Chapter 2—Financial Statement and Cash Flow Analysis

MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory ANS: C DIF: E REF: 2.1 Financial Statements

2. If you only knew a company’s total assets and total debt, which item could you easily calculate? a. Sales b. Depreciation c. Total equity d. Inventory ANS: C DIF: E REF: 2.1 Financial Statements

3. How do we calculate a company’s operating cash flow? a. EBIT - taxes + depreciation b. EBIT - taxes - depreciation c. EBIT + taxes + depreciation d. EBIT - Sales ANS: A DIF: E REF: 2.2 Cash Flow Analysis

4. Holding all other things constant, which of the following represents a cash outflow? a. The company sells a machine. b. The company acquires inventory. c. The company receives a bank loan. d. The company increases accounts payable. ANS: B DIF: E REF: 2.2 Cash Flow Analysis

5. Which of the following is a liquidity ratio? a. Quick ratio b. P/E- ratio c. Inventory turnover d. Equity multiplier ANS: A DIF: E REF: 2.3 Analyzing Financial Performance Using Ratio Analysis NARRBEGIN: Bavarian Sausage, Inc. Bavarian Sausage, Inc. Bavarian Sausage, Inc. posted the following balance sheet and income statement. Balance Sheet Cash Accounts Receivable Inventories Net Plant and $ 50,000 125,000 225,000 Accounts Payable Notes Payable Long-term debt $185,000 125,000 115,000

Equipment

525,000

Total Assets

$925,000

Common Stock Retained earnings Total liabilities and Stockholders’ Equity

350,000 150,000 $925,000

Income Statement Sales Cost of goods sold Depreciation Earnings before interest and taxes Interest expense Net profit before taxes Taxes (@ 40%) Net income NARREND

$525,000 215,000 65,000

245,000 35,000

210,000 84,000 $126,000

6. What is Bavarian Sausage, Inc.’s operating cash flow? a. $394,000 b. $191,000 c. $226,000 d. $359,000 ANS: C DIF: E NAR: Bavarian Sausage, Inc. REF: 2.2 Cash Flow Analysis

7. What is the Bavarian Sausage, Inc.’s quick ratio? a. 0.5645 b. 1.2903 c. 1.9565 d. 0.8871 ANS: A DIF: E REF: 2.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage, Inc. 8. What is the Bavarian Sausage, Inc.’s average collection period? a. 14.39 days b. 4.20 days c. 122.56 days d. 86.90 days ANS: D DIF: E REF: 2.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage, Inc. 9. Bavarian Sausage, Inc. has 100,000 shares of common stock outstanding, but no preferred stock. The current price of Bavarian’s common stock is $15. What is the company’s P/E-ratio? a. 119.00

3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage.3 Analyzing Financial Performance Using Ratio Analysis .000 shares outstanding.85 ANS: A DIF: E REF: 2. $1. 0. has 100.25 d. 8.96 c. Inc.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage. 15% d.00 b. a. $9. 0.05 b. 16. Inc.b.51 ANS: B DIF: E REF: 2.62% d.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage. 12. Inc. Inc. 40% b. 1. a. 1. What is Bavarian Sausage. 11. 11. Calculate the Bavarian Sausage.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage. Inc. What is Bavarian sausage. 10.47% ANS: C DIF: E REF: 2. Inc.’s net profit margin? a.20% b.60 ANS: C DIF: M REF: 2. 1.’s inventory turnover. 12.25 c.50 d. 47% c.76 d.35% c. 0. Inc.90 d. Calculate the Bavarian Sausage. what is the book value per share? a. $3. $5. 25. 1. If Bavarian Sausage. 14.26 c. Inc. 13.52 c.’s debt-equity ratio? a.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage.23 b. 13.50 ANS: A DIF: E REF: 2. 0. 24% ANS: D DIF: E REF: 2. Inc.’s return on assets. 0. Inc.

3.632 ANS: B DIF: M REF: 2.000.000 15.00% d..000 18.00 d.000 15.. What is the Bavarian Sausage. 16. Inc.00 ANS: B DIF: E REF: 2.. 70. common stock equity = $175.60 b.875 c.NAR: Bavarian Sausage. 17..3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage.000 d. Tax Rate 15% 25% 34% 39% 34% 35% 38% 35% $ .000 18. 24.000.000 100. 17.’s times interest earned ratio? a. what is its ROA? a. $47. What is the firm’s earnings available for common stockholders? a. Inc..750 b. You have the following information about a firm: total asset = $350.. Calculate the Bavarian Sausage.00 c.50% b.. $50. Inc.62% c.’s return on equity.000 335.3 Analyzing Financial Performance Using Ratio Analysis NAR: Bavarian Sausage. ROE = 12. a.000.333.43% c. 7. 12.5. If a company’s net profit margin is 5% and its total asset turnover is 3. $21.000 10.74% d.000 75.. 15.. $43..00% b. 6.333 . 13.333..000 335.333 NARREND Not over 50..000 10.3 Analyzing Financial Performance Using Ratio Analysis NARRBEGIN: Tax table Tax Table Taxable income over $ 0 50.3 Analyzing Financial Performance Using Ratio Analysis 18. Inc.000 100. Inc.20% ANS: D DIF: E REF: 2...000. 15.53% ANS: A DIF: E REF: 2.000.5%. 1.000 75.000. 25. 15.

250.571 c.234.250 d. Refer to Tax Table. 33.755. 35% d.288 ANS: A NAR: Tax table DIF: E REF: 2.756 b.785 b. 26. First Watch. has a pretax income of $325. 25% b. What is the company’s average tax rate? a. $126.390.000 ANS: B NAR: Tax table DIF: E REF: 2. Refer to Tax Table.755. $1.548 d. $2. 29. 25% ANS: B NAR: Tax table DIF: E REF: 2. Bavarian Sausage.4 Corporate Taxes 24.000 c. Inc.750 b.000. Inc.808 . Refer to Tax Table. Inc.75% d. $325. Inc. First Watch.000. $563. Bavarian Sausage.250. $1. 39. 39% d. Refer to Tax Table. 34% b. has a pretax income of $325. $1. What is the company’s marginal tax rate? a.464. 39% c. What is the company’s tax liability? a.00% b.276. has a pretax income of $325. What is the company’s average tax rate? a.000. has a pretax income of $3.000.754. Inc. What are the company’s annual sales? a.4 Corporate Taxes 22.19. 34% ANS: D NAR: Tax table DIF: E REF: 2. $81.4 Corporate Taxes 23.85% ANS: D NAR: Tax table DIF: E REF: 2. What is the company’s tax liability? a. $1.4 Corporate Taxes 21. Bavarian Sausage. $110. Refer to Tax Table. 15% c.4 Corporate Taxes 20. has a pretax income of $3.55% c. A company has an average collection period of 52 days and accounts receivables of $250.

000 ANS: B DIF: M REF: 2.000 b.000 ANS: C DIF: M REF: 2. You have the following information about a company: quick ratio = 0.000 and current assets = $375. $400. Current assets: Current liabilities: Net fixed assets: Total equity: a. $433. 1.823 d. 0.c. What is the net change of the company’s cash as a result of these transactions? a.000 c.000. $750.05 c.000 loan.000 c. Given the following information. $50.700 b. In a given year a company decreased its inventory by $250. depreciation expenses of $250.700 c.56 d.543.250.000 worth of fixed assets and took on a new $500.85 b. $375.000.3 Analyzing Financial Performance Using Ratio Analysis 26. $1.000 d. 1.000.000 b.000 . cost of goods sold of $750.2 Cash Flow Analysis 29. If the company’s tax rate is 34% and the income statement is complete.000 $125. purchased $350. $100.000 $250.85. calculate the company’s long-term debt.2 Cash Flow Analysis 28.000 d.000 ANS: B DIF: E REF: 2. $250.000 b.000.000.000 ANS: B DIF: M REF: 2.3 Analyzing Financial Performance Using Ratio Analysis 27. $250. $500. A company has a total asset turnover of 2 and sales of $500.000 d.000 $ 85. A company has sales of $1.000.000.28 ANS: D DIF: M REF: 2. -$400. $183. $1. inventory = $125. what is this firm’s operating cash flow? a. What is the company’s current ratio? a.3 Analyzing Financial Performance Using Ratio Analysis 25.000 $200.000 c. $285.000 and interest expenses of $55. $415. 2. What is the company’s total assets? a. $165. -$100.

current and prospective cash flows. b. has a net profit margin of 12%. the New York Stock Exchange. d.6042 b. Inc. Which of the following statements is not required by the SEC for publicly traded firms? a. b. c.1 Financial Statements 35. d. what is X’s net income? a. In addition. the Financial Accounting Standards Board. Last National.3 Analyzing Financial Performance Using Ratio Analysis 31.2 Cash Flow Analysis 30. Financial professionals prefer to focus on an accounting approach that focuses on a. ANS: B DIF: E REF: Introduction 32. $27 c. ANS: B DIF: E REF: 2. b. X had total other operating expenses of $50 with an interest expense of $20. Not enough information.000 ANS: D DIF: E REF: 2. $20 b. 0. par value. economically based accruals.1 Financial Statements 33. the balance sheet ANS: A DIF: E REF: 2. the Securities and Exchange Commission.6042 c. retained earnings. Congress.5%. 2 d.d. the statement of retained earnings c. If X pays a flat 40% of its pre-tax income in income taxes. governmental accounting methods. the statement of cost of goods sold b.1 Financial Statements 34. an equity multiplier of 2. $90. The balance sheet entry that represents the cumulative total of the earnings that a firm has reinvested since its inception is a. d. Generally accepted accounting principles are developed by a. c. none of the above ANS: C DIF: M REF: 2. c. ANS: D DIF: M REF: 2. the statement of cash flows d. ANS: B DIF: M REF: 2. international accrual accounting standards. $12 d.000 and a ROE of 14. Company X had sales of $120 with a cost of goods sold equal to 25% of sales. paid-in-capital.1 Financial Statements . 1. common stock. What is Last National’s total asset turnover? a. sales of $575.

000 d. The Park Corp.000 DIF: H REF: 2.000 = 550.000 ANS: D 500. the Statement of Cash Flows d.2 Cash Flow Analysis .(. free cash flow b.000 . $550 c. $550. $150 b. the Income Statement b. operating flows b.000 and had a depreciation expense of $200. If the firm was subject to an average tax rate of 30%. If you are looking to review a firm’s sources and uses of cash flows over the year. investment flows c.000) + 200. $350.1 Financial Statements 37. net cash flow d. In order to identify the amount of funds that a firm borrowed during the preceding year. If its earnings before interest and taxes was $1. Edison Bagels had operating cash flow equal to $850 for 2004.2 Cash Flow Analysis 38.000 b.36. the resulting figure is called a. not enough information to calculate ANS: A OCF = EBIT .Taxes + Depreciation 850 = 1. $1. assume that Park’s interest expense was zero for the year. what section is the best source within the Statement of Cash Flows? a. what was Edison’s depreciation expense for the year? a. a.000 while its tax bill was $300.000 c.300 + Depreciation 150 = Depreciation DIF: H REF: 2. the easiest place to find that information is a. $305. gross cash flow ANS: B DIF: E REF: 2.2 Cash Flow Analysis 40. If you start with earnings before interest and taxes and then subtract a firm’s tax expense while adding back the amount of depreciation expense for the firm during the year.550 d. had earnings before interest and taxes of $500. the Statement of Retained Earnings c. what was Park’s operating cash flow for the year? If you need to. operating cash flow c.000 . $450.000 this last year. total net cash flows ANS: C DIF: M REF: 2.3 * 500. the Balance Sheet ANS: C DIF: E REF: 2.2 Cash Flow Analysis 39. financing flows d.

CWS had sales of $10. d. the current and prior year’s net fixed assets c. amortization and depletion expense and allowances because a.600 800 600 2. a.000 d. they approximate the value of fixed asset purchases during the year.200 is included in the total expense number listed above. (CWS) just completed its 2003 fiscal year.000 $1. 2002 Current Assets Net Long-Term Assets Accounts Payable Accrued Expenses Short-Term Debt Long-Term Debt 2003 Current Assets Net Long-Term Assets Accounts Payable Accrued Expenses Short-Term Debt Long-Term Debt No fixed assets were disposed of during the year. b.000 3.41. $2. d. $2.000. Inc. A list of some balance sheet items for CWS for end of fiscal year 2002 and 2003 is as below.2 Cash Flow Analysis NARRBEGIN: Cold Weather Sports Cold Weather Sports. (CWS) Cold Weather Sports. ANS: A DIF: M REF: 2.000 600 500 2. When calculating a firm’s free cash cash flow from earnings before interest and taxes we must add back depreciation. $4.000 and total expenses (no interest expenses were incurred) of $6. the accounting method for reporting such expenses may be different from that reported to the taxing authority. they are non-cash expenditures.200 5. the current and prior year’s net fixed assets plus the firm’s depreciation expense for the year. c. they are unrelated to the amount of taxes paid during the year. Inc. NARREND 43.2 Cash Flow Analysis 42.100 3. Assume that CWS pays 30% of its EBIT in taxes and that deprececiation expense of $1.800 c.000 5. During the year.400 b. When calculating the dollar amount of fixed assets purchased during the year what information is required? Assume that no fixed assets were disposed of during the year. none of the above ANS: C $1. What is Cold Weather Sports’ operating cash flow for 2003? a.200 . the current and prior year’s gross fixed assets b. either a or c will suffice ANS: D DIF: H REF: 2.

$100 b.200 depreciation expense = 4.(Change in CA .2 Cash Flow Analysis NAR: Cold Weather Sports 45.000 EBIT .800 DIF: M REF: 2.000 .600 . 2.200 tax + 1.000 and an inventory of $1. $2. b.000 = 200 Change in AP = 800 .000 sales . $1.0 b. none of the above ANS: C Change in CA = 1. neither an inflow nor an outflow of cash.100 c. a decrease in the equity of the firm. 3.5.000.5 c.500 = 100 OCF = 10.200 c.000 + 1.300 d. If its current ratio is 2.800 .5 = CA/ 2.200 . none of the above ANS: C 5. ANS: B DIF: M REF: 2.1.800 d.(200 .1.6.5 ANS: A 2.Change FA .0 d.600 . $1. 2. then what is its quick ratio? a.200 depreciation expense = 4.2 Cash Flow Analysis 47.5. 3. Granny’s Jug Herbal Shop has total current liabilities of $2.000 + 1.1. an inflow of cash.5. What was the dollar amount of fixed assets purchased during the year for Cold Weather Sports? a. c.600 = 200 Change in Accrued = 600 . d.10.000 expense = 4. assuming that the current asset portion of the balance sheet remains the same. is a.100) = 2.Change in AP . $2.000 Change in FA = 5.200 FCF = OCF .000 expense .200 = 1.000 sales .Change in Accrued) = 4.000 ====> CA = 5.000 EBIT 4.200 . $600 b. an outflow of cash. The effect of an increase in a firm’s accounts payable during the year.200 tax + 1. What is the amount of free cash flow generated by Cold Weather Sports in 2003? a.000 DIF: M REF: 2.2 Cash Flow Analysis NAR: Cold Weather Sports 46.2 Cash Flow Analysis NAR: Cold Weather Sports 44.6.000 .300 DIF: H REF: 2.1.

quick ratio = (CA .1.000 d.9992 2.000. d.500.589.Inv)/CL = (5. $1.000 ====> Equity = 5.33 c.0 DIF: M REF: 2.000 / 365 = 9.33 d. then what does that imply for the cost of goods sold during the year? (round to the nearest dollar) a.000 in its accounts recievable during the year.000 = 2.500 = 3. 3. ANS: C DIF: M REF: 2. What is its average collection period? a. b.000 . has total liabilities equal to $3. the less risk there is to the equity holders of the firm.000 / 9.000 ANS: C 121.500.000 last year and on average had $33. Devil Inc. 2. none of the above ANS: C TA = 5. $3.999.3 Analyzing Financial Performance Using Ratio Analysis 50.000 DIF: H REF: 2. the less financial leverage it uses.000 . the greater extent to which it uses equity. The firm that you work for had credit sales of $3.04 = 3.589. 3. In general.33 .000 c. c. 3 days b. 1. has an average age of inventory equal to 121.333 b. the more debt a firm uses in relation to its total assets a.67 ===> 12. Wunder Boy Bat Co. What is Devil’s asset-to-equity ratio? a.500 and total assets equal to $5.67 = (365 / inventory turnover) ===> inventory turnover = 2.3.000) ====> CGS = 11.500 = 1. If its end of year inventory level is $4.3 Analyzing Financial Performance Using Ratio Analysis 51. none of the above ANS: A 3.992 = (CGS/4.500 asset-to-equity = 5.67 days.000)/2.43 b.9992 = (CGS/ inventory) ===> 2.44 days c.000.04 average sales per day ====> average collection period = 33.000/ 1. $12.44 days DIF: E REF: 2.3 Analyzing Financial Performance Using Ratio Analysis 49. the greater the financial leverage it uses.5 days d. 3.3 Analyzing Financial Performance Using Ratio Analysis 48. $16.

800 in sales. What is Import Inc.200 .75% c. has earnings available for common shareholders of $700 produced by sales of $10. 7.000 in total assets. 17.35 DIF: M 1.000 = 2. 5.000 and an assets to equity ratio of 2. What is Import Inc.200 ] / 20. none of the above ANS: A ROE = (earnings avail for common/sales) (sales/TA) (TA/ equity) .35 DIF: M 1. 5.DIF: E REF: 2.0% d.000) (10.3 Analyzing Financial Performance Using Ratio Analysis 53. Inc. 7.90% b.200 produced from $20.’s return on common equity? a.5% d.3 Analyzing Financial Performance Using Ratio Analysis 55.92 % REF: 2.200 produced from $9. then what is Straw’s net profit margin? a.20% ANS: A [1.96% c.035 DIF: E NAR: Import (sales/TA) REF: 2.000) = . NARREND 54. 2.200) .000/20. 8. Straw Corp has an operating profit of $1. then what is Straw’s net profit margin? a.200 ] / 9. It also has total assets of $20.90 % REF: 2.3 Analyzing Financial Performance Using Ratio Analysis 52.5% d. 10. 7% c.(. If Straw has no interest expense and currently pays 35% of its operating profits in taxes and $200 per year in preferred dividends. Import.200 . 3.0% b.000. Inc. 7.(.’s return on assets? a.3 Analyzing Financial Performance Using Ratio Analysis NARRBEGIN: Import Import. Straw Corp has an operating profit of $1. 14% b.200) . none of the above ANS: C ROA = (earnings avail for common/sales) = (700/10.90% c.92% b. none of the above ANS: A [1. If Straw has no interest expense and currently pays 35% of its operating profits in taxes and $200 per year in preferred dividends. 3.96% d.5.800 = 5.

000/8.000) (20.= (700/10.000) DIF: H NAR: Import (10.680 2003 . calculate FactorMax’s recent earnings per share.67 c.0875 REF: 2.000 1.000 2004 2003 80 315 415 810 870 1.000/20.3 Analyzing Financial Performance Using Ratio Analysis NARRBEGIN: Stone Cold Stone Cold Incorporated Balance Sheet: 12/31/04 Assets Cash and Marketable Securities Accounts Receivable Inventories Total Current Assets Net plant and equipment TOTAL ASSETS Liabilities and Equity Accounts Payable Notes Payable Accruals Total Current Liabilities Long Term Bonds TOTAL DEBT Preferred Stock Common Stock Retained earnings TOTAL COMMON EQUITY TOTAL LIABILITIES AND EQUITY Income Statement: 12/31/04 2004 10 375 615 1. $. Return on equity c.064 40 130 766 896 2.15 b.3 Analyzing Financial Performance Using Ratio Analysis 56. If it is selling at a P/E ratio of 50.000)= . none of the above ANS: C P/E = market price per share / earnings per share 50 = 75/EPS ====> EPS = 1.000 2004 60 140 110 310 754 1.000 2. Debt-equity ratio d. a. Return on assets b.50 d.680 2003 40 60 130 230 580 810 40 130 700 830 1.3 Analyzing Financial Performance Using Ratio Analysis 57. $. What is the financial ratio that measures the price per share of stock divided by earnings per share? a. $1. Price-earnings ratio ANS: D DIF: E REF: 2. FactorMax is currently selling for $75 per share.50 DIF: M REF: 2.

20.44% d. 9. 20. 0. For 2004. 1.16% b.Net Sales Operating Costs (excludes Dep/Amortization) EBITDA Depreciation Amortization Depreciation and Amortization EBIT Less Interest EBT Taxes (40%) NET INCOME (before Preferred Dividends) Preferred Dividends NET INCOME Common Dividends Addition to Retained Earnings NARREND 3.2 2.700 500 100 0 100 400 88 312 124.98 d.36% b. 12.850 2. Refer to Stone Cold.8 58. For 2004. 12.2/896 = 20. what was the return on common equity? a. 9.3 Analyzing Financial Performance Using Ratio Analysis .8 4 117.19 ANS: A =754/(896+40) = .3 Analyzing Financial Performance Using Ratio Analysis 59.90% ANS: C 183.81 b.2 4 183.8 187. what was the debt-to-equity ratio? a. Refer to Stone Cold.16% DIF: E NAR: Stone Cold REF: 2.8 53 64.40% c. 15. 0.497 353 90 0 90 263 60 203 81. Refer to Stone Cold. 0.00% ANS: A =183.84 c.2/2000= 9.60% d. what was the return on assets? a. 20. For 2004.40% c.3 Analyzing Financial Performance Using Ratio Analysis 60.44% DIF: E NAR: Stone Cold REF: 2.81 DIF: H NAR: Stone Cold REF: 2.200 2.2 121.2 117 66.

3 Analyzing Financial Performance Using Ratio Analysis 64. -$55.$124.84 days b.2 chFA = Change in Gross Fixed Assets = Change in Net Fixed Assets + Depreciation chFA =($1. 3. Refer to Stone Cold.767 =375/8. $145.767 = 42. 51. 8. 2. Refer to Stone Cold.$870) + $100 = $230 chCA = Change in Current Assets chCA =$1.80 c.00 ANS: A FCF = OCF .77 days c.8 + $100 = $375.20 b.chFA – (chCA .77 c.20 c. 4.chA/P . For 2004.000 .000 . 42. what was the average collection period for the firm in 2004? a.3 Analyzing Financial Performance Using Ratio Analysis 63.55 DIF: E NAR: Stone Cold REF: 2. 1. For 2004. What was the free cash flow in 2004 for Stone Cold Incorporated? a.22 days ANS: C =3200/365 = 8. 2.60 DIF: M NAR: Stone Cold REF: 2.77 DIF: M NAR: Stone Cold REF: 2.13 b.61. 6.77 days d.55 d. 1. 0.40 d.3 Analyzing Financial Performance Using Ratio Analysis 62. what was the times interest earned ratio for 2004? a.80 b. what was the total asset turnover for 2004? a.60 ANS: D =3200/2000 = 1. For 2004. -$44.$810 = $190 .55 ANS: D =400/88 = 4. $215. 1. Refer to Stone Cold.chAccruals) where OCF = EBIT – Taxes + Depreciation OCF = $400 .20 d.

00% ANS: C =100000/300000=33.000 $100.00% c.000 $300. 33.000 NARRBEGIN: Titans Electronics Titans Electronics .3 Analyzing Financial Performance Using Ratio Analysis $ 50.000 DIF: M REF: 2.000 c.20 = X / $200.$230 .2 . 16. $40.chAccruals) FCF = $375.$20 chAccruals = Change in Accruals.33% DIF: M REF: 2.000 ANS: B . $50.chA/P .2 .33% d. what was Net Income for 2004? a.000 66.000 d.2 Cash Flow Analysis NAR: Stone Cold 65.8 DIF: H REF: 2. $25.$190 FCF = -$44.??? $250.chFA – (chCA .3 Analyzing Financial Performance Using Ratio Analysis $ ???. Consider the following financial information for Classic City Ice Cream Corporation: 2004 Financial Data Net Income Total Assets Total Shareholder Equity Net Sales If the return on equity is 20%.000 $100.$230 .67% b.000 b.000 $200.$40 . 40. chAccruals = $$110 . $65.chA/P = Change in A/P chA/P = $60 .($190 -$20 --$20) FCF = $375. Consider the following financial information for Classic City Ice Cream Corporation: 2004 Financial Data Net Income Total Assets Total Shareholder Equity Net Sales What is the total asset turnover for the firm in 2004? a.000 $200.$130 = -$20 FCF = OCF .000 X= $40. 25.

3 Analyzing Financial Performance Using Ratio Analysis NAR: Titans Electronics 68.000 335. c.000 $ 60.000 10.000.000 500.. The bank will have concerns. 8.000 $ 80. To issue the credit.. What is the current P/E ratio for the Titans? a.00% $ ..000..00% 35.333. as two or more of the requirements are not met...000 $ 20 NARREND 67.00% 35..67 DIF: M REF: 2.000 $6. Titans Electronics is applying for a new line of credit from their banking partner.000... Tax Rate 15.000/400.333 . The bank will have concerns. as the current ratio does not meet requirements..000 15.000 100.000 100.000 $ 200.333.00% 25.000 75.000)=16.00% 38. d. The bank will have concerns.000 # of Common shares Total Dividends Paid Current Assets Current Liabilities Market Price of Common equity 400. 16. as the TIE ratio does not meet requirements.67 ANS: D = $20/($480..333 NARREND Not Over 50.00 c. 15.50 d.00% 34.25 Current Ratio of 1. as the ROA is not high enough. ANS: B DIF: M REF: 2..000 335.00% 34. 10.. the bank requires the following cutoffs for certain financial ratios: TIE ratio of 4.000 $120.000 75.000. The bank will have reservations.000 $ 480.000 15.Titans Electronics reports the following data for the past year: EBIT Net Income Interest Paid Total Assets $1.000 18.000 18.50 ROA of 5%.. b. What is a likely response from the bank to the application? a.3 Analyzing Financial Performance Using Ratio Analysis NAR: Titans Electronics NARRBEGIN: Exhibit 2-1 Exhibit 2-1 The tax schedule for corporate income is shown in the table below: Taxable Income Over $ 0 50.00 b.00% 39.000.

Pale Rider Corporation reports taxable income of $500.25+25000*.40% d.40% c. 25. 34.34+235000*. $56.000 in 2004. Activity ratio b. If this is their actual income.4 Corporate Taxes NAR: Exhibit 2-1 73. $56. what will be the tax liability for Big Diesel? a.000 in 2004.34+100000*.250 b.15+25000*. 23. $170. 29. What was their tax liability for the year? a.15+25000*.100 b.650 ANS: C Taxes Paid=50000*.25+25000*. Pale Rider Corporation reports taxable income of $500. What ratio measures the ability of the firm to satisfy its short term obligations as they come due? a. Current ratio d.00% ANS: D Taxes Paid=50000*.39+165000*.39=61250 61250/200000=.500 c. Refer to Exhibit 2-1.34=170000 DIF: E REF: 2.25% b.39=61250 DIF: E REF: 2. Refer to Exhibit 2-1. 25.39+165000*.00% c. Refer to Exhibit 2-1.15+25000*.34+235000*.4 Corporate Taxes NAR: Exhibit 2-1 71. $61.000 in 2004. Big Diesel Incorporated currently predicts taxable income of $200. Big Diesel Incorporated reports taxable income of $200. $91. $91.4 Corporate Taxes NAR: Exhibit 2-1 72. What was the average tax rate they paid for the year? a. $45.250 d.000 d.25+25000*.25+25000*. 34.00% ANS: C Taxes Paid=50000*.69. Times interest earned ratio c.000 ANS: C =50000*.15+25000*.650 c.34+100000*. 30. Inventory turnover ratio . 29.4 Corporate Taxes NAR: Exhibit 2-1 70. Refer to Exhibit 2-1. What was the average tax rate they paid for the year? a.34=170000 170000/500000=.63% d.00% b.000 for the next year. $200.3063 DIF: E REF: 2.34 DIF: E REF: 2.

$8 ANS: B 1. The asset to equity ratio for a firm is 1. Last year.50=$250. what is the current market-to-book ratio for the firm? a.000. $2 b. If the current price-to-earnings ratio is 20.000/Y.1 Financial Statements 78. and the earnings per share for the firm was reported as $0. 0. Current ratio ANS: C DIF: M REF: 2. net income for the firm was $250.000/500.000 = $4 DIF: M REF: 2.60 b.50.5. net income for the firm was $250. 1.00 d. When the firm issues no dividends for a given time period.000. and the firm has total assets of $6. What is the current book value per share for the firm? a.80 c. b. c. and the earnings per share for the firm was reported as $0.000. $4 c. and the firm has total assets of $3.000. X=shareholder equity=$2.000 EPS=$0. ANS: D DIF: M REF: 2. Last year. Return on assets d. 0.000.000.000.5=3.1 Financial Statements 77.000.ANS: C DIF: E REF: 2. When the firm only issues equity to finance its borrowing. Y= # of shares = 500. When the firm issues equal amounts of long term debt and common stock.3 Analyzing Financial Performance Using Ratio Analysis 74.25 ANS: D DIF: H REF: 2.000 Book value per share = $2.3 Analyzing Financial Performance Using Ratio Analysis 75. $6 d. When is the return on assets equal to the return on equity? a.3 Analyzing Financial Performance Using Ratio Analysis 76. d. Return on equity c.000/x. When the current ratio of the firm equals 1. Gross profit margin b.000.5. Consider the following working capital information for Full House Corporation: Year Accounts Receivable Inventory Accounts Payable 2003 $ 0 $100 $ 0 2004 $100 $100 $ 50 . Which financial ratio measures the effectiveness of management in generating returns to common stockholders with its available assets? a.50. 1. The asset to equity ratio for a firm is 1.

What was the effect on free cash flow for the firm this past year? a. A firm reports net income of $500. $2. Decrease of $100 ANS: C change in NWC = change in CA .2 = ($4000-INV)/$2000 INV = $1.000 DIF: M REF: 2.000*(1-.500.000 for 2004.500 d.500 c. $32.25)=$375.125.3 Analyzing Financial Performance Using Ratio Analysis 81.000 d.500 ANS: D . 18.2. $26. What will the new balance be for retained earnings? a.000. 23. The firm has total current assets of $4. what is the average age of their inventory? a. 15.000 + $375. CL=$2000 Quick = 1.36 DIF: H REF: 2.1 Financial Statements 80.change in CL change in CA = ($200-$100)= $100 change in CL = ($50-$0) = $50 change in NWC = +$50 Effect on free cash flow = -$50 DIF: H REF: 2.500 b.2 Cash Flow Analysis 79. The firm will pay out 25% of net income as dividends. The average age of the inventory for a firm is 10 days old. $2. Increase of $150 c.63 days c.600 Inventory turn = $25000/$1600=15.000 b. A firm reports a current ratio of 2 and a quick ratio of 1.375.35 days b.000.000 for the given year. The most recent balance sheet for the reports retained earnings of $2.625=23. Increase of $100 b. Decrease of $50 d. $36. what is a good estimate for the cost of goods sold over the last year? a.875.24 days d.000.000 New RE = $2. If the firm reports cost of goods sold at $25.36 days ANS: D Current = 2 = CA/CL = $4000/CL. $1.000 c.000. $16.000.000 ANS: C Addition to RE = $500.625 Average age = 365/15. $2. 12. If the current dollar amount of inventory is $1.

5 = COGS/ INV = COGS / $1000 COGS = $36500 DIF: H REF: 2. Inventory turn = 36.10 = 365/Inv turn.3 Analyzing Financial Performance Using Ratio Analysis .5 36.

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