Question 1

The days sales outstanding 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.

Accepted Answer

A) True 
 B)False

Question 2

Precision Aviation had a profit margin of 8.00%,a total assets turnover of 1.5,and an equity multiplier of 1.8.What was the firm's ROE?

Accepted Answer

A)   22.68%
B)   16.63%
C)   20.95%
D)   23.76%
E)   21.60%F) A) and B)
G) C) and D)

Question 3

Last year Ann Arbor Corp had $195,000 of assets (which equals total invested capital) ,$305,000 of sales,$20,000 of net income,and a debt-to-total-capital ratio of 37.5%.The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000.The firm finances using only debt and common equity.Assets,total invested capital,sales,and the debt to capital ratio would not be affected.By how much would the cost reduction improve the ROE? Do not round your intermediate calculations.

Accepted Answer

A)   8.85%
B)   10.88%
C)   10.45%
D)   12.37%
E)   10.67%F) C) and D)
G) B) and E)

Question 4

In general,it's better to have a low inventory turnover ratio than a high one,as a low ratio 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.

Accepted Answer

A) True 
 B)False

Question 5

Last year Blease Inc had a total assets turnover of 1.33 and an equity multiplier of 1.75.Its sales were $205,000 and its net income was $10,600.The firm finances using only debt and common equity and its total assets equal total invested capital.The CFO believes that the company could have operated more efficiently,lowered its costs,and increased its net income by $10,250 without changing its sales,assets,or capital structure.Had it cut costs and increased its net income by this amount,how much would the ROE have changed? Do not round your intermediate calculations.

Accepted Answer

A)   11.99%
B)   11.75%
C)   14.08%
D)   14.43%
E)   11.64%F) A) and C)
G) All of the above

Question 6

Safeco's current assets total to $20 million versus $10 million of current liabilities,while Risco's current assets are $10 million versus $20 million of current liabilities.Both firms would like to "window dress" their end-of-year financial statements,and to do so they tentatively plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts.Which of the statements below best describes the results of these transactions?

Accepted Answer

A)   The transactions would improve Safeco's financial strength as measured by its current ratio but lower Risco's current ratio.
B)   The transactions would lower Safeco's financial strength as measured by its current ratio but raise Risco's current ratio.
C)   The transactions would have no effect on the firm' financial strength as measured by their current ratios.
D)   The transactions would lower both firm' financial strength as measured by their current ratios.
E)   The transactions would improve both firms' financial strength as measured by their current ratios.F) B) and D)
G) A) and B)

Question 7

The operating margin measures operating income per dollar of assets.

Accepted Answer

A) True 
 B)False

Question 8

​Which of the following statements is CORRECT?

Accepted Answer

A)   ​If one firm has a higher total debt to total capital ratio than another,we can be certain that the firm with the higher total debt to total capital ratio will have the lower TIE ratio,as that ratio depends entirely on the amount of debt a firm uses.
B)   ​A firm's use of debt will have no effect on its profit margin.
C)   ​If two firms differ only in their use of debt-i.e. ,they have identical assets,identical total invested capital,sales,operating costs,interest rates on their debt,and tax rates-but one firm has a higher total debt to total capital ratio,the firm that uses more debt will have a lower profit margin on sales and a lower return on assets.
D)   ​The total debt to total capital ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases,so the debt ratios of firms that lease different percentages of their assets are still comparable.
E)   ​If two firms differ only in their use of debt-i.e. ,they have identical assets,identical total invested capital,operating costs,and tax rates-but one firm has a higher total debt to total capital ratio,the firm that uses more debt will have a higher operating margin and return on assets.F) A) and C)
G) B) and D)

Question 9

Which of the following statements is CORRECT?

Accepted Answer

A)   Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of "window dressing." Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of "window dressing."
B)   Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of "window dressing."
C)   Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase fixed assets is an example of "window dressing."
D)   Using some of the firm's cash to reduce long-term debt is an example of "window dressing."
E)   "Window dressing" is any action that does not improve a firm's fundamental long-run position and thus increases its intrinsic value.F) D) and E)
G) A) and C)

Question 10

High current and quick ratios always indicate that the firm is managing its liquidity position well.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 4.1
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. 
-Refer to Exhibit 4.1.What is the firm's market-to-book ratio? Do not round your intermediate calculations.

Accepted Answer

A)   1.01
B)   1.35
C)   1.09
D)   1.18
E)   1.08F) B) and D)
G) A) and B)

Question 12

Exhibit 4.1
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. 
-Refer to Exhibit 4.1.What is the firm's profit margin? Do not round your intermediate calculations.

Accepted Answer

A)   2.41%
B)   1.99%
C)   1.76%
D)   2.17%
E)   2.56%F) A) and E)
G) B) and E)

Question 13

Herring Corporation has operating income of $235,000 and a 40% tax rate.The firm has short-term debt of $115,000,long-term debt of $321,000,and common equity of $436,000.What is its return on invested capital?

Accepted Answer

A)   14.92%
B)   15.50%
C)   16.17%
D)   17.42%
E)   18.27%F) A) and E)
G) B) and E)

Exam 4: Analysis of Financial Statements

Correct Answer
verified

Correct Answer
verified

The days sales outstanding 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.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

In general,it's better to have a low inventory turnover ratio than a high one,as a low ratio 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.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The operating margin measures operating income per dollar of assets.

Correct Answer
verified

Precision Aviation had a profit margin of 8.00%,a total assets turnover of 1.5,and an equity multiplier of 1.8.What was the firm's ROE?

Correct Answer
verified

Herring Corporation has operating income of $235,000 and a 40% tax rate.The firm has short-term debt of $115,000,long-term debt of $321,000,and common equity of $436,000.What is its return on invested capital?

Correct Answer
verified

High current and quick ratios always indicate that the firm is managing its liquidity position well.

Correct Answer
verified

Correct Answer
verified

Exam 4: Analysis of Financial Statements

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The days sales outstanding 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.

Correct AnswerverifiedShow Answer

​Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

In general,it's better to have a low inventory turnover ratio than a high one,as a low ratio 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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The operating margin measures operating income per dollar of assets.

Correct AnswerverifiedShow Answer

Precision Aviation had a profit margin of 8.00%,a total assets turnover of 1.5,and an equity multiplier of 1.8.What was the firm's ROE?

Correct AnswerverifiedShow Answer

Herring Corporation has operating income of $235,000 and a 40% tax rate.The firm has short-term debt of $115,000,long-term debt of $321,000,and common equity of $436,000.What is its return on invested capital?

Correct AnswerverifiedShow Answer

High current and quick ratios always indicate that the firm is managing its liquidity position well.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified