Fundamentals of Corporate Finance Chapter 3 Introduction to Corporate Finance
Days' sales in receivables
365/Receivables turnover
*Which one of the following is a primary market transaction?
sale of new share of stock to an individual investor
The equity multiplier
1+ D/E
Russel's Deli has cash of $136, accounts receivable of $95 accounts payable of $210, and inventory of $409. What is the value of the quick ratio?
1.10
Which one of the following correctly defines the retention ratio?
addition to retained earnings divided by net income
*The purchase and sale of securities after the original issuance occurs in the:
secondary market
Return on Assets
Net Income/Total Assets
Kindle Fire Prevention Corp. has a profit margin of 6.3 percent, total asset turnover of 2.2, and ROE of 18.44 percent. What is this firm's debt-equity ratio?
ROE = (PM)(TAT)(EM) ROE = 0.1844 = (0.063)(2.20)(EM) EM = 0.1844 / (0.063)(2.20) = 1.33 D/E = EM - 1 = 1.33 - 1 = 0.33
What is receivables turnover?
Sales/Receivables
All else unchanged, which of the following occurs when a firm buys inventory with cash?
The quick ratio declines but the current radio remains unchanged
The management of the firm's short-term assets and liabilities is called:
working capital management
Diamond Eyes, Inc., has sales of $18 million, total assets of $16.7 million, and total debt of $7.2 million. Assume the profit margin is 5 percent. What is Net Income?
$900,000
Return on Equity
(PM)(TAT)(EM)
High Mountain Foods has an equity multiplier of 1.55, a total asset turnover of 1.3, and a profit margin of 7.5 percent. What is the return on equity?
(TAT)(PM)(EM)
If Roten Rooters, Inc., has an equity multiplier of 1.54, total asset turnover of 1.80, and a profit margin of 6.4 percent, what is its ROE?
.1774 of 17.74%
Diamond Eyes, Inc., has sales of $18 million, total assets of $16.7 million, and total debt of $7.2 million. Assume the profit margin is 5 percent. What is Return on Assets?
.539
Perry, Inc., has a total debt ratio of 0.36. What is its debt-equity ratio?
.56
In other words, what does an equity multiplier of 2 mean?
Each dollar in equity the firm has supports $2 in assets
Which one of the following accurately describes the three parts of the Du Point Identity?
equity multiplier, profit margin, and total asset turnover
Relationship determined from a firm's financial information and used for comparison purposes are known as:
financial ratios
Ratios that measure a firm's financial leverage known as ___ ratios.
long-term-solvency
A firm has a debt-equity ratio of 0.42. What is the total debt ratio?
0.30 (add 1 divide by .42)
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which of the following?
0.5
The current ratio is measured as:
Current assets divided by current liabilities.