − 29,406)/$90,549Quick ratio = .75

Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:

has an equity multiplier of 1.0.

Both Archer's and Burger Bar have price-earnings ratios of 16.2. However, Archer's has a higher PEG ratio than Burger Bar. It must be true that Archer's ______ than Burger Bar.

is increasing its earnings at a slower rate

Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. Its competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both companies have similar operations. Based on this information, Dominic's must be _____ than Window Fashions.

utilizing its total assets more efficiently