FINANCIAL MANAGEMENT 1 & 2

Midterm Examination
General Instruction: During the examination, the students are not allowed to search on any websites and
use any notes. Cheating is strictly prohibited.

1. Which one of the following is not a tool in financial statement analysis?

A. Horizontal analysis C. Circular analysis
B. Vertical analysis D. Ratio analysis

2. In analyzing financial statements, horizontal analysis is a

A. Requirement C. Tool
B. Principle D. Theory

3. Horizontal analysis is also known as:

A. Linear analysis C. Vertical analysis
B. Trend analysis D. Common size analysis

4. Horizontal analysis is a technique for evaluating financial statement data

A. Within a period of time C. Over a period of time
B. On a certain data D. As it may appear in the future

5. Vertical analysis is also known as

A. Perpendicular analysis C. Common size analysis
B. Trend analysis D. Straight line analysis

6. In performing a vertical analysis, the base for sales revenues on the income statement is
A. Net sales C. Sales
B. Net income D. Cost of goods available for sale

7. Which one of the following is not a characteristic generally evaluated in ratio analysis?
A. Liquidity C. Profitability
B. Marketability D. Solvency

8. Short term creditors are usually most interest in assessing

A. Solvency C. Liquidity
B. Marketability D. Profitability

9. Long term creditors are usually most interest in evaluating

A. Solvency C. Liquidity
B. Marketability D. Profitability

10. Stockholders are most interest in evaluating

A. Solvency C. Liquidity
B. Marketability D. Profitability

11. Working capital management involves investment and financing decisions related to
A. Plant and equipment and current liabilities.
B. Current assets and capital structure.
C. Current assets and current liabilities.
D. Sales and credit.

12. The length of time between payment for inventory and the collection of cash is referred to as
A. Payables deferral period
B. Operating cycle
C. Receivables conversion period
D. Cash conversion cycle

13. As a firm's cash conversion cycle increases, the firm

A. Becomes less profitable
B. Increases its investment in working capital
C. Reduces its accounts payable period
D. None of the choices

14. The longer the firm's accounts payable period, the

A. Longer the firm's cash conversion cycle is.
B. Shorter the firm's inventory period is.
C. more the delay in the accounts receivable period.
D. Less the firm must invest in working capital.

15. The average length of time a peso is tied up in current asset is called the
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 A. Net working capital.
B. Receivables conversion period.
C. Inventory conversion period.
D. Cash conversion period.

Use the following information for the next five (5) questions:
The data presented below show actual figures for selected accounts of McKeon Company for the fiscal year ended
May 31, 2022, and selected budget figures for the 2023 fiscal year. MckKeon’s controller is in the process of
reviewing the 2022 budget. McKeon Company monitors yield or return ratios using the average financial position
of the company. (Round all calculations to three decimal places if necessary).

May 31, 2023 May 31, 2022

Current asset 210,000 180,000
Non-current asset 275,000 255,000
Current liabilities 78,000 85,000
Long term debt 75,000 30,000
Common stock P30 par value 300,000 300,000
Retained earnings 32,000 20,000
2023 operation
Sales (all credit) 350,000
Cost of goods sold 160,000
Interest expense 3,000
Income taxes (40% tax rate) 48,000
Dividends declared and paid in 2023 60,000
Administrative expenses 67,000

Current Assets
May 31, 2023 May 31, 2022
Cash 20,000 10,000
Accounts receivable 100,000 70,000
Inventory 70,000 80,000
Other 20,000 20,000

16. McKeon Company’s debt to total asset ratio for 2023 is

A. 0.352 B. 0.315 C. 0.264 D. 0.237

17. The 2023 accounts receivable turnover for McKeon Company is

A. 1.882 B. 3.500 C. 5.000 D. 4.118

18. Using a 365-day year, McKeon’s inventory turnover is

A. 2.133 B. 2.281 C. 1.995 D. 4.615

19. McKeon Company’s total asset turnover for 2023 is

A. 0.805 B. 0.761 C. 0.722 D. 0.348

20. The 2023 return on assets for McKeon Company is

A. 0.261 B. 0.148 C. 0.157 D. 0.166

21. Gard Corporation’s sales last year were P38,000, and its total assets were P16,000. What was its
total asset turnover ratio?
A. 2.04
B. 2.14
C. 2.26
D. 2.38

22. Neck Company has P3,000,000 per year in credit sales. The company’s average days’ sales
outstanding is 40 days. Assuming a 360 day year, what is the company’s average amount of
accounts receivable outstanding?
A. 500,000 B. 333,333 C. 1,200,000 D. 240,000

Use the following information for the next two (2) questions:
Girlfriend Company has earnings per share (EPS) of P6.20, pays dividend of P3.72 per share, and has a
market price of P49.60 per share.

23. What is the dividend yield?

A. 7.5% B. 8% C. 13.3% D. 60%

24. What is the payout ratio?

A. 7.5% B. 8% C. 13.3% D. 60%

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Use the following information for the next six (6) questions:
Kaemil Corporation reported the following requires:
2021 2020
Cash and cash equivalents 2,450,000 2,094,000
Receivables 1,813,000 1,611,000
Inventory 1,324,000 1,060,000
Prepaid expense 1,709,000 2,210,000
Total current assets 7,296,000 6,885,000
Other assets 18,500,000 15,737,000
Total assets 25,796,000 22,622,000
Total current liabilities 7,230,000 8,467,000
Long term liabilities 4,798,000 3,792,000
Common stock 6,568,000 4,363,000
Retained earnings 7,200,000 6,000,000
Total liabilities and equity 25,796,000 22,622,000
Sales 20,941,000
Cost of sales 7,055,000
Operating expenses 7,065,000
Operating income 6,821,000
Interest expense 210,000
Income tax 2,563,000
Net income 4,048,000

25. Which statement best describe Kaemil’s acid test ratio?

A. Greater than 1 C. Less than 1
B. Equal to 1 D. None of the above

26. Kaemil’s inventory turnover during 2021 was (amount rounded)

A. 6 times C. 8 times
B. 7 times D. 9 times

27. During 2021, Kaemil’s days’ sales in receivable ratio (amounts rounded)
A. 34 days C. 32 days
B. 30 days D. 28 days

28. Which measure expresses Kaemil’s times interest earned ratio? (Amounts rounded)
A. 54.7% C. 34 times
B. 19 times D. 32 times

29. The company has 2,500 shares of common stock outstanding. What is Kaemil’s earnings per share?
A. 1.62 C. 2.73
B. 1.75 D. 2.63

30. Kaemil’s stock has traded recently around P48 per share. Assuming 2,500 shares of common stock is
outstanding, what is the company’s price earnings ratio? (Round to nearest whole number)
A. 1.01 C. 48
B. 30 D. 78

31. The difference between average and ending inventory is immaterial:

Current ratio 2.0
Quick ratio 1.5
Current liabilities P120,000
Inventory turnover (based on cost of goods sold) 8 times
Gross profit margin 40%
Net sales for the year were
A. 800,000 B. 480,000 C. 1,200,000 D. 240,000

32. A firm has a profit margin of 15 percent on sales of P20,000,000. If the firm has debt of
P7,500,000, total assets of P22,500,000, and an after-tax interest cost on total debt of 5 percent,
what is the firm’s ROA?
A. 8.4% B. 10.9% C. 12.0% D. 13.3%

33. The following figures are taken from Adeline Company’s financial statements for the calendar
years 2022 and 2021:
2022 2021
Total assets 900,000 750,000
Long term debt (12% interest) 125,000 -0-
8% Preferred stocks, P100 par 225,000 225,000
Net income (after tax of 30%) 70,000 --
What is the return on average total assets?
A. 9.8% B. 10.5% C. 12.95% D. 14.9%

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34. What would a company’s equity-debt ratio if: Current liabilities are P362,000; long-term
liabilities – P448,000; common stock paid-in P800,000 and retained earnings – P658,000
A. 1.2 to 1 B. 1.4 to 1 C. 1.6 to 1 D. 8 to 1

35. If the debt ratio is 0.5 what is the debt-equity ratio?

A. 0.5 B. 1.0 C. 1.5 D. 2.0

36. Karma Company has total assets of P190,000 and total liabilities of P90,000. The company's debt-
to-equity ratio is closest to:
A. 0.47 to 1 B. 0.90 to 1 C. 0.53 to 1 D. 32. o1

37. A firm has P100 million in current liabilities, P200 million in total long-term liabilities and P300
million in stockholders' equity, total assets of P600 million. Calculate the debt ratio for the firm.
A. 40% B. 20% C. 50% D. 66.67%

38. Information from Blain Company's balance sheet is as follows:

Current assets:
Cash .................................................... P 1,200,000
Investment securities ................................... 3,750,000
Accounts receivable ..................................... 28,800,000
Inventories ............................................. 33,150,000
Prepaid expenses ........................................ 600,000
Total current assets .................................... P67,500,000

Current liabilities:
Notes payable ........................................... P 750,000
Accounts payable ........................................ 9,750,000
Accrued expenses ........................................ 6,250,000
Income taxes payable .............................. 250,000
Payments due within one year on long-term debt .......... 1,750,000
Total current liabilities ............................... P18,750,000
What is Blain's current ratio?
A. 0.26 to 1 B. 0.30 to 1 C. 1.80 to 1 D. 3.60 to 1

39. Genmari Co. has the following income statement items.

Sales P200,000
Cost of sales 80,000
Selling expenses 24,000
Depreciation 26,000
Interest expense 12,000
Income taxes 28,000
Net income P 30,000
Genmari has total assets of P350,000 and a debt ratio of 30%. All equity is common equity. Times
interest earned
A. 2.0 times B. 5.8 times C. 2.5 times D. 5. times

40. Heavy Load, Inc. has sales of P3,450,000, total assets of P1,240,000, and total liabilities of
P275,000, which consist strictly of notes payable. The firm’s operating profit margin is 16.1%,
and it pays a 10% rate of interest on its notes payable. How much is the firm’s times-interest-
earned?
A. 15.6 B. 45.3 C. 20.2 D. 3.0

41. The following data pertains to Batman Corp.'s operations for the year ended December 31, 2022:
Operating income P1,600,000
Interest expense 200,000
Income before income tax 1,400,000
Income tax expense 490,000
Net income 910,000
The times interest earned ratio is
A. 8.0 to 1 B. 4.0 to 1 C. 5.6 to 1 D. 7.0 to 1

Use the following information for the next three (3) questions:
Recent financial statement data for Harmony Health Foods Inc. is shown below.
Current liabilities P180,000 Income before interest and taxes P125,000
10% Bonds, long-term 360,000 Interest expense 36,000
Total liabilities 540,000 Income before tax 89,000
Shareholders' equity Income tax 27,000
Capital stock 200,000 Net income P62,000
Retained earnings 280,000
Total shareholders' equity 480,000
Total liabilities and equity P1,020,000
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42. Debt-to-equity ratio is:
A. 0.75 B. 1.13 C. 0.53 D. 1.80

43. Times interest earned ratio is:

A. 3.47 B. 1.73 C. 2.47 D. 10.0

44. Long term debt-to-equity ratio equity is:

A. 133.3% B. 75% C. 180% D. 0%

45. Garcia Industries has sales of P2,000,000, cost of goods sold of P900,000, operating expenses of
P650,000. Equity (all common) totals P990,000; the debt ratio is 45%. The return on assets is
A. 7.5% B. 15.2% C. 25% D. 55%

46. Presented below is information related to Milson, Inc.:

December 31
2021 2020
Common stock 75,000 60,000
6% Preferred stock 350,000 350,000
Retained earnings (includes net income for current year) 90,000 75,000
Net income for year 60,000 32,000

What is Milson's rate of return on common stock equity for 2021?

A. 48.8% B. 26% C. 25% D. 22.4%

47. The times interest earned ratio of Mikoto Company is 4.5 times. The interest expense for the year
was P20,000, and the company’s tax rate is 40%. The company’s net income is:
A. 22,000 B. 42,000 C. 54,000 D. 66,000

48. Smart and Smiley Incorporated has an average collection period of 74 days. What is the accounts
receivable turnover ratio for Smart and Smiley? You may use a 360-day year.
A. 4.86 B. 2.47 C. 2.66 D. 1.68

49. The annual (360 days) credit sales of ABC Company are P600,000. The credit terms of the firm
are net 60 days. The actual receivables for the firm are P200,000. What is the accounts receivable
turnover for ABC?
A. Four B. Two C. Three D. Five

50. OMB, Inc.’s financial statements as at the year ended December 31, 2021 show accounts
receivable, net of P750,000 and sales at P15 million. Accounts receivable remained relatively
constant during the year. OMB’s accounts receivable turnover in days is (Assume 365 days in
one year)
A. 18.25 B. 20.25 C. 15.25 D. 16.25

***END OF EXAMINATION***

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