FIN/419

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Which of the following items are used to compute the current ratio?

Accounts payable Cash

True or false: The total debt ratio equals the total assets minus total equity divided total assets

TRUE

Which of the following create problems with financial statement analysis?

The firm or its competitors are global companies. The firm and its competitors operate under different regulatory environments. The firm or its competitors are conglomerates

Which of the following is (are) true of financial ratios?

They are developed from a firm's financial information. They are used for comparison purposes.

The DuPont identity breaks ROE into ___________parts.

Three

Which one of the following best explains why financial managers use a common-size balance sheet?

To track changes in a firm's capital structure

True or false: In a common-size income statement, each item is expressed as a percentage of total sales.

True

True or false: It is important to investigate trends in financial ratios to identify the reason for the trend.

True

The ___________payout ratio equals cash dividends divided by net income.

dividend

How is the price-earnings (PE) ratio computed?

Market price per share/Earnings per share

________ financial statements enable one to compare firms that differ in size.

Standardized

The current ratio computes the relationship between ____.

current assets and current liabilities

Given an internal growth rate of 3 percent, a firm can _____.

grow by 3 percent or less without any additional external financing

The information needed to compute the profit margin can be found on the ____.

income statement

Time-trend analysis is an example of

management by exception

Whenever ___________ information is available, it should be used instead of accounting data.

market

The price-earnings (PE) ratio is a ____ ratio.

market value

Based on the DuPont Identity, an increase in sales, all else held equal, __________ ROE.

may not change may increase or decrease

In a common-size income statement, each item is expressed as a percentage of total

sales

The profit margin is equal to net income divided by ______.

sales

A common-size balance sheet expresses accounts as a percentage of ______.

total assets

What is the formula for computing the internal growth rate (IGR)?

(ROA x b)/(1 - ROA x b)

Which of the following is the correct representation of the total debt ratio?

(Total assets - Total equity)/(Total assets)

The DuPont identity shows that____________ _________ times total asset turnover times equity multiplier equals ROE.

Blank 1: profit Blank 2: margin or margins

True or false: Financial ratios are computed using only balance sheet information.

False

True or false: If there is a conflict between market and accounting data, accounting data should be given precedence.

False

True or false: Inventory turnover is sales divided by inventory.

False

True or false: The DuPont identity is a popular expression breaking ROA into three parts.

False

True or false: The dividend payout ratio equals cash dividends divided by sales.

False

True or false: There is a solid and prescriptive method to select which ratios to use in financial statement analysis

False

Inventory turnover is cost of goods sold divided by

Inventory


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