Question 1

Which two ratios are used in the Du Pont system to create return on assets?

Accepted Answer

A)   Return on assets and asset turnover
B)   Profit margin and asset turnover
C)   Return on total capital and profit margin
D)   Inventory turnover and return on fixed assetsE) A) and D)
F) A) and C) B

Question 2

An increasing average receivables collection period indicates

Accepted Answer

A)   the firm is generating more income.
B)   accounts receivable are going down.
C)   the company is becoming more efficient in its collection policy.
D)   the company is becoming less efficient in its collection policyE) C) and D)
F) B) and C)

Question 3

XYZ's receivables turnover is 4x. The accounts receivable at year-end are $600,000. The average collection period is 90 days. What was the sales figure for the year assuming all sales are on credit?

Accepted Answer

A)   $60,000
B)   $6,000,000
C)   $2,400,000
D)   $54,000,000E) B) and C)
F) A) and C)

Question 4

A firm has operating profit of $210,000 after deducting fixed lease payments of $30,000. The fixed interest expense is $50,000. What is the firm's fixed charge coverage ratio?

Accepted Answer

A)   6.00x
B)   2.33x
C)   2.00x
D)   3.00xE) None of the above
F) A) and B)

Question 5

The most rigorous test of a firm's ability to pay its short-term obligations is its

Accepted Answer

A)   current ratio.
B)   quick ratio.
C)   debt-to-assets ratio.
D)   times-interest-earned ratio.E) B) and D)
F) A) and B)

Question 6

ABC Co. has an average collection period of 90 days for its accounts receivable. If total credit sales for the year were $6,000,000, what is the balance in accounts receivable at year-end? Assume a 360-day calendar year.

Accepted Answer

A)   $150,000
B)   $2,250,000
C)   $1,500,000
D)   $40,000E) C) and D)
F) A) and D)

Question 7

Liquidity ratios indicate how fast a firm can generate cash to pay bills.

Accepted Answer

A) True 
 B)False

Question 8

During disinflation, stock prices tend to go up because the investor's required rate of return goes down.

Accepted Answer

A) True 
 B)False

Question 9

A company can improve its return on equity (ROE) by changing its capital structure.

Accepted Answer

A) True 
 B)False

Question 10

In examining the liquidity ratios, the primary emphasis is the firm's

Accepted Answer

A)   ability to effectively employ its resources.
B)   overall debt position.
C)   ability to pay short-term obligations on time.
D)   ability to earn an adequate return or profits.E) A) and B)
F) None of the above C

Question 11

A firm has a debt-to-equity ratio of 40%, a debt of $250,000, and a net income of $100,000. The return on equity is

Accepted Answer

A)   60%.
B)   16%.
C)   30%.
D)   There's not enough information to determine the return on equityE) A) and B)
F) A) and C)

Question 12

Asset utilization ratios can be used to measure the effectiveness of a firm's managers.

Accepted Answer

A) True 
 B)False

Question 13

A quick ratio that is much smaller than the current ratio reflects

Accepted Answer

A)   a small portion of current assets is in inventory.
B)   a large portion of current assets is in inventory.
C)   that the firm will have a high inventory turnover.
D)   that the firm will have a high return on assets.E) None of the above
F) All of the above B

Question 14

Trend analysis is used to project the future performance of an industry.

Accepted Answer

A) True 
 B)False

Question 15

A conservative company experiencing rapid price increases for its products would use LIFO to try to:

Accepted Answer

A)   Allow the inventory that was just purchased at a higher price to be moved to cost of goods sold, showing a lower net income.
B)   Allow the inventory that was just purchased at a higher price to remain in ending inventory values and move older inventory to cost of goods sold, showing a higher net income.
C)   Allow the inventory that was just purchased at a lower price to remain in ending inventory values and move older inventory to cost of goods sold, showing a lower net income.
D)   Allow the inventory that was just purchased at a lower price to be moved to cost of goods sold, showing a higher net income.E) B) and D)
F) None of the above

Question 16

A current ratio of 2 to 1 is always acceptable for a company in any industry.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not an asset utilization ratio?

Accepted Answer

A)   Inventory turnover
B)   Return on assets
C)   Fixed asset turnover
D)   Average collection periodE) A) and C)
F) C) and D)

Question 18

Asset utilization ratios measure the net returns on various assets such as return on total assets.

Accepted Answer

A) True 
 B)False

Question 19

A firm has total assets of $3,000,000 and stockholders equity is $1,000,000. What is the debt-to-total asset ratio?

Accepted Answer

A)   45%
B)   75%
C)   55%
D)   67%E) A) and B)
F) A) and C)

Question 20

Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would primarily look at the firm's

Accepted Answer

A)   debt utilization ratios.
B)   liquidity ratios.
C)   asset utilization ratios.
D)   profitability ratios.E) B) and C)
F) C) and D)

Exam 3: Financial Analysis

Which two ratios are used in the Du Pont system to create return on assets?

Correct AnswerverifiedB

An increasing average receivables collection period indicates

Correct AnswerverifiedShow Answer

XYZ's receivables turnover is 4x. The accounts receivable at year-end are $600,000. The average collection period is 90 days. What was the sales figure for the year assuming all sales are on credit?

Correct AnswerverifiedShow Answer

A firm has operating profit of $210,000 after deducting fixed lease payments of $30,000. The fixed interest expense is $50,000. What is the firm's fixed charge coverage ratio?

Correct AnswerverifiedShow Answer

The most rigorous test of a firm's ability to pay its short-term obligations is its

Correct AnswerverifiedShow Answer

ABC Co. has an average collection period of 90 days for its accounts receivable. If total credit sales for the year were $6,000,000, what is the balance in accounts receivable at year-end? Assume a 360-day calendar year.

Correct AnswerverifiedShow Answer

Liquidity ratios indicate how fast a firm can generate cash to pay bills.

Correct AnswerverifiedShow Answer

During disinflation, stock prices tend to go up because the investor's required rate of return goes down.

Correct AnswerverifiedShow Answer

A company can improve its return on equity (ROE) by changing its capital structure.

Correct AnswerverifiedShow Answer

In examining the liquidity ratios, the primary emphasis is the firm's

Correct AnswerverifiedC

A firm has a debt-to-equity ratio of 40%, a debt of $250,000, and a net income of $100,000. The return on equity is

Correct AnswerverifiedShow Answer

Asset utilization ratios can be used to measure the effectiveness of a firm's managers.

Correct AnswerverifiedShow Answer

A quick ratio that is much smaller than the current ratio reflects

Correct AnswerverifiedB

Trend analysis is used to project the future performance of an industry.

Correct AnswerverifiedShow Answer

A conservative company experiencing rapid price increases for its products would use LIFO to try to:

Correct AnswerverifiedShow Answer

A current ratio of 2 to 1 is always acceptable for a company in any industry.

Correct AnswerverifiedShow Answer

Which of the following is not an asset utilization ratio?

Correct AnswerverifiedShow Answer

Asset utilization ratios measure the net returns on various assets such as return on total assets.

Correct AnswerverifiedShow Answer

A firm has total assets of $3,000,000 and stockholders equity is $1,000,000. What is the debt-to-total asset ratio?

Correct AnswerverifiedShow Answer

Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would primarily look at the firm's

Correct AnswerverifiedShow Answer

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B

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C

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B

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