FIN Chapter 3
If a firm has a debt-equity ration of 1, then its total debt ratio must be which of the following?
.5
A firm uses 2011 as the base year for financial statements. The common size base year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that 2012 inventory is equal to 108% of which of the following?
2011 inventory expressed as a percent of 2011 total assets
An increase in which will increase a firm's quick ratio without affecting its cash ratio?
Accounts receivable
Which one of the following is a source of cash?
Acquisition of debt
Which of the following statements are correct?
An increase in depreciation expense will not affect the cash coverage ratio
On a common base year financial statement, accounts receivable will be expressed relative to which one of the following?
Base year accounts receivables
Al's has a price-earnings ratio of 18.5. Ben's also has a price to earnings of 18.5. Which of the following statements must be true if Al's has a higher PEG than Ben's?
Ben's is increasing its earnings at a faster rate than Al's
A supplier who requires payment within 10 days should be most concerned with which rations when granting credit?
Cash
Which of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
Common base year statement
On the Statement of cash flows, which is considered operating activities?
Cost of goods sold decrease in accounts payable Interest paid (Net income, and changes in most current accounts)
A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which of the following?
Cover its operating costs for the next 48 days
Which one of the following is a use of cash?
Decrease in common stock (repurchasing stock)
Which one of the following is a source of cash?
Decrease in inventory (selling inventory- gaining cash)
The Corner hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price also remained constant. This accomplishment is reflected in the financial ratios by which?
Decrease in the days sales in inventory
The formula which breaks down the return on equity into three component parts is referred to as which?
DuPont Identity
Which of the following represents problems encountered when comparing the financial statements of two separate entities?
Either one or both the firms may be conglomerates and have unrelated lines of business The operations of the two firms vary geographically The firms use differing accounting methods The two firms may be seasonal in nature and have different fiscal year ends
A firm currently has 600 in debt for every 1000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and income. Which will decrease as a result?
Equity multiplier
Which describes the three parts of the DuPont Identity?
Equity multiplier, profit margin, and total asset turnover
Relationships determined from a firm's financial information and used for comparison purposes are known as:
Financial ratios
The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:
Financial ratios to the firms historical ratios
Which of the following statements is correct?
Financial statements are frequently used as the basis of performance evaluations
The DuPont Identity can be used to help managers answer which of the following questions related to a firm's operations?
How many sales dollars has the firm generated per dollar of assets How many dollars of assets has a firm acquired per each dollar in shareholder's equity How much net profit is a firm generating per dollar of sales
Which one of the following is a source of cash?
Increase in accounts payable (short term liability- gaining cash)
On the statement of cash flows, which is considered financing activities?
Increase in long term debt Dividends paid (changes in debt and equity accounts)
Which of the following ratios are measures of a firms liquidity?
Interval measure quick ratio
Ratios that measure a firm's financial leverage are known as _____ ratios:
Long term solvency
The price-sales ratio is especially useful when analyzing firms that have which?
Negative earnings
Which can be used to compute the return on equity?
Net Income/total Equity Return on assets x equity multiplier
The cash coverage ratio directly measures the ability of a firm's revenues to meet which of the following obligations?
Payment of interest to a lender
Which of the following will decrease if a firm can decrease its operating costs, all else constant?
Price-earnings ratio
Ratios that measure how efficiently a firm's manages its assets and operations generate net income are referred to as ____ ratios
Profitability
Shareholders probably have the most interest in which of the ratios?
Return on equity and price-earnings
An increase in which will increase the return on equity?
Sales Net income
The US government coding system that classifies a firm by the nature of the business operations is known as:
Standard & Industrial Classification Code
The sources and uses of cash over a stated period of time are reflected on the:
Statement of cash flows
Jasper had sales of 21k in 2011 and 24k in 2012. The firm's current accounts remained constant. given this info, which of the following statements must be true?
The net working capital turnover rate increased
Tobin's Q relates the market value of a firm's assets to which?
Today's cost to duplicate those assets
On a common size balance sheet all accounts are expressed as a percentage of:
Total assets for the current year
Activities of a firm which require the spending of cash are known as:
Uses of cash
Its easier to evaluate a firm using financial statements when the firm:
Uses the same accounting procedures as other firms in the industry
Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of .91. Sam has a fixed asset turnover rate of 1.15 and a total asset turnover rate of .88. Both companies have similar operations. Based on this, De's must be doing which?
Utilizing its total assets more efficiently
An increase in current liabilities will have which one of the following effects, all else held constant?
decrease in the quick ratio
According to the statement of cash flows, an increase in interest expense will ________ the cash flow from ________ activities:
decrease; operating
If a firm produces a 12% return on assets, and also a 12% return on equity, then the firm:
has an equity multiplier of 1
According to the statement of cash flows, a decrease in accounts receivable will _______ the cash flow from ______ activities:
increase; operating
A common size income statement is an accounting statement that expresses all of a firms expenses as a percentage of:
sales
