Other things held constant, which of the following will not affect the current ratio, assuming an initial current ratio greater than 1.0?
Accounts receivable are collected
Other things held constant, which of the following will not affect the quick ratio? (Assume that current assets equal current liabilities.)
Accounts receivable are collected
Company J and Company K each recently reported the same earnings per share (EPS). Company J’s stock, however, trades at a higher price. Which of the following statements is most correct?
Company J must have a higher P/E ratio.
Stennett Corp.’s CFO has proposed that the company issue new debt and use the proceeds to buy back common stock. Which of the following are likely to occur if this proposal is adopted? (Assume that the proposal would have no effect on the company’s operating earnings.)
Statements B and C are correct
Russell Securities has $100 million in total assets and its corporate tax rate is 40 percent. The company recently reported that its basic earning power (BEP) ratio was 15 percent and that its return on assets (ROA) was 9 percent. What was the company’s interest expense?
A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000, total assets of $22,500,000, and an after-tax interest cost on total debt of 5 percent, what is the firm’s ROA?
Tapley Dental Supply Company has the following data:
Net income: $240 Sales: $10,000 Total assets: $6,000
Debt ratio: 75% TIE ratio: 2.0 Current ratio: 1.2
BEP ratio: 13.33%
If Tapley could streamline operations, cut operating costs, and raise net income to $300, without affecting sales or the balance sheet (the additional profits will be paid out as dividends), by how much would its ROE increase?
Five areas that financial ratios concentrate on are:
liquidity, profitability, debt, efficiency, market related
Ratios that measure the ability of the company to pay its short-term debts are called:
Current assets divided by current liabilities is the definition of the:
The quick ratio is defined as:
current assets less inventory, divided by current liabilities
Return on sales, return on assets and return on equity are examples of:
Return on assets is defined as:
operating income divided by total assets
Net income divided by shareholders’ equity is the definition of:
return on equity
The debt to equity ratio measures
the relative proportions of debt and equity in the capital structure
The interest cover ratio measures:
the relationship between interest and profit
Total asset turnover, receivables turnover and inventory turnover ratios measure:
The receivables turnover ratio is defined as:
sales divided by receivables
To measure the efficiency with which inventory is used the following ratio should be used:
inventory holding period, inventory turnover ratio
Earnings per share is affected by:
number of shares, net income
The price to earnings ratio measures:
the public’s perception of the company
The dividend cover ratio is defined as:
net income divided by dividend
A company has a total asset turnover of 2 and sales of $500,000. What is the company’s total assets?
Given the following information, calculate the company’s long-term debt.
Which of the following statements is not required by the SEC for publicly traded firms?
the statement of cost of goods sold
The balance sheet entry that represents the cumulative total of the earnings that a firm has reinvested since its inception is
Which of the following is not a common tool used in financial statement analysis?
Random walk analysis
The effect of an increase in a firm’s accounts payable during the year, assuming that the current asset portion of the balance sheet remains the same, is
an inflow of cash
What is the financial ratio that measures the price per share of stock divided by earnings per share?
While determining the most profitable company from the given number of companies, which of the following would be the best indicator of relative profitability?
Highest return on equity
Which of the following statements concerning financial ratios is incorrect?
Accounting principles and methods used by a company will not affect financial ratios
Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity?
Days goodwill held
Liquidity of a company is generally defined as a measure of:
the ability to pay current liabilities
Which of the following statements is correct?
The more efficiently a company utilizes its assets, the greater its return on investment, all other things being equal
Which of the following statistics would be the most useful in determining the efficiency of a car rental company?
Number of days cars are rented as a percentage of number of days available for rent
Which of the following ratios does not relate to market price of a company under analysis?
Return on common equity
Which of the following ratios would be considered useful in assessing operating profitability?
Gross profit margin
Which of the following statements regarding the intrinsic value of a company is correct?
It can be calculated as book value plus the present value of future expected residual income, discounted at the cost of equity capital
Which of the following statements is incorrect?
Equity investors have unlimited downside exposure if the company declares bankruptcy
You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect?
If companies have different auditors, this will hinder comparability
In order to identify the amount of funds that a firm borrowed during the preceding year, what section is the best source within the Statement of Cash Flows?
Which of the following items can be found on an income statement?
If you only knew a company’s total assets and total debt, which item could you easily calculate?
How do we calculate a company’s operating cash flow?
EBIT — taxes + depreciation
Holding all other things constant, which of the following represents a cash outflow?
The company acquires inventory
What ratio measures the ability of the firm to satisfy its short term obligations as they come due?
If you are looking to review a firm’s sources and uses of cash flows over the year, the easiest place to find that information is
the Statement of Cash Flows