7/27/2021 Instructions - CODE 033 - Financial Management (TEAM NETFLIX) - Midterm Exam Theory -

CODE 033 - Financial Management (TEAM NETFLIX)

MIDTERM EXAMS

Midterm Exam Theory

Submissions
Here are your latest answers:

Item 1
The company issued new common shares in a three-for-one stock split. Identify the statements that indicate the correct effect(s) of this transaction.

Response: It reduced equity per share of common stock.

Correct answer: It reduced equity per share of common stock.

Score:
1 out of 1
Yes

Item 2
The ratio that measures a firm's ability to generate earnings from its resources is

Response: Asset Turnover

Correct answer: Asset Turnover

Score:
1 out of 1
Yes

Item 3
A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?

Response: Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without
respect to relative size.

Correct answer: Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry
without respect to relative size.

Score:
1 out of 1
Yes

Item 4
You observe that a firm’s profit margin and debt ratio are below the industry average, while its return on equity exceeds the industry average. What can you
conclude?

Response: Total assets turnover is below the industry average.

Correct answer: Total assets turnover is above the industry average.

Score:
0 out of 1
No

Item 5
Depreciation is a source of cash inflow because

Response: it is a tax-deductible non-cash expense

Correct answer: it is a tax-deductible non-cash expense

Score:
1 out of 1
Yes

Item 6
In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company?

Response: A high current ratio may indicate inefficient use of various assets and liabilities.

Correct answer: A high current ratio may indicate inefficient use of various assets and liabilities.

Score:
1 out of 1
Yes

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7/27/2021 Instructions - CODE 033 - Financial Management (TEAM NETFLIX) - Midterm Exam Theory -

Item 7
Which of the following would represent a use of funds and indirectly, a reduction in cash balance?

Response: A decrease in in marketable securities

Correct answer: An increase in inventories

Score:
0 out of 1
No

Item 8
Hurricane Corporation's inventory expressed as a percentage of current assets increased from 25% last July to 35% this July. The factor that is least likely to cause the
increase is that Hurricane

Response: used a material amount of cash from selling its short-term investments to purchase land.

Correct answer: is a seasonal company with traditionally higher activity in the summer months.

Score:
0 out of 1
No

Item 9
Last year, a business had no long-term investments; this year long term investments amount to P100,000. In a horizontal analysis the change in long-term investments
should be expressed as

Response: An absolute value of P100,000 and no value for a percentage change

Correct answer: An absolute value of P100,000 and no value for a percentage change

Score:
1 out of 1
Yes

Item 10
Assume that a company's debt ratio is currently 50%. It plans to purchase fixed assets either by using borrowed funds for the purchase or by entering into an
operating lease. The company's debt ratio as measured by the balance sheet will

Response: Increase if the assets are purchased, and remain unchanged if the assets are leased.

Correct answer: Increase if the assets are purchased, and remain unchanged if the assets are leased.

Score:
1 out of 1
Yes

Item 11
An investor has been given several financial ratios for an enterprise but none of the financial reports. Which combination of ratios can be used to derive return on
equity?

Response: Net profit margin, total assets turnover, and equity multiplier.

Correct answer: Net profit margin, total assets turnover, and equity multiplier.

Score:
1 out of 1
Yes

Item 12
In a set of comparative financial statements, you observed a gradual decline in the net of gross ratio, i.e., between net sales and gross sales. This indicates that:

Response: The discount period is being lengthened.

Correct answer: The discount period is being lengthened.

Score:
1 out of 1
Yes

Item 13
In the review of the Statement of Cash flow, which among the following will the financial analyst fail to determine?

Response: Whether a cash dividend is affordable.

Correct answer: Measuring the firms financial capacity.

Score:
0 out of 1
No

Item 14
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7/27/2021 Instructions - CODE 033 - Financial Management (TEAM NETFLIX) - Midterm Exam Theory -
Which of the following actions will increase a company’s quick ratio?

Response: Reduce inventories and use the proceeds to reduce current liabilities.

Correct answer: Reduce inventories and use the proceeds to reduce current liabilities.

Score:
1 out of 1
Yes

Item 15
When a balance sheet amount is related to an income statement amount in computing a ratio,

Response: The balance sheet amount should be converted to an average for the year.

Correct answer: The balance sheet amount should be converted to an average for the year.

Score:
1 out of 1
Yes

Item 16
A company issued long-term bonds and used the proceeds to repurchase 40% of the outstanding shares of its stock. This financial transaction will likely cause the

Response: Total assets turnover ratio to increase.

Correct answer: Times-interest-earned ratio to decrease.

Score:
0 out of 1
No

Item 17
The Chief Finance Officer is very much interested in looking into the Statement of Cash Flow for the following reasons except

Response: to compensate the firm's ultimate owners ot shareholders

Correct answer: to anticipate the amount of profit for dividend distribution

Score:
0 out of 1
No

Item 18
Which ratio is most helpful in appraising the liquidity of current assets?

Response: Current ratio

Correct answer: Accounts Receivable Turnover

Score:
0 out of 1
No

Item 19
A company’s current ratio is 2.2 to 1 and the quick ratio is 1.0 to 1 at the beginning of the year. At the end of the year, the company has a current ratio of 2.5 to 1 and
a quick ratio of 0.8 to 0.1 The divergence in the ratios from the beginning to the end of the year could be explained by the increase in

A. An increase in inventory levels during the year.

Response: inventory levels during the year.

Correct answer: inventory levels during the year.

Score:
1 out of 1
Yes

Item 20
All of the following statements are valid except

Response: The inventory turnover is computed by dividing sales by average inventory.

Correct answer: The inventory turnover is computed by dividing sales by average inventory.

Score:
1 out of 1
Yes

Item 21
The following situations are descriptive of SBD Corporation. Which would be considered as the most favorable for the common stockholders.

Response: SBD stops paying dividends on its cumulative preferred stock; the price-earnings ratio of common stock is low.

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7/27/2021 Instructions - CODE 033 - Financial Management (TEAM NETFLIX) - Midterm Exam Theory -
Correct answer: Equity ratio is high; return on assets exceeds the cost of borrowing.

Score:
0 out of 1
No

Item 22
The market value of a firm's outstanding common shares will be higher, everything else equal, if

Response: Investors have a lower required return on equity.

Correct answer: Investors have a lower required return on equity.

Score:
1 out of 1
Yes

Item 23
In a comparison of 2019 to 2018, Negre Co.’s inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged.
Which of the following statements explains the increased inventory turnover ratio?

Response: Accounts receivable turnover increased.

Correct answer: Gross profit percentage decreased.

Score:
0 out of 1
No

Item 24
Which of the following statements is correct?

Response: An increase in a firm’s inventories will call for additional financing unless the increase is offset by an equal or larger decrease in some other asset account.

Correct answer: An increase in a firm’s inventories will call for additional financing unless the increase is offset by an equal or larger decrease in some other asset
account.

Score:
1 out of 1
Yes

Item 25
North Bank is analyzing Belle Corp.’s financial statements for a possible extension of credit. Belle’s quick ratio is significantly better than the industry average.
Which of the following factors should North consider as possible limitation of using this ratio when evaluating Belle’s creditworthiness?

Response: Fluctuating market prices of short-term investments may adversely affect the ratio.

Correct answer: Fluctuating market prices of short-term investments may adversely affect the ratio.

Score:
1 out of 1
Yes

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