Question 1

Considered alone, which of the following would increase a company's current ratio?

Accepted Answer

A)   An increase in net fixed assets.
B)   An increase in accrued liabilities.
C)   An increase in notes payable.
D)   An increase in accounts receivable.
E)   An increase in accounts payable.F) A) and D)
G) A) and E)

Question 2

The profit margin measures net income per dollar of sales.

Accepted Answer

A) True 
 B)False

Question 3

What is the firm's book value per share?

Accepted Answer

A)   $22.29
B)   $23.47
C)   $24.70
D)   $26.00
E)   $27.30F) A) and D)
G) C) and D)

Question 4

If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.

Accepted Answer

A) True 
 B)False

Question 5

Ryngard Corp's sales last year were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO) ?

Accepted Answer

A)   2.04
B)   2.14
C)   2.26
D)   2.38
E)   2.49F) A) and B)
G) B) and D)

Question 6

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company's total assets or operating income. Which of the following effects would occur as a result of this action?

Accepted Answer

A)   The company's current ratio increased.
B)   The company's times interest earned ratio decreased.
C)   The company's basic earning power ratio increased.
D)   The company's equity multiplier increased.
E)   The company's debt ratio increased.F) B) and D)
G) A) and E)

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid.
B)   In general, it's better to have a low inventory turnover ratio than a high one, as a low one indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.
C)   If a firm's fixed assets turnover ratio is significantly lower than its industry average, this could indicate that it uses its fixed assets efficiently or is operating at over capacity and should probably add fixed assets.
D)   The more conservative a firm's management is, the higher its debt ratio is likely to be.
E)   The days sales outstanding ratio tells us how long it takes, on average, to collect after a sale is made. The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time.F) A) and B)
G) B) and D)

Question 8

(The following information applies to Problems 110 through 127.) 
The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
-What is the firm's total assets turnover?

Accepted Answer

A)   1.12
B)   1.40
C)   1.75
D)   2.10
E)   2.52F) A) and B)
G) A) and C)

Question 9

Amram Company's current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio?

Accepted Answer

A)   Borrow using short-term notes payable and use the proceeds to reduce accruals.
B)   Borrow using short-term notes payable and use the proceeds to reduce long-term debt.
C)   Use cash to reduce accruals.
D)   Use cash to reduce short-term notes payable.
E)   Use cash to reduce accounts payable.F) A) and B)
G) A) and C)

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)   The use of debt financing will tend to lower the basic earning power ratio, other things held constant.
B)   A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure.
C)   If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE.
D)   The numerator used in the TIE ratio is earnings before taxes (EBT) . EBT is used because interest is paid with post-tax dollars, so the firm's ability to pay current interest is affected by taxes.
E)   All else equal, increasing the debt ratio will increase the ROA.F) A) and E)
G) A) and D)

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   In general, if investors regard a company as being relatively risky and/or having relatively poor growth prospects, then it will have relatively high P/E and M/B ratios.
B)   The basic earning power ratio (BEP)  reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.
C)   The "apparent," but not necessarily the "true," financial position of a company whose sales are seasonal can change dramatically during a given year, depending on the time of year when the financial statements are constructed.
D)   The market/book (M/
B)   ratio tells us how much investors are willing to pay for a dollar of accounting book value. In general, investors regard companies with higher M/B ratios as being more risky and/or less likely to enjoy higher future growth.
E)   It is appropriate to use the fixed assets turnover ratio to appraise firms' effectiveness in managing their fixed assets if and only if all the firms being compared have the same proportion of fixed assets to total assets.F) A) and B)
G) C) and D)

Question 12

Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

Accepted Answer

A) True 
 B)False

Question 13

Other things held constant, the more debt a firm uses, the lower its profit margin will be.

Accepted Answer

A) True 
 B)False

Exam 4: Analysis of Financial Statements

Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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The profit margin measures net income per dollar of sales.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company's total assets or operating income. Which of the following effects would occur as a result of this action?

Correct Answer
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Other things held constant, the more debt a firm uses, the lower its profit margin will be.

Correct Answer
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Ryngard Corp's sales last year were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO) ?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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What is the firm's book value per share?

Correct Answer
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Considered alone, which of the following would increase a company's current ratio?

Correct Answer
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Amram Company's current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio?

Correct Answer
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If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.

Correct Answer
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Exam 4: Analysis of Financial Statements

Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The profit margin measures net income per dollar of sales.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable. This action had no effect on the company's total assets or operating income. Which of the following effects would occur as a result of this action?

Correct AnswerverifiedShow Answer

Other things held constant, the more debt a firm uses, the lower its profit margin will be.

Correct AnswerverifiedShow Answer

Ryngard Corp's sales last year were $38,000, and its total assets were $16,000. What was its total assets turnover ratio (TATO) ?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the firm's book value per share?

Correct AnswerverifiedShow Answer

Considered alone, which of the following would increase a company's current ratio?

Correct AnswerverifiedShow Answer

Amram Company's current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio?

Correct AnswerverifiedShow Answer

If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.

Correct AnswerverifiedShow Answer

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