Chapter 03 - Working with Financial Statements

Chapter 03 Working with Financial Statements
Multiple Choice Questions

1. Activities of a firm which require the spending of cash are known as: A. sources of cash. B. uses of cash. C. cash collections. D. cash receipts. E. cash on hand.

2. The sources and uses of cash over a stated period of time are reflected on the: A. income statement. B. balance sheet. C. tax reconciliation statement. D. statement of cash flows. E. statement of operating position.

3. A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of: A. total assets. B. total equity. C. net income. D. taxable income. E. sales.

4. Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time? A. statement of standardization B. statement of cash flows C. common-base year statement D. common-size statement E. base reconciliation statement

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Chapter 03 - Working with Financial Statements

5. Relationships determined from a firm's financial information and used for comparison purposes are known as: A. financial ratios. B. identities. C. dimensional analysis. D. scenario analysis. E. solvency analysis.

6. The formula which breaks down the return on equity into three component parts is referred to as which one of the following? A. equity equation B. profitability determinant C. SIC formula D. Du Pont identity E. equity performance formula

7. The U.S. government coding system that classifies a firm by the nature of its business operations is known as the: A. NASDAQ 100. B. Standard & Poor's 500. C. Standard Industrial Classification code. D. Governmental ID code. E. Government Engineered Coding System.

8. Which one of the following is a source of cash? A. increase in accounts receivable B. decrease in notes payable C. decrease in common stock D. increase in accounts payable E. increase in inventory

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Chapter 03 - Working with Financial Statements

9. Which one of the following is a use of cash? A. increase in notes payable B. decrease in inventory C. increase in long-term debt D. decrease in accounts receivables E. decrease in common stock

10. Which one of the following is a source of cash? A. repurchase of common stock B. acquisition of debt C. purchase of inventory D. payment to a supplier E. granting credit to a customer

11. Which one of the following is a source of cash? A. increase in accounts receivable B. decrease in common stock C. decrease in long-term debt D. decrease in accounts payable E. decrease in inventory

12. On the Statement of Cash Flows, which of the following are considered financing activities? I. increase in long-term debt II. decrease in accounts payable III. interest paid IV. dividends paid A. I and IV only B. III and IV only C. II and III only D. I, III, and IV only E. I, II, III, and IV

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Chapter 03 - Working with Financial Statements

13. On the Statement of Cash Flows, which of the following are considered operating activities? I. costs of goods sold II. decrease in accounts payable III. interest paid IV. dividends paid A. I and III only B. III and IV only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

14. According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities. A. decrease; operating B. decrease; financing C. increase; operating D. increase; financing E. increase; investment

15. According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities. A. decrease; operating B. decrease; financing C. increase; operating D. increase; financing E. increase; investment

16. On a common-size balance sheet all accounts are expressed as a percentage of: A. sales for the period. B. the base year sales. C. total equity for the base year. D. total assets for the current year. E. total assets for the base year.

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interval measure III. On a common-base year financial statement. A. A firm uses 2008 as the base year for its financial statements. I and III only B. 2009 total assets D. 2008 inventory B. accounts receivables will be expressed relative to which one of the following? A. II and IV only C. base-year sales D. I. Which of the following ratios are measures of a firm's liquidity? I. III. all else held constant? Assume all ratios have positive values. decrease in the cash coverage ratio E. II.08. I. cash coverage ratio II. current year total assets C.Working with Financial Statements 17. and III only E. base-year total assets E. increase in the current ratio 3-5 . debt-equity ratio IV. 2009 inventory expressed as a percent of 2009 total assets 19. increase in the cash ratio B. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following? A. and IV 20. III. The common-size. current year sales B.Chapter 03 . baseyear statement for 2009 has an inventory value of 1. quick ratio A. and IV only D. II. base-year accounts receivables 18. increase in the net working capital to total assets ratio C. 2008 inventory expressed as a percent of 2008 total assets E. 2008 total assets C. An increase in current liabilities will have which one of the following effects. I. decrease in the quick ratio D.

Chapter 03 . A firm has an interval measure of 48. An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? A. which one of the following must have occurred? Assume all ratios have positive values. A supplier. cash C. quick E. fixed assets 22. current assets increased B. accounts payable B. Over the past year. cash C.Working with Financial Statements 21. should be most concerned with which one of the following ratios when granting credit? A. cover its operating costs for the next 48 hours D. inventory D. accounts payable increased 3-6 . inventory decreased E. debt-equity D. meet the demands of its customers for the next 48 hours 24. This means that the firm has sufficient liquid assets to do which one of the following? A. pay all of its debts that are due within the next 48 days C. inventory increased D. cover its operating costs for the next 48 days E. the quick ratio for a firm increased while the current ratio remained constant. A. who requires payment within ten days. pay all of its debts that are due within the next 48 hours B. Given this information. total debt 23. current assets decreased C. current B. accounts receivable E.

0. asset management B.Chapter 03 .0. 27.5 E. An equity multiplier of 1. D.2 means a firm has $1. 1. payment of interest to a lender D.20 in sales for every $1 in equity. Long-term creditors would prefer the times interest earned ratio be 1. E. payment to employee C. short-term solvency D. The debt-equity ratio can be computed as 1 plus the equity multiplier. B. book value 26. If a firm has a debt-equity ratio of 1.0 D. 2. An increase in the depreciation expense will not affect the cash coverage ratio. profitability E. payment to supplier B. long-term solvency C. then the debt-equity ratio must be less than 1. If the total debt ratio is greater than .0. then its total debt ratio must be which one of the following? A. payment of principle to a lender E. The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its following obligations? A. 1.50.0 B.Working with Financial Statements 25.5 C. 0.0 28.4 rather than 1. Which one of the following statements is correct? A.5. C. Ratios that measure a firm's financial leverage are known as _____ ratios. payment of a dividend to a shareholder 3-7 . A.

turnover 3-8 . long-term solvency C. no change in the total asset turnover rate 31. utilizing its total assets more efficiently than Sam's C. decrease in the inventory turnover rate B. E. The total asset turnover rate increased. generating $1 in sales for every $1.000 in 2009. Given this information. decrease in the day's sales in inventory E. no change in the fixed asset turnover rate D. Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.Working with Financial Statements 29. The fixed asset turnover decreased. The net working capital turnover rate increased. Assume that both the cost per unit and the selling price per unit also remained constant. profitability E. Dee's has a fixed asset turnover rate of 1.88. decrease in the net working capital turnover rate C. Dee's must be doing which one of the following? A. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways? A. asset management B.Chapter 03 . Both companies have similar operations.12 in net income for every $1 in net fixed assets E.91. utilizing its fixed assets more efficiently than Sam's B. Sam's has a fixed asset turnover rate of 1. generating $1. Jasper United had sales of $21. D. A. which one of the following statements must be true? A.000 in 2008 and $24. The days' sales in receivables increased.15 and a total asset turnover rate of 0. The receivables turnover rate decreased. The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. maintaining the same level of current assets as Sam's 32.12 and a total asset turnover rate of 0. 30. Based on this information. B. The firm's current accounts remained constant.12 in net fixed assets D. short-term solvency D. C.

Al's has a price-earnings ratio of 18.Chapter 03 . Al's has a higher market value per share than does Ben's. D. B. C. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's? A. Ben's also has a price-earnings ratio of 18. equity multiplier E. 36. profit margin D. average asset value of similar firms D.Working with Financial Statements 33. E. E. Ben's is increasing its earnings at a faster rate than the Al's.5. If a firm produces a twelve percent return on assets and also a twelve percent return on equity. current book value of the firm C.0. has no net working capital. return on equity B. return on assets C. today's cost to duplicate those assets 3-9 .5. but not long-term debt. is using its assets as efficiently as possible. Tobin's Q relates the market value of a firm's assets to which one of the following? A. Ben's has a lower market-to-book ratio than Al's. 34. has a debt-equity ratio of 1. initial cost of creating the firm B. B. C. may have short-term. Al's has more net income than Ben's. then the firm: A. D. has an equity multiplier of 1. Which one of the following will decrease if a firm can decrease its operating costs. Al's has a higher net income than Ben's. all else constant? A.0. price-earnings ratio 35. average market value of similar firms E.

and profitability ratio B. capital intensity ratio. and equity multiplier 40. The price-sales ratio is especially useful when analyzing firms that have which one of the following? A.Chapter 03 . a negative Tobin's Q E. I and II only C. operating efficiency. II and IV only D.Working with Financial Statements 37. Which one of the following accurately describes the three parts of the Du Pont identity? A. An increase in which of the following will increase the return on equity. profit margin. sales II. and profit margin E. return on assets and profit margin B. price-earnings and debt-equity D. increasing sales 38. market-to-book and times interest earned E. debt-equity ratio. negative earnings C. volatile market prices B. II and III only E. financial leverage. return on equity and price-earnings 39. net income III. and profitability ratio C. long-term debt and times interest earned C. positive PEG ratios D. equity multiplier. all else constant? I. total equity A. depreciation IV. Shareholders probably have the most interest in which one of the following sets of ratios? A. I. profit margin. return on assets. and total asset turnover D. operating efficiency. equity multiplier. II. and III only 3-10 . I only B.

000 in equity. Return on assets × Total asset turnover A. Does the firm have the ability to meet its debt obligations in a timely manner? A. return on equity 3-11 . II. and IV 43. I. II. return on assets E. The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How much net profit is a firm generating per dollar of sales? IV. How many sales dollars has the firm generated per each dollar of assets? II. equity multiplier B. Which of the following can be used to compute the return on equity? I. profit margin D. total asset turnover C. I and III only B. and IV 42. and III only D. and III only E. II.Chapter 03 . II. II. III and IV only E. III. I.Working with Financial Statements 41. I. Profit margin × Return on assets II. II and IV only D. II and IV only C. Return on assets × Equity multiplier III. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. Net income/Total equity IV. A firm currently has $600 in debt for every $1. Which one of the following will decrease as a result of this action? A. I and III only B. III. I. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. II and III only C.

C. D. B.Working with Financial Statements 44. I and II only B. It is easier to evaluate a firm using financial statements when the firm: A. I.Chapter 03 . The two firms may be seasonal in nature and have different fiscal year ends. financial statements to those of larger firms in unrelated industries. IV. Either one. A. Which one of the following statements is correct? A. tends to have many one-time events such as asset sales and property acquisitions. 45. E. Historical information provides no value to someone who is predicting future performance. III. The operations of the two firms may vary geographically. financial statements to the projections that were created based on Tobin's Q. II and III only C. financial statements to the financial statements of similar firms operating in other C. I. has a different fiscal year than other firms in the industry. countries. Book values should always be given precedence over market values. D. C. E. of the firms may be conglomerates and thus have unrelated lines of business. Reviewing financial information over time has very limited value. Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. E. B. uses the same accounting procedures as other firms in the industry. financial ratios to the average ratios of all firms located within the same geographic area. II. Financial statements are frequently used as the basis for performance evaluations. II. III. D. is a conglomerate. has recently merged with its largest competitor. Potential lenders place little value on financial statement information. B. III. I. The firms may use differing accounting methods. 47. or both. 46. and IV only D. and III only E. The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current: A. F. financial ratios to the firm's historical ratios. and IV 3-12 . II.

$245 use of cash B. inventory decreased by $14. net source of cash of $135 49. Wise's Corner Grocer had the following current account values. and net fixed assets decreased by $8. A firm generated net income of $878. $165 use of cash C. Kitchen Supply increased its accounts receivable by $130. net source of cash of $83 D. $904 D. There was no interest expense. $95 source of cash E. The depreciation expense was $47 and dividends were paid in the amount of $25.Working with Financial Statements 48. What was the net cash flow from operating activity? A. $95 use of cash D. $876 B. During the year. and decreased its accounts payable by $40. accounts receivables increased by $22. $902 C. net use of cash of $37 B. net use of cash of $83 C. How did these three accounts affect the firm's cash flows for the year? A. decreased its inventory by $75.Chapter 03 . $165 source of cash 50. $922 E. What effect did the change in net working capital have on the firm's cash flows for 2009? A. $930 3-13 . net source of cash of $111 E. Accounts payables decreased by $13.

04 E. 1. and net fixed assets of $1. accounts receivable of $87.42 percent E. the firm has cash of $61.16 percent C. inventory of $509. 10.36 percent B. This year. What is the value of the quick ratio? A.06 percent 52.08 B. 30. A firm has sales of $2.Working with Financial Statements 51. and current assets of $720.400. accounts receivable of $218. 0. 0.91 E. and net fixed assets of $1. accounts receivable of $198.71 D. 14. 14. net income of $174. What is the common-size statement value of inventory? A. accounts payable of $215. 1. 0. Russell's Deli has cash of $136. 1. Interest expense is $40. 19. The firm has $310 in inventory. net fixed assets of $1. 0.107. Last year. What is the common-size statement value of the interest expense? A. 1.26 percent E.600.69 percent D. which is used as the base year.07 3-14 . A firm has sales of $3. and inventory of $409.38 percent D. 0.216. 43.Chapter 03 . 13. 0.10 C.88 D.55 percent 53.89 percent B.18 percent C. 0. 0.53 C. inventory of $527. total assets of $4.31 B.750.500. a firm had cash of $52.18 54. net income of $390. and total equity of $2. 3. What is the common-base year value of accounts receivable? A.190.

0.263. 0.95 D.51 E.42. 0.200.980.36 C. 2. inventory of $7.532. 31.47 D.58 E. What is the total debt ratio? A.56 56.128. What is the value of the total assets? A.725.950.40 C.214. 0.44 D.620 and a debt-equity ratio of 0.47 days B. A firm has total debt of $4. Uptown Men's Wear has accounts payable of $2.770 and net fixed assets of $167. 0.034.05 B.30 B. cash of $1. 48. fixed assets of $8. $7. 0. A firm has total assets of $311. $6.42 C. 0.Working with Financial Statements 55. accounts receivable of $3.40 days C.22 days D.253.907.38 58. 0.400.05 days E. 104. The average daily operating costs are $2. $11. What is the value of the interval measure? A.571. 68. 1. 56. $9.57. What is the value of the net working capital to total assets ratio? A.26 3-15 .Chapter 03 . and long-term debt of $4.31 B. $12.00 E. A firm has a debt-equity ratio of 0.62 days 57.

23 days D. The tax rate is 34 percent. 2. A firm has sales of $68.47 days 3-16 .24 C.27 D. inventory of $208. 12. 121.100.19 days B.407. sales of $218.400. interest paid of $2.310 in interest and $1.07 days D. The times interest earned ratio is 2.81 days C. 138.400. 15. 84.900. How many days does it take the firm to both sell its inventory and collect the payment on the sale assuming that all sales are on credit? A.306. 2. costs of $42.640. How many days. 2.850 in dividends last year.18 days E.Chapter 03 . 17. 23.21 days 62. Al's Sport Store has sales of $897. inventory of $4. 24.2 and the depreciation expense is $460.52 61.67 days B.76 days C. 17. 1. 1. The Bike Shop paid $2.56 60.80 C.400. 151.46 days E.500.709. 14. 74.41 E.100. 17.Working with Financial Statements 59. The Flower Shoppe has accounts receivable of $3. and cost of goods sold of $167.21 D.67 B. 15. What is the value of the cash coverage ratio? A. does it take the firm to sell its inventory assuming that all sales are on credit? A. What is the value of the cash coverage ratio? A. and accounts receivable of $74. 16. and depreciation of $6. costs of goods sold of $628.300.40 E. on average.14 B.

14. $1. 28. The profit margin is 4.42 D. 6.98 C.Chapter 03 .48 percent C. What is the return on assets? A.56 percent E.908.400. 8. 13.61 B.26 E.105.79 percent 65. total assets of $1. The firm has a total debt ratio of 78 percent. $1.407. total equity of $365. 9.68 percent. $1.09 percent B. Reliable Cars has sales of $807.200.000. 7. $1.30 64. and current liabilities of $3. and a profit margin of 5.08 B. sales of $31. 7.100.500 shares of stock outstanding.20 percent. total debt of $210. How many dollars worth of sales are generated from every $1 in total assets? A. What is the return on equity? A. 17. 6.1 percent and the firm has 7. The Meat Market has $747. The Purple Martin has annual sales of $687.67 percent C.000 in sales.27 3-17 . The market price per share is $27. 13. 32.715.22 percent B.14 percent 66. 16. What is the priceearnings ratio? A.14 C. and a profit margin of 9. $1.350. net fixed assets of $22.78 percent E.Working with Financial Statements 63. 11. 6.000.02 percent D.68 percent D.19 D.15 E. A firm has net working capital of $2.

18. Big Guy Subs has net income of $150.41 percent C. 1.5 percent.49.57 69.12. 2.7.523 D.Chapter 03 .94 million.74 percent D.407 C.400.79 percent B. 2. and earnings per share of $0. 9. 173.400. net income of $126. and a book value per share of $9.Working with Financial Statements 67.62 B. 14.14 percent B. A firm has 160.23 D. Oscar's Dog House has a profit margin of 5. How many shares of stock are outstanding? A. 21.000.558 B. 8. net income of $41. and an equity multiplier of 1. a return on assets of 12.09 percent E. sales of $1.980. 171.87. What is the return on equity? A. 8. and total debt of $198. sales of $749.000 shares of stock outstanding.000 E. 17.540 68.300.67 percent D. 2.30 percent 70.16 percent 3-18 .6 percent. 13.84 C. 165. Taylor's Men's Wear has a debt-equity ratio of 42 percent. 9.69 percent E. a price-earnings ratio of 18. 7.8.63 percent C. 19. 1.45 E. a price-earnings ratio of 12. 22. What is the market-to-book ratio? A. What is the return on equity? A.

a total asset turnover of 1.418 3-19 .12. $28. $44.Working with Financial Statements 71. $52.143 C. A firm has a debt-equity ratio of 57 percent. The total equity is $511.9 percent.Chapter 03 . $47.084 D. $35.601 E.079 B. What is the amount of the net income? A. and a profit margin of 4.640.

82 E. 3.49 per share? A. 29. What is the price-sales ratio for 2009 if the market price is $18. 1. 11.29 C.32 D. 4. 3.01 E. 9.49 days D. 0.53 C.67 D.60 C. 10. 2. 0.97 days 74. 26.67 E. 1.41 days E. What is debt-equity ratio? (Use 2009 values) A. 1. What is the cash coverage ratio for 2009? A.94 D.87 C.79 73.08 days B. 17.56 B.38 75. 0. 0.52 B. 23. 0.33 days C.12 E. 12. What is the quick ratio for 2009? A.06 76.Working with Financial Statements 72.64 D.43 B.31 3-20 . 32.Chapter 03 . 1. 1. 11.43 B. How many days of sales are in receivables? (Use 2009 values) A. 4.

$45.400 3-21 .Chapter 03 .200 E.800 C. $18.100 B.96 percent E. $39. 20.26 percent B. 29.600 D. 10.100 B. $41. 16. 40. $24.68 percent D.000 C. $32. $32.100 79.38 percent C.300 D. What is the amount of the dividends paid for 2009? A. $29. What is the amount of the cash flow from investment activity for 2009? A. What is the return on equity? (Use 2009 values) A. $11. $15.14 percent 78.000 E.Working with Financial Statements 77.

187. 45. 24.47 percent E.Chapter 03 . 65. 219. 164.82 percent C.30 days B. 283.31 days 3-22 . What is the net working capital to total assets ratio for 2009? A. 247. How many days on average does it take Precision Tool to sell its inventory? (Use 2009 values) A.Working with Financial Statements 80.77 days C.49 percent D.18 percent B. 51. 36.63 days D.83 percent 81.46 days E.

Chapter 03 .Working with Financial Statements 82. 1.680 C.02 percent E. 17. $1. 2.93 E.87 C. 14.29 percent B. $0.03 84.05 85. 18. -$80 D. 12. $2.) A. $1.59 E.72 C. 16.46 percent C.09 83.33 D. 18. 15. $3.59 D.840 3-23 .88 B. What is the net cash flow from investment activity for 2009? A. What is the return on equity for 2009? (Use 2009 values) A.12 percent 86.38 percent D. How many dollars of sales are being generated from every dollar of net fixed assets? (Use 2009 values. What is the times interest earned ratio for 2009? A.840 B.67 B. -$1. 16.63 B. What is the equity multiplier for 2009? A. 1. -$1.12 C. 1.97 E. 1. $2. $80 E.88 D. 10. 9.

Chapter 03 - Working with Financial Statements

87. How does accounts receivable affect the statement of cash flows for 2009? A. a use of $4,218 of cash as an investment activity B. a source of $807 of cash as an operating activity C. a use of $4,218 of cash as a financing activity D. a source of $807 of cash as an investment activity E. a use of $807 of cash as an operating activity

88. BL Lumber has earnings per share of $1.21. The firm's earnings have been increasing at an average rate of 3.1 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $18.70. What is the firm's PEG ratio? A. 0.48 B. 1.24 C. 2.85 D. 3.97 E. 4.99

89. Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate? A. 0.33 percent B. 1.06 percent C. 3.32 percent D. 5.30 percent E. 10.60 percent

90. A firm has total assets with a current book value of $68,700, a current market value of $74,300, and a current replacement cost of $75,600. What is the value of Tobin's Q? A. .85 B. .87 C. .92 D. .95 E. .98

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Chapter 03 - Working with Financial Statements

91. Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q? A. .86 B. .92 C. .96 D. 1.01 E. 1.06

92. Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $109,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio? A. 2.56 times B. 3.18 times C. 3.54 times D. 4.01 times E. 4.20 times

93. A firm has annual sales of $320,000, a price-earnings ratio of 24, and a profit margin of 4.2 percent. There are 14,000 shares of stock outstanding. What is the price-sales ratio? A. 0.97 B. 1.01 C. 1.08 D. 1.15 E. 1.22

94. Lassiter Industries has annual sales of $220,000 with 10,000 shares of stock outstanding. The firm has a profit margin of 7.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio? A. 14 B. 16 C. 18 D. 20 E. 22

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Chapter 03 - Working with Financial Statements

Essay Questions

95. Assume a firm has a positive cash balance which is increasing annually. Why then is it important to analyze a statement of cash flows?

96. You need to analyze a firm's performance in relation to its peers. You can do this either by comparing the firms' balance sheets and income statements or by comparing the firms' ratios. If you only had time to use one means of comparison which method would you use and why?

97. In general, what does a high Tobin's Q value indicate and how reliable does that value tend to be?

98. What value does the PEG ratio provide to financial analysts?

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Chapter 03 - Working with Financial Statements

99. What value can the price-sales ratio provide to financial managers that the price-earnings ratio cannot?

100. It is commonly recommended that the managers of a firm compare the performance of their firm to that of its peers. Increasingly, this is becoming a more difficult task. Explain some of the reasons why comparisons of this type can frequently be either difficult to perform or produce misleading results.

Multiple Choice Questions

101. The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity? A. 7.42 percent B. 10.63 percent C. 11.08 percent D. 13.31 percent E. 14.28 percent

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66 days D.830. 8. On average. 2. What is the return on equity? A.13 105.55.89 E. 12.29 days B.16 days B. 0. 56.000. How many days on average did it take for credit customers to pay off their accounts during this past year? A.000.89 B. 1. 78. High Mountain Foods has an equity multiplier of 1.410.47 D. 10.43 days C. a total asset turnover of 1. has a current accounts receivable balance of $300.38 percent E.13 days 104. BL Industries has ending inventory of $300. 14. and a profit margin of 7. how long does a unit of inventory sit on the shelf before it is sold? A.000.84 days E. 1. 57. 1.50 days D.3.Working with Financial Statements 102. 54.01 days C.11 percent 3-28 . What is the equity multiplier? A. 77. 83.69 percent D.29 days E. The Home Supply Co.47. 15.00 days 103. 59.5 percent. 61. 21.94 percent B.000. 17.Chapter 03 .13 C.87 percent C. and cost of goods sold for the year just ended was $1. Credit sales for the year just ended were $1. Coulter Supply has a total debt ratio of 0.

6 percent. 0.28 C.3.67 E. 36.19 days 3-29 .56 days C. 0. and an accounts receivable balance of $127.309 C.200. $161.78 107. 21.72 E. Assume that 66 percent of sales are on credit.008 E. What is the debt-equity ratio? A. Return on assets is 9. $164.41 C.400. $156.01 percent.000.136 D.04 days E. has net income of $161.05.22 B. total assets of $1. $138. Charlie's Chicken has a debt-equity ratio of 2. a profit margin of 7.616 B. Inc. 27. 0. and a return on equity of 21.100.90 days B. What is the days' sales in receivables? A. $148.6 percent. 35.16 B.09 D. $161. Its return on equity is 15 percent.Working with Financial Statements 106. a total asset turnover of 1. $152.000.Chapter 03 .71. $141. Billings. and total equity is $560. $157. What is the net income? A. 0. What is the net income? A. and a debt-equity ratio of 0.2 percent.909 108. 0.46 D. Canine Supply has sales of $2. Lancaster Toys has a profit margin of 9. $105.54 109. 33.18 days D.

$6.2.560. 13.200.880. The tax rate was 38 percent. $980. Gladstone Pavers has a long-term debt ratio of 0.000 3-30 .5 percent. and a current ratio of 2.70 111.000 E.48 times C.65.000 C. What is the return on equity? A.000 B. $1.Working with Financial Statements 110. 84 percent E.000 D. $1.18 B.6 and a current ratio of 1.400.197. 26 percent B. 135 percent 112. The firm paid $1. 12. Beach Wear has current liabilities of $350. $5.848.48 times B. 12.060. $5.107. What was the cash coverage ratio for the year? A.07 times 113. What is the cost of goods sold? A.Chapter 03 . 11.95 times E.5 percent. 50 percent C.15 E.300 in total interest expense and deducted $1. and the return on equity is 19. The Dockside Inn has net income for the most recent year of $8. Current liabilities are $700. $1. a quick ratio of 1.9. A firm has a debt-total asset ratio of 74 percent and a return on total assets of 13 percent. sales are $4.69 C. $4.900 in depreciation expense.3. the profit margin is 9.67 D.39 times D.666.450. $1. $5. inventory turnover of 3.440.000. 10. How much does the firm have in net fixed assets? A. 65 percent D.

tax reconciliation statement. Activities of a firm which require the spending of cash are known as: A. balance sheet. cash on hand.Chapter 03 .1 Topic: Uses of cash 2. The sources and uses of cash over a stated period of time are reflected on the: A. cash collections. statement of operating position. B. statement of cash flows. D. E.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. uses of cash. income statement. D. Refer to section 3. C. Refer to section 3. C.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3.Working with Financial Statements Chapter 03 Working with Financial Statements Answer Key Multiple Choice Questions 1. sources of cash. cash receipts. B. E.1 Topic: Statement of cash flows 3-31 .

Chapter 03 . taxable income. Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time? A. total equity. base reconciliation statement Refer to section 3.2 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. statement of cash flows C. common-base year statement D. total assets. B.Working with Financial Statements 3. A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of: A. net income. E. sales. common-size statement E. C. statement of standardization B. D. Refer to section 3.2 Topic: Common-size statement 4.2 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3.2 Topic: Common-base year statement 3-32 .

equity performance formula Refer to section 3. solvency analysis. equity equation B. E. D. dimensional analysis.4 Topic: Du Pont identity 3-33 .4 AACSB: N/A Difficulty: Basic Learning Objective: 3-3 Section: 3. The formula which breaks down the return on equity into three component parts is referred to as which one of the following? A. Refer to section 3. B.Chapter 03 .3 Topic: Financial ratios 6. profitability determinant C. scenario analysis. financial ratios. Relationships determined from a firm's financial information and used for comparison purposes are known as: A. Du Pont identity E. C.Working with Financial Statements 5. SIC formula D.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. identities.

S.1 Topic: Source of cash 3-34 .5 AACSB: N/A Difficulty: Basic Learning Objective: 3-4 Section: 3. government coding system that classifies a firm by the nature of its business operations is known as the: A. increase in inventory Refer to section 3.5 Topic: SIC codes 8. Governmental ID code. Standard & Poor's 500. D. Government Engineered Coding System. NASDAQ 100.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. increase in accounts payable E.Chapter 03 . Refer to section 3.Working with Financial Statements 7. B. E. Standard Industrial Classification code. increase in accounts receivable B. C. The U. decrease in common stock D. Which one of the following is a source of cash? A. decrease in notes payable C.

decrease in common stock Refer to section 3. purchase of inventory D. repurchase of common stock B. payment to a supplier E. Which one of the following is a use of cash? A.Chapter 03 .Working with Financial Statements 9.1 Topic: Source of cash 3-35 . increase in long-term debt D. acquisition of debt C. Which one of the following is a source of cash? A.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3.1 Topic: Use of cash 10.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. increase in notes payable B. granting credit to a customer Refer to section 3. decrease in accounts receivables E. decrease in inventory C.

1 Topic: Statement of cash flows 3-36 . I.1 Topic: Source of cash 12. dividends paid A. II. decrease in long-term debt D.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3.Chapter 03 . and IV Refer to section 3.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. Which one of the following is a source of cash? A. decrease in accounts payable III. III. interest paid IV. I. II and III only D. I and IV only B. On the Statement of Cash Flows. increase in long-term debt II. III and IV only C. decrease in inventory Refer to section 3. which of the following are considered financing activities? I. decrease in accounts payable E. and IV only E.Working with Financial Statements 11. increase in accounts receivable B. decrease in common stock C. III.

1 Topic: Statement of cash flows 3-37 . decrease.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. I. decrease in accounts payable III. a decrease in accounts receivable will _____ the cash flow from _____ activities.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. According to the Statement of Cash Flows. operating D. financing C. III and IV only C. III.Working with Financial Statements 13. and III only D. increase.Chapter 03 . and IV Refer to section 3. financing E. and IV only E. dividends paid A. On the Statement of Cash Flows. operating B. I and III only B. A. II.1 Topic: Statement of cash flows 14. decrease. costs of goods sold II. increase. I. II. investment Refer to section 3. I. III. interest paid IV. increase. which of the following are considered operating activities? I.

B. On a common-size balance sheet all accounts are expressed as a percentage of: A. the base year sales. increase. decrease. sales for the period.Chapter 03 . increase.1 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. an increase in interest expense will _____ the cash flow from _____ activities. C.2 Topic: Common-size balance sheet 3-38 . D. total assets for the current year.1 Topic: Statement of cash flows 16. According to the Statement of Cash Flows. financing E. E. Refer to section 3.Working with Financial Statements 15. operating B. total equity for the base year. decrease. operating D. total assets for the base year. increase.2 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. A. financing C. investment Refer to section 3.

2008 inventory expressed as a percent of 2008 total assets E.Chapter 03 . 2009 total assets D. base-year accounts receivables Refer to section 3.2 Topic: Common-base year statement 3-39 . The common-size. base-year sales D. A firm uses 2008 as the base year for its financial statements.2 Topic: Common-base year statement 18. current year sales B. base-year total assets E. current year total assets C. baseyear statement for 2009 has an inventory value of 1. 2008 total assets C. On a common-base year financial statement. 2008 inventory B.Working with Financial Statements 17. 2009 inventory expressed as a percent of 2009 total assets Refer to section 3. accounts receivables will be expressed relative to which one of the following? A.08.2 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following? A.2 AACSB: N/A Difficulty: Basic Learning Objective: 3-1 Section: 3.

Working with Financial Statements 19. all else held constant? Assume all ratios have positive values. I. increase in the net working capital to total assets ratio C. II and IV only C. An increase in current liabilities will have which one of the following effects. I. quick ratio A.3 Topic: Liquidity ratios 20. III. II. cash coverage ratio II. increase in the current ratio Refer to section 3. III. and IV Refer to section 3. decrease in the quick ratio D. increase in the cash ratio B. II. debt-equity ratio IV.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3. Which of the following ratios are measures of a firm's liquidity? I. I. and IV only D. interval measure III.Chapter 03 . decrease in the cash coverage ratio E. I and III only B. A.3 Topic: Ratio analysis 3-40 .3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. and III only E.

cash C. current B. should be most concerned with which one of the following ratios when granting credit? A.Working with Financial Statements 21. fixed assets Refer to section 3. debt-equity D.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? A. total debt Refer to section 3.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3.3 Topic: Liquidity ratios 3-41 . inventory D. cash C. quick E. accounts receivable E. A supplier. accounts payable B.3 Topic: Liquidity ratios 22. who requires payment within ten days.Chapter 03 .

cover its operating costs for the next 48 hours D. inventory decreased E.3 Topic: Quick ratio 3-42 .3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. current assets decreased C. pay all of its debts that are due within the next 48 days C.Chapter 03 . Given this information. meet the demands of its customers for the next 48 hours Refer to section 3. cover its operating costs for the next 48 days E. A.3 Topic: Interval measure 24. inventory increased D.Working with Financial Statements 23. current assets increased B. the quick ratio for a firm increased while the current ratio remained constant. pay all of its debts that are due within the next 48 hours B.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. This means that the firm has sufficient liquid assets to do which one of the following? A. which one of the following must have occurred? Assume all ratios have positive values. accounts payable increased Refer to section 3. A firm has an interval measure of 48. Over the past year.

An increase in the depreciation expense will not affect the cash coverage ratio.Chapter 03 . Refer to section 3.3 Topic: Long-term solvency ratios 26. profitability E.3 Topic: Financial leverage ratios 3-43 . Ratios that measure a firm's financial leverage are known as _____ ratios.Working with Financial Statements 25. An equity multiplier of 1.5. Long-term creditors would prefer the times interest earned ratio be 1.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. D.20 in sales for every $1 in equity. book value Refer to section 3. B.4 rather than 1. short-term solvency D.0. asset management B. Which one of the following statements is correct? A. E.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3. C. then the debt-equity ratio must be less than 1. If the total debt ratio is greater than . A.2 means a firm has $1. The debt-equity ratio can be computed as 1 plus the equity multiplier. long-term solvency C.50.

Working with Financial Statements 27. payment to employee C. 0. payment to supplier B.5 E.5 C. then its total debt ratio must be which one of the following? A. 1.0.0 B. If a firm has a debt-equity ratio of 1.Chapter 03 . payment of principle to a lender E.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3.3 Topic: Long-term solvency ratios 3-44 .0 D. The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its following obligations? A. payment of a dividend to a shareholder Refer to section 3.3 Topic: Long-term solvency ratios 28. 2.0 Refer to section 3. 1. payment of interest to a lender D. 0.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3.

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. The days' sales in receivables increased. Assume that both the cost per unit and the selling price per unit also remained constant.000 in 2009. no change in the total asset turnover rate Refer to section 3. The net working capital turnover rate increased. decrease in the day's sales in inventory E. The firm's current accounts remained constant. B. The receivables turnover rate decreased. decrease in the inventory turnover rate B.3 Topic: Turnover ratios 3-45 .3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3. decrease in the net working capital turnover rate C. C.Chapter 03 . The fixed asset turnover decreased. which one of the following statements must be true? A.3 Topic: Turnover ratios 30. no change in the fixed asset turnover rate D. E. The total asset turnover rate increased. D.000 in 2008 and $24. Jasper United had sales of $21. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways? A. Refer to section 3. Given this information.Working with Financial Statements 29.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3.

3 Topic: Profitability ratios 3-46 . utilizing its fixed assets more efficiently than Sam's B.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3. Dee's has a fixed asset turnover rate of 1.91.12 in net income for every $1 in net fixed assets E. Sam's has a fixed asset turnover rate of 1. long-term solvency C. turnover Refer to section 3.12 in net fixed assets D. generating $1.15 and a total asset turnover rate of 0.3 Topic: Asset utilization ratios 32.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3.88. profitability E.12 and a total asset turnover rate of 0. A. Dee's must be doing which one of the following? A. utilizing its total assets more efficiently than Sam's C. Both companies have similar operations. Based on this information.Working with Financial Statements 31. maintaining the same level of current assets as Sam's Refer to section 3. Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios. generating $1 in sales for every $1. short-term solvency D. asset management B.Chapter 03 .

may have short-term.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3.0. Which one of the following will decrease if a firm can decrease its operating costs. equity multiplier E. D. return on assets C. E.Working with Financial Statements 33. return on equity B. price-earnings ratio Refer to section 3. but not long-term debt.0.3 Topic: Profitability ratios 3-47 . profit margin D. is using its assets as efficiently as possible. C. B.Chapter 03 . If a firm produces a twelve percent return on assets and also a twelve percent return on equity. Refer to section 3. has an equity multiplier of 1.3 Topic: Profitability ratios 34. has a debt-equity ratio of 1.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3. then the firm: A. all else constant? A. has no net working capital.

3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. Ben's has a lower market-to-book ratio than Al's. Al's has more net income than Ben's. Al's has a price-earnings ratio of 18. today's cost to duplicate those assets Refer to section 3. E.5. current book value of the firm C.3 Topic: Market value ratios 3-48 .3 Topic: Market value ratios 36. average market value of similar firms E. Ben's is increasing its earnings at a faster rate than the Al's.Chapter 03 . C. initial cost of creating the firm B. Al's has a higher market value per share than does Ben's. Al's has a higher net income than Ben's. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's? A. Refer to section 3. average asset value of similar firms D. B.Working with Financial Statements 35.3 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-2 Section: 3. D. Tobin's Q relates the market value of a firm's assets to which one of the following? A.

positive PEG ratios D. a negative Tobin's Q E. The price-sales ratio is especially useful when analyzing firms that have which one of the following? A. negative earnings C. Shareholders probably have the most interest in which one of the following sets of ratios? A. long-term debt and times interest earned C.3 Topic: Market value ratios 3-49 . volatile market prices B. return on assets and profit margin B.3 Topic: Market value ratios 38.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3. return on equity and price-earnings Refer to section 3. market-to-book and times interest earned E. price-earnings and debt-equity D.Chapter 03 . increasing sales Refer to section 3.Working with Financial Statements 37.3 AACSB: N/A Difficulty: Basic Learning Objective: 3-2 Section: 3.

operating efficiency.Chapter 03 . return on assets. equity multiplier. An increase in which of the following will increase the return on equity.Working with Financial Statements 39.4 AACSB: N/A Difficulty: Basic Learning Objective: 3-3 Section: 3. and III only Refer to section 3. and profitability ratio C. and equity multiplier Refer to section 3. II and III only E. and profit margin E. and total asset turnover D.4 AACSB: N/A Difficulty: Basic Learning Objective: 3-3 Section: 3. sales II. II and IV only D. debt-equity ratio. I and II only C.4 Topic: Du Pont identity 40. profit margin. capital intensity ratio. Which one of the following accurately describes the three parts of the Du Pont identity? A. financial leverage. depreciation IV. I only B. and profitability ratio B.4 Topic: Du Pont identity 3-50 . operating efficiency. all else constant? I. II. profit margin. total equity A. I. equity multiplier. net income III.

II. III and IV only E. II and IV only D. II. Which of the following can be used to compute the return on equity? I. and IV Refer to section 3. Return on assets × Total asset turnover A. I.Working with Financial Statements 41.4 AACSB: N/A Difficulty: Basic Learning Objective: 3-3 Section: 3. How much net profit is a firm generating per dollar of sales? IV. II and III only C. I and III only B.4 Topic: Du Pont identity 3-51 . Return on assets × Equity multiplier III. III. II.Chapter 03 . The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations? I. Net income/Total equity IV. Does the firm have the ability to meet its debt obligations in a timely manner? A. Profit margin × Return on assets II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. II. I. II.4 AACSB: N/A Difficulty: Basic Learning Objective: 3-3 Section: 3.4 Topic: Du Pont identity 42. and III only D. and IV Refer to section 3. I. I and III only B. II and IV only C. I. and III only E. III. How many sales dollars has the firm generated per each dollar of assets? II.

Working with Financial Statements 43. Reviewing financial information over time has very limited value. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. return on equity Refer to section 3. Which one of the following statements is correct? A. Financial statements are frequently used as the basis for performance evaluations. Potential lenders place little value on financial statement information.000 in equity. E. A firm currently has $600 in debt for every $1. Which one of the following will decrease as a result of this action? A. D.5 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-4 Section: 3.4 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-3 Section: 3. total asset turnover C.5 Topic: Evaluating financial statements 3-52 . C. B. equity multiplier B. Historical information provides no value to someone who is predicting future performance. Refer to section 3.Chapter 03 .4 Topic: Du Pont identity 44. Book values should always be given precedence over market values. profit margin D. return on assets E.

Refer to section 3. uses the same accounting procedures as other firms in the industry. is a conglomerate. D.Working with Financial Statements 45. has a different fiscal year than other firms in the industry. B. E.5 AACSB: N/A Difficulty: Intermediate Learning Objective: 3-4 Section: 3. financial ratios to the firm's historical ratios.5 Topic: Evaluating financial statements 3-53 . countries.5 AACSB: N/A Difficulty: Basic Learning Objective: 3-4 Section: 3. It is easier to evaluate a firm using financial statements when the firm: A. tends to have many one-time events such as asset sales and property acquisitions. has recently merged with its largest competitor.Chapter 03 . B. F. C. Refer to section 3. financial statements to the financial statements of similar firms operating in other C. D. E. financial statements to those of larger firms in unrelated industries. financial ratios to the average ratios of all firms located within the same geographic area. The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current: A.5 Topic: Evaluating financial statements 46. financial statements to the projections that were created based on Tobin's Q.

II and III only C. Either one. I and II only B. II.5 Topic: Evaluating financial statements 3-54 . The firms may use differing accounting methods. and IV Refer to section 3. IV. I. Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. and III only E. III.Chapter 03 . I. and IV only D. II. The operations of the two firms may vary geographically. of the firms may be conglomerates and thus have unrelated lines of business.Working with Financial Statements 47. II. III.5 AACSB: N/A Difficulty: Basic Learning Objective: 3-4 Section: 3. III. or both. The two firms may be seasonal in nature and have different fiscal year ends. I. A.

net source of cash of $111 E.Chapter 03 . What effect did the change in net working capital have on the firm's cash flows for 2009? A. Wise's Corner Grocer had the following current account values. net source of cash of $83 D. net use of cash of $37 B. net use of cash of $83 C.1 Topic: Sources and uses of cash 3-55 .Working with Financial Statements 48. net source of cash of $135 AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.

1 Topic: Operating cash flows 3-56 . Accounts payables decreased by $13. $245 use of cash B. decreased its inventory by $75. and decreased its accounts payable by $40. $95 source of cash E.1 Topic: Sources and uses of cash 50. $165 source of cash AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3. During the year.Chapter 03 . $902 C.$22 + $14 = $904 AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3. $922 E. $930 Net cash from operating activities = $878 + $47 . $165 use of cash C.$13 .Working with Financial Statements 49. Kitchen Supply increased its accounts receivable by $130. There was no interest expense. $95 use of cash D. A firm generated net income of $878. $876 B. and net fixed assets decreased by $8. accounts receivables increased by $22. How did these three accounts affect the firm's cash flows for the year? A. What was the net cash flow from operating activity? A. $904 D. inventory decreased by $14. The depreciation expense was $47 and dividends were paid in the amount of $25.

Working with Financial Statements 51. net fixed assets of $1. and total equity of $2.36 percent B.36 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.190.500. 43. What is the common-size statement value of the interest expense? A.06 percent Common-size inventory = $310/($1. 14. 14. 10. Interest expense is $40.400 = 1.18 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.600 + $720) = 13. 1.18 percent C.400.26 percent E. 19. 13.42 percent E. net income of $390. 3.38 percent D.Chapter 03 . The firm has $310 in inventory.55 percent Common-size interest = $40/$3.89 percent B.2 Topic: Common-size statements 52. What is the common-size statement value of inventory? A.750. A firm has sales of $2. A firm has sales of $3.16 percent C.600. 0. 30.69 percent D.2 Topic: Common-size statements 3-57 . net income of $174. total assets of $4. and current assets of $720.

This year. Last year.3 Topic: Liquidity ratios 3-58 . and net fixed assets of $1. 0. 0.04 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. accounts receivable of $87. 1. 0.07 Quick ratio = ($136 + $87)/$215 = 1. inventory of $509. 0. a firm had cash of $52.71 D.Working with Financial Statements 53.216.91 E. accounts payable of $215. which is used as the base year.53 C. 0. 0. accounts receivable of $218. the firm has cash of $61.08 B.107. What is the common-base year value of accounts receivable? A. and net fixed assets of $1. Russell's Deli has cash of $136. 0.04 E. inventory of $527.10 C. What is the value of the quick ratio? A.31 B. and inventory of $409. accounts receivable of $198. 1. 1.91 AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.18 Common-base year accounts receivable = $198/$218 = 0.Chapter 03 .88 D.2 Topic: Common-base year statements 54.

51 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.47 days B. 48.907 + $7.950 + $8.532.263 + $3. Uptown Men's Wear has accounts payable of $2. 0.Chapter 03 .980 = 48.400.214. accounts receivable of $3. 31.22 days D.40 days AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. What is the value of the interval measure? A.31 B.47 D.950.907. 68. What is the value of the net working capital to total assets ratio? A. cash of $1.532)/$2.770 .770 and net fixed assets of $167. A firm has total assets of $311.980.950 .3 Topic: Liquidity ratios 3-59 .263.62 days Interval measure = ($311.40 days C.51 E.400) = 0. 0. inventory of $7. 56. 0. 104.Working with Financial Statements 55. fixed assets of $8. 0.$167.3 Topic: Liquidity ratios 56. The average daily operating costs are $2.907 + $7.05 days E. 0.263 + $3.42 C.214)/($1.56 Net working capital to total assets = ($1.200.$2. and long-term debt of $4.

105.571.30. $12. A firm has a debt-equity ratio of 0.128. 0. then total assets are $142.725.36 C. If total debt is $42 and total equity is $100. Total debt ratio = $42/$142 = 0.253.26 = $12.42. A firm has total debt of $4. AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.3 Topic: Long-term solvency ratios 3-60 .57 = $8. What is the total debt ratio? A.034.26 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. $9. 2.38 The debt-equity ratio is 0.Working with Financial Statements 57.620 and a debt-equity ratio of 0.44 D.05 B.58 E.95 D.Chapter 03 . $6.26 Total equity = $4.620/0.105.40 C.42.57.725.30 B.00 E. 0. 0.3 Topic: Long-term solvency ratios 58. 1. $7. $11. What is the value of the total assets? A.620 + $8.26 Total assets = $4.

67 B.3 Topic: Long-term solvency ratios 60.850 in dividends last year.310 = 2.41 E. 2. and depreciation of $6.21 D. What is the value of the cash coverage ratio? A.Chapter 03 .2 and the depreciation expense is $460.500. 12.52 EBIT = 2. 2. 2.100.082 + $460)/$2. costs of $42.310 = $5. What is the value of the cash coverage ratio? A.80 C. 1.14 B. 24.Working with Financial Statements 59.2 × $2. 23.24 C. A firm has sales of $68.14 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.400 . The Bike Shop paid $2.40 E. interest paid of $2. Cash coverage ratio = ($5.3 Topic: Long-term solvency ratios 3-61 . The times interest earned ratio is 2. The tax rate is 34 percent.310 in interest and $1.27 D.082.40 AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-2 Section: 3.100 = 12. 1.900)/$2.400.56 Cash coverage ratio = ($68. 17.$42.900. 15.

07 days D.407.640/$3. 17.19 days B. inventory of $4.192 days Total days in inventory and receivables = 9. Al's Sport Store has sales of $897.407) = 9. and accounts receivable of $74.Working with Financial Statements 61.67 days B.100. does it take the firm to sell its inventory assuming that all sales are on credit? A.23 days D. 121. 15.46 days E.400.014875 Days in inventory = 365/3.07 days AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.614 days Days' sales in receivables = 365/($218.306. How many days. on average. 17.3 Topic: Asset utilization ratios 3-62 . How many days does it take the firm to both sell its inventory and collect the payment on the sale assuming that all sales are on credit? A.614 + 6.014875 = 121.47 days Days in inventory = 365/($167.709) = 6.640.306/$4.192 = 15. The Flower Shoppe has accounts receivable of $3.709. costs of goods sold of $628.18 days E. 84.400. 16. 151. 14.76 days C. inventory of $208.81 days AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.300/$208. and cost of goods sold of $167.3 Topic: Asset utilization ratios 62.300. 138.400 = 3.81 days C. sales of $218.21 days Inventory turnover = $628. 74.Chapter 03 .

908. and current liabilities of $3.400)/($210.400. 6.26 E. and a profit margin of 5.000 + $365.Working with Financial Statements 63.30 Total asset turnover = $31. 6.000.407.20 percent.Chapter 03 .19 D.22 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.000) = 6.02 percent D.0520 × $687.715 + $22.3 Topic: Profitability ratios 3-63 . $1. net fixed assets of $22. What is the return on assets? A.908) = 1.78 percent E.407 + $3.08 B.22 percent B.79 percent Return on assets = (. The Purple Martin has annual sales of $687. total equity of $365.715. total debt of $210. $1.350. 7.000. $1.350/($2. 7. 9. sales of $31. $1. A firm has net working capital of $2. AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.3 Topic: Asset utilization ratios 64.14 C.48 percent C.08 Every $1 in total assets generates $1. $1.08 in sales. How many dollars worth of sales are generated from every $1 in total assets? A.

68 percent D. 32.0836 = 6.500 shares of stock outstanding.0968 × $807.500 = 4.3 Topic: Market value ratios 3-64 .09 percent B. 11.61 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 28. 16. What is the return on equity? A.27 Earnings per share = (. Reliable Cars has sales of $807. The Meat Market has $747.68 percent. The firm has a total debt ratio of 78 percent. 14. total assets of $1.000 in sales.14 percent Return on equity = (.14 percent AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-2 Section: 3.041 × $747.200)/[$1.42 D.100. 13. and a profit margin of 9.67 percent C.1 percent and the firm has 7. What is the priceearnings ratio? A.3 Topic: Profitability ratios 66.200. 8.61 B..56 percent E.0836 Price-earnings ratio = $27/4.15 E. 13. 6.78)] = 32.Working with Financial Statements 65. 17. The market price per share is $27.Chapter 03 .105.000)/7.98 C.105.100 × (1 . The profit margin is 4.

980/$0.84 C.400/160.3 Topic: Market value ratios 3-65 . 2. and earnings per share of $0.000 = $0.Chapter 03 .87 = 173. 1.980. sales of $1. and a book value per share of $9. 2.407 C. 2.62 AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-2 Section: 3. a price-earnings ratio of 12. 165. What is the market-to-book ratio? A.400.62 B. net income of $126.7 = $14.7.8.87.12 = 1.540 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 1.23 D. 14.523 D.773 Market-to-book ratio = $14. a price-earnings ratio of 18.79 × 18. 171. 13.Working with Financial Statements 67.45 E. Big Guy Subs has net income of $150.79 Price per share = $0.773/$9. How many shares of stock are outstanding? A.000 E.000 shares of stock outstanding.558 B.12.94 million.3 Topic: Market value ratios 68.57 Earnings per share = $126. A firm has 160. 173.540 Number of shares = $150.

22.09 percent E.49. What is the return on equity? A.14 percent B.300/($198.63 percent C.5 percent × 1. Oscar's Dog House has a profit margin of 5.69 percent E. 8.Working with Financial Statements 69. 19.79 percent B.74 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-3 Section: 3. 21. a return on assets of 12.42) = 8. sales of $749.30 percent Return on equity = 12.67 percent D. using the Du Pont Identity AACSB: Analytic Difficulty: Basic Learning Objective: 3-3 Section: 3. Taylor's Men's Wear has a debt-equity ratio of 42 percent.4 Topic: Du Pont identity 70.63 percent. net income of $41. 7. 8.400/0. 9.5 percent.4 Topic: Du Pont identity 3-66 . 9.000.400.Chapter 03 . What is the return on equity? A.16 percent Return on equity = $41. and an equity multiplier of 1.74 percent D. and total debt of $198.300. 17. 18.6 percent.41 percent C.49 = 18.

$35.9 percent.601 E.0861616 Net income = $511.084 AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-3 Section: 3.0861616 = $44. and a profit margin of 4. a total asset turnover of 1.Working with Financial Statements 71.418 Return on equity = .4 Topic: Du Pont identity 3-67 .12.Chapter 03 .57) = .049 × 1. $28.12 × (1 + 0. What is the amount of the net income? A.143 C. $44. A firm has a debt-equity ratio of 57 percent.079 B. The total equity is $511.640.640 × .084 D. $52. $47.

1.60 C.32 D.$186.56 B.60 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.79 Quick ratio for 2009 = ($268. 0. What is the quick ratio for 2009? A.Working with Financial Statements 72.Chapter 03 . 1.67 E.700 = 0.100 . 1.3 Topic: Liquidity ratios 3-68 . 0.700)/$134.

3.43 B.12 E.12 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.700 = 11. 17. 4.38 Price-sales ratio = $18.49/[$627.07 = 32.800/$56.3 Topic: Asset utilization ratios 3-69 .67 D. 23.3 Topic: Asset utilization ratios 74.Chapter 03 . 4.41 days E.33 days C. 29. 32.07 Days' sales in receivables for 2009 = 365/11.97 days Accounts receivable turnover for 2009 = $627.49 days D. What is the price-sales ratio for 2009 if the market price is $18.Working with Financial Statements 73.29 C. How many days of sales are in receivables? (Use 2009 values) A.49 per share? A. 26. 3. 2.08 days B.000/$1)] = 4.97 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.800/($140.

3 Topic: Financial leverage ratios 76.06 Debt-equity ratio = ($134.01 E. 12. 0.64 D.01 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 0.82 E. 0.31 Cash coverage ratio = ($95. 1.94 D.52 B.Working with Financial Statements 75. 1.53 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.000 + $131.43 B.200 + $11.Chapter 03 . 11.000)/($140.87 C. What is the cash coverage ratio for 2009? A.800) = 1. 10.3 Topic: Financial leverage ratios 3-70 .100 = 10. 11.700 + $141. What is debt-equity ratio? (Use 2009 values) A.53 C. 9.200)/$10.

14 percent Return on equity = $56.200/($140. $45.38 percent C.800 .96 percent E.000 + $131. 20.3 Topic: Profitability ratios 78.Chapter 03 . What is the return on equity? (Use 2009 values) A. 16.Working with Financial Statements 77.68 percent D. 29.100 Dividends paid = $56.600 D.($131. What is the amount of the dividends paid for 2009? A.100 B. 10.000 C.26 percent B.$120. $15. 40.1 Topic: Statement of cash flows 3-71 .800) = 20. $11.700) = $45.100 AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.68 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.200 E. $41. $32.200 .

400 .400 Cash flow from investment activity = $279.800 C.200 = $29. $18.300 + $11.Working with Financial Statements 79. $32. $24. $29. What is the amount of the cash flow from investment activity for 2009? A.$261.000 E.Chapter 03 .1 Topic: Statement of cash flows 3-72 .300 D.100 B. $39.300 AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.

What is the net working capital to total assets ratio for 2009? A.31 days AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 247.47 percent E. 45.3 Topic: Liquidity ratios 81.30 days B. 51.49 percent D. 164.49 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 24. How many days on average does it take Precision Tool to sell its inventory? (Use 2009 values) A.82 percent C. 283. 36.18 percent B.3 Topic: Asset utilization ratios 3-73 .$8.63 days D.Chapter 03 .129 .908) = 283.225/$21. 219.77 days C. 187. 65.31 days Days' sales in inventory = 365/($28.384)/$41.209 = 45.46 days E.Working with Financial Statements 80.83 percent Net working capital to total assets for 2009 = ($27.

AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.88 B.88 D. $3.3 Topic: Financial leverage ratios 3-74 . 1.93 E.93 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.080 = 2. $2.) A. How many dollars of sales are being generated from every dollar of net fixed assets? (Use 2009 values. 1.67 B. $0.209/($17. 2.59 in sales. the firm generates $2.408/$14. 1.Chapter 03 .87 C.825) = 1. $2.3 Topic: Asset utilization ratios 83. What is the equity multiplier for 2009? A.500 + $3.72 C.Working with Financial Statements 82.59 E. 1.59 For every $1 in net fixed assets. $1.33 D.03 Equity multiplier for 2009 = $41.09 Fixed asset turnover for 2009 = $36.

3 Topic: Financial leverage ratios 85.38 percent D. 18.97 E. 12. 10. What is the times interest earned ratio for 2009? A. 15.825) = 18.46 percent C.29 percent B. 9.63 B.05 Times interest earned for 2009 = $6.12 percent Return on equity for 2009 = $3.59 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 16.12 C.02 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.500 + $3.59 D.Chapter 03 .Working with Financial Statements 84. 17.02 percent E.423/$510 = 12.843/($17. What is the return on equity for 2009? (Use 2009 values) A.3 Topic: Profitability ratios 3-75 . 14. 16. 18.

a source of $807 of cash as an operating activity C.840 Net cash flow from investment activity for 2009 = -$1. -$80 D. How does accounts receivable affect the statement of cash flows for 2009? A. -$1. a use of $807 of cash as an operating activity Change in accounts receivable for 2009 = $4.411 = $807 An increase in accounts receivable is a use of cash as an operating activity.1 Topic: Statement of cash flows 3-76 .680 C.760 = $1.1 Topic: Statement of cash flows 87. $80 E. $1.840 B.218 of cash as an investment activity B. AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.160 + $1.080 . What is the net cash flow from investment activity for 2009? A. a source of $807 of cash as an investment activity E.$3. -$1.218 of cash as a financing activity D.680 Addition to net fixed assets = $14.$14.218 . a use of $4. a use of $4.680 AACSB: Analytic Difficulty: Basic Learning Objective: 3-1 Section: 3.Working with Financial Statements 86.Chapter 03 .

Chapter 03 .30 percent E. 0.48 B. 3.33 percent B. 3. net income of $49.99 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 1. 2. The firm's earnings have been increasing at an average rate of 3.99 PEG ratio = ($18. a price-earnings ratio of 17.06 percent C. 1.21.6/(Earnings growth rate × 100).1 percent annually and are expected to continue doing so.3 = 17. and a profit margin of 7.32 percent D.60 percent 5. 0. 4.200.1 percent. The firm has 21.3 Topic: Market value ratios 89.21)/(. 10.24 C. Townsend Enterprises has a PEG ratio of 5.70/$1. What is the firm's PEG ratio? A.6. Earnings growth rate = 3.70. BL Lumber has earnings per share of $1.Working with Financial Statements 88.031 × 100) = 4.97 E.3 Topic: Market value ratios 3-77 .500 shares of stock outstanding at a price per share of $18.85 D. 5.32 percent AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. What is the earnings growth rate? A.3.

.96 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3. 1.95 E. .600 = .86 B.900 and a current replacement cost of $486.Chapter 03 . .98 AACSB: Analytic Difficulty: Basic Learning Objective: 3-2 Section: 3.87 C. Dixie Supply has total assets with a current book value of $368.800/$486. What is the value of Tobin's Q? A.700.300.3 Topic: Market value ratios 3-78 .06 Tobin's Q = $464.85 B. A firm has total assets with a current book value of $68.600.800.98 Tobin's Q = $74. What is the value of Tobin's Q? A. and a current replacement cost of $75.3 Topic: Market value ratios 91.200 = .01 E.200. . . . . 1. .Working with Financial Statements 90.92 C.92 D.300/$75.96 D. a current market value of $74. The market value of these assets is $464.

0.3 Topic: Market value ratios 93.000 = $216.35 Market-to-book ratio = $5.2 percent.000 = $107. 1.54 times D.96.96 Price-sales ratio = (24 × $0.97 B. a price-earnings ratio of 24.000. 4.20 times Market value of assets = .3 Topic: Market value ratios 3-79 . 1. 3. 1.000 Market value per share $107.000 shares of stock outstanding.000 Market value of equity = $216. What is the price-sales ratio? A.09.09 = 2. and a profit margin of 4.01 C.042)/14. The firm has 20. There are 14.000 = $5.01 AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-2 Section: 3. 2. 4.000.56 times AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-2 Section: 3.01 times E.000) = 1.08 D. A firm has annual sales of $320. The replacement cost of the firm's assets is $225.96 × $225.$109. Dandelion Fields has a Tobin's Q of . 3.22 Earnings per share = ($320. 1.000 × .000/20.000 .35/$2.56 times B.Chapter 03 .96)/($320.000/14.15 E.000 shares of stock outstanding and a book value per share of $2.18 times C.000 and the market value of the firm's debt is $109.000 = $0. What is the market to book ratio? A.Working with Financial Statements 92.

65 Price-earnings ratio = $26. Assume a firm has a positive cash balance which is increasing annually.65 = 16 AACSB: Analytic Difficulty: Intermediate Learning Objective: 3-2 Section: 3.000 = $1.1 AACSB: Reflective thinking Difficulty: Basic Learning Objective: 3-1 Section: 3. What is the firm's price-earnings ratio? A.20 × ($220.000 × . Why then is it important to analyze a statement of cash flows? It is possible that the increase in the cash balance is a result of issuing more equity or assuming more debt and not the result of generating cash from operations. Feedback: Refer to section 3.20.000 shares of stock outstanding.000) = $26.000 with 10. 14 B. The firm has a profit margin of 7.000/10.40/$1.40 Earnings per share = ($220.Working with Financial Statements 94.075)/10. 18 D.1 Topic: Statement of cash flows 3-80 .3 Topic: Market value ratios Essay Questions 95.5 percent and a price-sales ratio of 1.Chapter 03 . 20 E. Lassiter Industries has annual sales of $220. 16 C. If a firm cannot generate positive cash flows internally. the firm will eventually encounter difficulties in raising external funds and could possibly face bankruptcy. 22 Price per share = 1.

Thus. what does a high Tobin's Q value indicate and how reliable does that value tend to be? A high Tobin's Q indicates that the current market value of a firm's assets represents a high percentage of the firm's replacement cost.5 Topic: Ratio analysis 97. You need to analyze a firm's performance in relation to its peers. In general.3 Topic: Tobin's Q 3-81 . In addition.5 AACSB: Reflective thinking Difficulty: Intermediate Learning Objective: 3-4 Section: 3.Working with Financial Statements 96. Feedback: Refer to section 3. If you only had time to use one means of comparison which method would you use and why? Firms generally are sized differently making it difficult to do comparisons on a dollar basis. ratios allow you to analyze performance and see relationships that are difficult to see when looking only at dollar amounts. By using ratios.Chapter 03 .3 AACSB: Reflective thinking Difficulty: Intermediate Learning Objective: 3-2 Section: 3. the logical choice would be to compare the firms using ratio analysis. The problem with Tobin's Q is that the information used in the computation of the Q value is often questionable. the relationships between variables can be seen without being influenced by firm size. You can do this either by comparing the firms' balance sheets and income statements or by comparing the firms' ratios. Higher Q values tend to indicate that a firm has a significant competitive advantage and/or has attractive investment opportunities. Feedback: Refer to section 3.

and thus the stock price.3 Topic: Price-sales ratio 3-82 . the price-sales ratio is not affected by a firm's expenses or taxes whereas the priceearnings ratio is. Feedback: Refer to section 3. In addition. This is particularly true when a firm's PEG and PE ratios are noticeably greater than those of its peers.Chapter 03 . is too high relative to the expected growth rate of the firm's earnings.3 Topic: PEG and PE ratios 99. What value can the price-sales ratio provide to financial managers that the price-earnings ratio cannot? The price-earnings ratio loses its value when a firm has either zero or negative earnings. This problem is avoided by using the price-sales ratio as sales should always be a positive value. What value does the PEG ratio provide to financial analysts? The PEG ratio divides the PE ratio by the expected future earnings growth rate (The growth rate is multiplied by 100). A high PEG value tends to indicate that the firm's PE ratio. If earnings are positive.3 AACSB: Reflective thinking Difficulty: Intermediate Learning Objective: 3-2 Section: 3.3 AACSB: Reflective thinking Difficulty: Intermediate Learning Objective: 3-2 Section: 3.Working with Financial Statements 98. Feedback: Refer to section 3. both ratios can be used to ascertain if there is any major change in the relationship between a firm's costs and its sales from one time period to another.

08 percent D.28 percent Return on equity = (.5 AACSB: Reflective thinking Difficulty: Intermediate Learning Objective: 3-4 Section: 3. Firms operating in different areas may be subjected to various regulations which might affect also their operations. The Burger Hut has sales of $29 million. 11.$13m) = 10.Chapter 03 .11 × $29m)/($43m . acquisition. 7. many firms are cyclical in nature and have varying fiscal years which complicates the comparison of financial statements. such as a merger.31 percent E. while it is recommended that peer analysis be conducted. What is the return on equity? A. total assets of $43 million. 10. if not impossible to identify a peer that has truly similar operations.63 percent C. doing so in a meaningful manner can present quite a challenge. If each of these differences between firms is not handled properly. So. 13.63 percent AACSB: Analytic Difficulty: Basic EOC #: 3-2 Learning Objective: 3-2 Section: 3. In addition. this is becoming a more difficult task. and total debt of $13 million.42 percent B.5 Topic: Peer analysis Multiple Choice Questions 101.3 Topic: Return on equity 3-83 . Feedback: Refer to section 3. or divestiture. The financial results for a firm are also affected by various accounting practices and one-time events. any resulting comparisons or conclusions can be faulty. Many firms are involved in multiple areas of business over diverse geographical locations thereby making it difficult. 14. Increasingly. Explain some of the reasons why comparisons of this type can frequently be either difficult to perform or produce misleading results. It is commonly recommended that the managers of a firm compare the performance of their firm to that of its peers.Working with Financial Statements 100. The profit margin is 11 percent.

77.Working with Financial Statements 102.29 days B.830.000.000 = 4.Chapter 03 .7 times Day's sales in inventory = 365/4. 17. Credit sales for the year just ended were $1.16 days B. How many days on average did it take for credit customers to pay off their accounts during this past year? A.01 days C.50 days D.000.00 days Receivables turnover = $1.29 days E. The Home Supply Co.410. BL Industries has ending inventory of $300. how long does a unit of inventory sit on the shelf before it is sold? A.66 days D.84 days AACSB: Analytic Difficulty: Basic EOC #: 3-3 Learning Objective: 3-2 Section: 3. 54. 61.3 Topic: Inventory turnover 3-84 .1 times Days' sales in receivables = 365/6. and cost of goods sold for the year just ended was $1.43 days C. On average. 57.13 days Inventory turnover = $1. 78.84 days E.830. 83. has a current accounts receivable balance of $300.410.000.66 days AACSB: Analytic Difficulty: Basic EOC #: 3-4 Learning Objective: 3-2 Section: 3.7 = 77.1 = 59.000/$300. 56.3 Topic: Average collection period 103. 21.000 = 6.000.000/$300. 59.

47) = 0. 1.5 percent.94 percent B.3 Topic: Equity multiplier 105.89 Equity multiplier = 1 + 0. 10. What is the return on equity? A.Working with Financial Statements 104.47/(1 .55 = 15.4 Topic: Du Pont identity 3-85 . 14. High Mountain Foods has an equity multiplier of 1.89 AACSB: Analytic Difficulty: Basic EOC #: 3-5 Learning Objective: 3-2 Section: 3.38 percent E. a total asset turnover of 1. What is the equity multiplier? A.89 = 1. 1.89 B.11 percent AACSB: Analytic Difficulty: Basic EOC #: 3-7 Learning Objective: 3-3 Section: 3.13 C. Coulter Supply has a total debt ratio of 0.11 percent Return on equity = .075 × 1.47. 15.3. 2. 1.89 E.0.87 percent C.69 percent D.55. 0. 12.3 × 1.13 Debt-equity ratio = .Chapter 03 . 8. and a profit margin of 7.47 D.

6 percent.000.28 .22 B.136 D.71. $161. What is the net income? A.000 = $157. $157.05. $105.71) = 1.136 AACSB: Analytic Difficulty: Basic EOC #: 3-12 Learning Objective: 3-2 Section: 3.092 × 3. 0. What is the debt-equity ratio? A. Charlie's Chicken has a debt-equity ratio of 2. Return on assets is 9.309 C.72 E.096 × 1.78 Equity multiplier = .3 Topic: Equity multiplier and return on equity 3-86 .Chapter 03 .2806 × $560. and total equity is $560.2 percent.46 D. and a return on equity of 21. 0.616 B.2806 Net income = .05 = 3.008 E.01 percent.909 Equity multiplier = 1 + 2. 0.05 = . Lancaster Toys has a profit margin of 9. 0. $148.28 C. 0. a total asset turnover of 1.1 = 0.2101/(.28 AACSB: Analytic Difficulty: Basic EOC #: 3-8 Learning Objective: 3-3 Section: 3.28 Debt-equity ratio = 1.4 Topic: Du Pont identity 107.05 Return on equity = . $164.Working with Financial Statements 106.

200/$1. Canine Supply has sales of $2. Inc. has net income of $161. 27. $141.09 D.15 = (Net income/$2. total assets of $1. $161.421 × .200) × ($2.100 = 11 times Days' sales in receivables = 365/11 = 33. $156. and a debt-equity ratio of 0. Its return on equity is 15 percent.30) Net income = $161.000/.4 Topic: Du Pont identity 109.6 percent.67 E. What is the net income? A.54 Return on equity = .421 Credit sales = $2.Chapter 03 .118.19 days Sales = $161.3 Topic: Days' sales in receivables 3-87 .398. Assume that 66 percent of sales are on credit.000. 33.56 days C.04 days E.158/$127.41 C.54 AACSB: Analytic Difficulty: Intermediate EOC #: 3-18 Learning Objective: 3-3 Section: 3.3.200.158 Accounts receivable turnover = $1.076 = $2.400. Billings. What is the days' sales in receivables? A.398. 36.400) × (1 + 0. $152.16 B.118.18 days D.18 days AACSB: Analytic Difficulty: Intermediate EOC #: 3-19 Learning Objective: 3-2 Section: 3. 21.66 = $1. and an accounts receivable balance of $127.100.90 days B. a profit margin of 7.Working with Financial Statements 108. 35. $138.

Total equity)/Total assets = .15 E.944.107.69 C. $5.80/. 135 percent (Total assets .13 Total assets/. 50 percent C.440 = $421. $5.163. How much does the firm have in net fixed assets? A.195 = $2.6 and a current ratio of 1.6 = Long term debt/(Long-term debt + $2.163. Long-term debt = $3.Chapter 03 .74.848. A firm has a debt-total asset ratio of 74 percent and a return on total assets of 13 percent.6153 + $2.6922 Net fixed assets = $6.3.197. the profit margin is 9.944.3 × $700 = $910 Net income = .3 Topic: Return on equity 3-88 .Working with Financial Statements 110.6153 = $3. Total equity = . 65 percent D. and the return on equity is 19. sales are $4. What is the return on equity? A. $5.880.197.244.13 Total assets Return on equity = . Current liabilities are $700.70 Current assets = 1.5 percent. 26 percent B. $6.$910 = $5. $4.5 percent.67 D.26 Total assets = 50 percent AACSB: Analytic Difficulty: Intermediate EOC #: 3-22 Learning Objective: 3-2 Section: 3.666.3 Topic: Ratios and fixed assets 111.18 B.244.6153 Total assets = $3.80 Total equity = $421.095 × $4.163.0769 = $6.107.107. 84 percent E.0769 0.0769).26 Total assets Net income = .6922 .440.69 AACSB: Analytic Difficulty: Intermediate EOC #: 3-20 Learning Objective: 3-2 Section: 3.6153 Total debt = $700 + $3. Gladstone Pavers has a long-term debt ratio of 0.

and depreciation = $13.000. $980.450/(1 .Working with Financial Statements 112.39 times D. The firm paid $1. and a current ratio of 2.300 = 12.07 times Earnings before taxes = $8.000 Current assets = 2.829.03 Cash coverage ratio = $16.03 + $1.Chapter 03 .9.829. 13.400.Inventory)/$350. a quick ratio of 1. Beach Wear has current liabilities of $350.000 ($1.900 = $16.03/$1.000 B. 10..300 + $1. The tax rate was 38 percent.060.2.500 = $1.48 times B. What is the cost of goods sold? A. What was the cash coverage ratio for the year? A. Inventory = $437.000 = $1.000 D.000 AACSB: Analytic Difficulty: Intermediate EOC #: 3-24 Learning Objective: 3-2 Section: 3.400. $1.015. taxes.560. 11.500 Costs of goods sold = 3. 12.38) = $13.450.3 Topic: Cash coverage ratio 113.300 in total interest expense and deducted $1. The Dockside Inn has net income for the most recent year of $8.900 in depreciation expense. inventory turnover of 3.9 × $350. $1.65. $1.000 .200.65.015.03 Earnings before interest.48 times C.000 = 1.95 times AACSB: Analytic Difficulty: Intermediate EOC #: 3-23 Learning Objective: 3-2 Section: 3. $1.629.3 Topic: Cost of goods sold 3-89 .000 E.95 times E.629.000 C. 12.2 × $437.

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