L

Determine a Iirm's total asset turnover (TAT) iI its net proIit margin is 5 percent, assets are $8
million, and ROI is 8 percent.


A 1.60
B 2.05
C 2.50
D 4.00


Felton Farm Supplies, Inc., has an 8 percent return on total assets oI $300,000 and a net proIit
margin oI 5 percent. What are its sales?


A $3,750,000
B $480,000
C $300,000
D $1,500,000


Which oI the Iollowing would not improve the current ratio?


A Borrow short term to finance additional fixed assets.
B Issue long-term debt to buy inventory.
C Sell common stock to reduce current liabilities.
D Sell Iixed assets to reduce accounts payable.


The gross proIit margin is unchanged, but the net proIit margin declined over the same period.
This could have happened iI .


A cost oI goods sold increased relative to sales
B sales increased relative to expenses
C the U.S. Congress increased the tax rate
D dividends were decreased


A company can improve (lower) its debt-to-total asset ratio by doing which oI the Iollowing?


A Borrow more.
B ShiIt short-term to long-term debt.
C ShiIt long-term to short-term debt.
D Sell common stock.


Which oI the Iollowing statements (in general) is correct?


A A low receivables turnover is desirable.
B The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
C An increase in net proIit margin with no change in sales or assets means a weaker ROI.
D The higher the tax rate Ior a Iirm, the lower the interest coverage ratio.


Sales Ior 1991 (base year) were $800,000 and the year-end total asset turnover ratio was 1.6. With

which oI the Iollowing statements would you agree?

A
The total assets index analysis value, assuming $1.05 million of assets at the end of 2000, would be 210.
B The gross proIit margin and the net proIit margin are examples oI balance sheet ratios.
C II total debt in 2000 was $420,000, the debt-to-equity ratio in 2000 would be 84.
D Index analysis supplements the common-size analysis by comparing key industry ratios.


Krisle and Kringle's debt-to-total assets ratio is.4. What is its debt-to-equity ratio?


A .2
B .77
C .667
D .333


Which oI the Iollowing statements is the least likely to be correct?


A A Iirm that has a high degree oI business risk is less likely to want to incur Iinancial risk.
B There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm.
C Financial ratios are relevant Ior making internal comparisons.
D It is important to make external comparisons or Iinancial ratios.


Which oI the Iollowing statements is most accurate?


A Coverage ratios also shed light on the "liquidity" oI these current ratios.
B Receivable- and inventory-based activity ratios also shed light on the "liquidity" of these current assets.
C Receivable- and inventory-based activity ratios also shed light on the Iirm's use oI
Iinancial leverage.
D Liquidity ratios also shed light on the Iirm's use oI Iinancial leverage.


The authors place Iinancial ratios into .


A two broad categories: (1) balance sheet ratios; and (2) income statement ratios
B
three broad categories: (1) balance sheet ratios; (2) income statement ratios; and (3) income statement/balance sheet ratios
C
two broad categories: (1) balance sheet and income statement/balance sheet ratios; and (2) income statement ratios
D two broad categories: (1) balance sheet ratios; (2) income statement and income statement/balance sheet ratios


Benchmarking can be applied to ratio analysis. How is this diIIerent Irom comparing a Iirm's
ratios to industry averages over time?


A
In benchmarking you compare your Iirm's perIormance to a previous "benchmarked" period and not industry averages.
B
It creates a benchmark oI numerous industries Ior comparison purposes rather than a single industry due to wild
Iluctuations within speciIic industries.
C
It creates a benchmark that compares your firm to the best world-class competitors rather than an entire
industry.
D
It creates a benchmark by taking an average oI a portIolio oI industries over a speciIic time period, usually 5 years,
rather than a single industry in a single year due to wild Iluctuations within speciIic industries over short periods oI
time.


Which oI the Iollowing statements is most correct regarding the current ratio Ior a Iirm that uses
industry averages and a peer benchmark as their comparison?


A Firms should attempt to maintain a current ratio that is below 0.5.
B Firms should always exceed both the industry average and the peer benchmark current ratio.
C Firms should strive to maintain a current ratio that seems reasonable when compared to an industry
average and a peer benchmark.
D Firms should strive to maintain a current ratio oI at least 2.0.


The DuPont Approach breaks down the earning power on shareholders' book value (ROE) as
Iollows: ROE .


A Net profit margin Total asset turnover Equity multiplier
B Total asset turnover Gross proIit margin Debt ratio
C Total asset turnover Net proIit margin
D Total asset turnover Gross proIit margin Equity multiplier


In conducting a common-size analysis every balance sheet item is divided by and
every income statement is divided by .


A its corresponding base year balance sheet item; its corresponding base year income statement item
B its corresponding base year income statement item; its corresponding base year balance sheet item
C net sales or revenues; total assets.
D total assets; net sales or revenues


In conducting an index analysis every balance sheet item is divided by and every
income statement is divided by .


A its corresponding base year balance sheet item; its corresponding base year income statement item
B its corresponding base year income statement item; its corresponding base year balance sheet item
C net sales or revenues; total assets.
D total assets; net sales or revenues


Which group oI ratios measure a Iirm's ability to meet short-term obligations?


A Liquidity ratios.
B Debt ratios.
C Coverage ratios.
D ProIitability ratios.
Activity ratios.


Which group oI ratios relate the Iinancial charges oI a Iirm to its ability to service them?


A Liquidity ratios.
B Debt ratios.
C Coverage ratios.
D ProIitability ratios.
Activity ratios.


Which group oI ratios measure how eIIectively the Iirm is using its assets?


A Liquidity ratios.
B Debt ratios.
C Coverage ratios.
D ProIitability ratios.
E Activity ratios.


Which group oI ratios relate proIits to sales and investment?


A Liquidity ratios.
B Debt ratios.
C Coverage ratios.
D Profitability ratios.
E Activity ratios.


Which group oI ratios shows the extent to which the Iirm is Iinanced with debt?


A Liquidity ratios.
B Debt ratios.
C Coverage ratios.
D ProIitability ratios.
Activity ratios.