Question 1

The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.

Accepted Answer

A) True 
 B)False

Question 2

Song Corp's stock price at the end of last year was $23.50 and its earnings per share for the year were $1.30. What was its P/E ratio?

Accepted Answer

A)   17.17
B)   18.08
C)   18.98
D)   19.93
E)   20.93F) A) and E)
G) A) and B)

Question 3

Last year Rennie Industries had sales of $305,000, assets of $175,000, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $51,000 without affecting either sales or costs. Had it reduced its assets by this amount, and had the debt ratio, sales, and costs remained constant, how much would the ROE have changed?

Accepted Answer

A)   4.10%
B)   4.56%
C)   5.01%
D)   5.52%
E)   6.07%F) C) and D)
G) A) and D) B

Question 4

(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 debt ratio?

Accepted Answer

A)   48.55%
B)   53.95%
C)   59.94%
D)   66.60%
E)   74.00%F) A) and B)
G) B) and E)

Question 5

Precision Aviation had a profit margin of 6.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE?

Accepted Answer

A)   15.23%
B)   16.03%
C)   16.88%
D)   17.72%
E)   18.60%F) B) and E)
G) D) and E)

Question 6

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?

Accepted Answer

A)   The TIE declines.
B)   The DSO increases.
C)   The quick ratio increases.
D)   The current ratio declines.
E)   The total assets turnover decreases.F) C) and D)
G) B) and C)

Question 7

Which of the following would indicate an improvement in a company's financial position, holding other things constant?

Accepted Answer

A)   The inventory and total assets turnover ratios both decline.
B)   The debt ratio increases.
C)   The profit margin declines.
D)   The times-interest-earned ratio declines.
E)   The current and quick ratios both increase.F) None of the above
G) C) and D)

Question 8

The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Accepted Answer

A) True 
 B)False

Question 9

If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

Accepted Answer

A) True 
 B)False

Question 10

(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 days sales outstanding? Assume a 365-day year for this calculation.

Accepted Answer

A)   39.07
B)   41.13
C)   43.29
D)   45.57
E)   47.97F) C) and D)
G) B) and E) E

Question 11

What is the firm's equity multiplier?

Accepted Answer

A)   3.85
B)   4.04
C)   4.24
D)   4.45
E)   4.68F) A) and B)
G) B) and E)

Question 12

A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger?

Accepted Answer

A)   Increase accounts receivable while holding sales constant.
B)   Increase EBIT while holding sales and assets constant.
C)   Increase accounts payable while holding sales constant.
D)   Increase notes payable while holding sales constant.
E)   Increase inventories while holding sales constant.F) C) and E)
G) B) and C)

Question 13

Profitability ratios show the combined effects of liquidity, asset management, and debt management on a firm's operating results.

Accepted Answer

A) True 
 B)False  True

Question 14

If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.

Accepted Answer

A) True 
 B)False

Question 15

The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher growth in the future.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is CORRECT?

Accepted Answer

A)   If a firm has high current and quick ratios, this always indicate that the firm is managing its liquidity position well.
B)   If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.
C)   If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would decline.
D)   If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.
E)   The inventory turnover ratio and days sales outstanding (DSO)  are two ratios that are used to assess how effectively a firm is managing its current assets.F) None of the above
G) B) and E)

Question 17

The current and inventory turnover ratios both help us measure a firm's liquidity. The current ratio measures the relationship of the firm's current assets to its current liabilities, while the inventory turnover ratio gives us an indication of how long it takes the firm to convert its inventory into cash.

Accepted Answer

A) True 
 B)False

Question 18

Meyer Inc's assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to establish a debt ratio of 55%. The size of the firm does not change. How much debt must the company add or subtract to achieve the target debt ratio?

Accepted Answer

A)   $158,750
B)   $166,688
C)   $175,022
D)   $183,773
E)   $192,962F) B) and E)
G) All of the above

Question 19

If a bank loan officer were considering a company's loan request, which of the following statements would you consider to be CORRECT?

Accepted Answer

A)   The lower the company's inventory turnover ratio, other things held constant, the lower the interest rate the bank would charge the firm.
B)   Other things held constant, the higher the days sales outstanding ratio, the lower the interest rate the bank would charge.
C)   Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge.
D)   The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge.
E)   Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.F) A) and C)
G) C) and E)

Question 20

Ajax Corp's sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE)  ratio?

Accepted Answer

A)   4.72
B)   4.97
C)   5.23
D)   5.51
E)   5.80F) A) and E)
G) D) and E)

Exam 4: Analysis of Financial Statements

The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.

Correct Answer
verified

Song Corp's stock price at the end of last year was $23.50 and its earnings per share for the year were $1.30. What was its P/E ratio?

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Precision Aviation had a profit margin of 6.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE?

Correct Answer
verified

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?

Correct Answer
verified

Which of the following would indicate an improvement in a company's financial position, holding other things constant?

Correct Answer
verified

The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Correct Answer
verified

If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

Correct Answer
verified

Correct Answer
verified
E

What is the firm's equity multiplier?

Correct Answer
verified

A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger?

Correct Answer
verified

Profitability ratios show the combined effects of liquidity, asset management, and debt management on a firm's operating results.

Correct Answer
verified
True

If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.

Correct Answer
verified

The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher growth in the future.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Meyer Inc's assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to establish a debt ratio of 55%. The size of the firm does not change. How much debt must the company add or subtract to achieve the target debt ratio?

Correct Answer
verified

If a bank loan officer were considering a company's loan request, which of the following statements would you consider to be CORRECT?

Correct Answer
verified

Ajax Corp's sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE) ratio?

Correct Answer
verified

Exam 4: Analysis of Financial Statements

The advantage of the basic earning power ratio (BEP) over the return on total assets for judging a company's operating efficiency is that the BEP does not reflect the effects of debt and taxes.

Correct AnswerverifiedShow Answer

Song Corp's stock price at the end of last year was $23.50 and its earnings per share for the year were $1.30. What was its P/E ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

Precision Aviation had a profit margin of 6.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE?

Correct AnswerverifiedShow Answer

Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?

Correct AnswerverifiedShow Answer

Which of the following would indicate an improvement in a company's financial position, holding other things constant?

Correct AnswerverifiedShow Answer

The basic earning power ratio (BEP) reflects the earning power of a firm's assets after giving consideration to financial leverage and tax effects.

Correct AnswerverifiedShow Answer

If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedE

What is the firm's equity multiplier?

Correct AnswerverifiedShow Answer

A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger?

Correct AnswerverifiedShow Answer

Profitability ratios show the combined effects of liquidity, asset management, and debt management on a firm's operating results.

Correct AnswerverifiedTrue

If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.

Correct AnswerverifiedShow Answer

The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher P/E ratios as being less risky and/or more likely to enjoy higher growth in the future.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Meyer Inc's assets are $625,000, and its total debt outstanding is $185,000. The new CFO wants to establish a debt ratio of 55%. The size of the firm does not change. How much debt must the company add or subtract to achieve the target debt ratio?

Correct AnswerverifiedShow Answer

If a bank loan officer were considering a company's loan request, which of the following statements would you consider to be CORRECT?

Correct AnswerverifiedShow Answer

Ajax Corp's sales last year were $435,000, its operating costs were $362,500, and its interest charges were $12,500. What was the firm's times-interest-earned (TIE) ratio?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
E

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified