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Exam 3: Financial Analysis

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Question 31

True/False

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The stock market tends to move up when inflation goes up.

A) True
B) False

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Question 32

Multiple Choice

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A firm has total assets of $3,000,000. It has $1,200,000 in long-term debt. The stockholders equity is $1,000,000. What is the debt-to-total asset ratio?

A) 45%
B) 75%
C) 55%
D) 67%

E) B) and C)
F) A) and D)

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Question 33

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Replacement cost accounting (current cost method) during a period of inflation will usually

Industries most sensitive to inflation-induced profits are those with

The higher a firm's debt utilization ratios, excluding debt-to-total assets, the

A company can improve their ROE by changing their capital structure.

Asset utilization ratios relate balance sheet assets to income statement sales.

Assuming proper accounting disclosure is used, a large extraordinary loss has what effect on the cost of goods sold?

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

Profitability ratios are distorted by inflation because profits are stated in current dollars and assets and equity are stated in historical dollars.

If government bonds pay 7.0% interest and insured savings accounts pay 5.0% interest, stockholders in a moderately risky firm would expect return-on-equity values of

Return on equity will not change if the firm increases its use of debt.

To compute the quick ratio, accounts receivable are not included in current assets.

In analyzing ratios, the age of the firm's assets need not be considered.

Times interest earned is an example of a profitability ratio.

ABC Co. has an average collection period of 90 days. Total credit sales for the year were $6,000,000. What is the balance in accounts receivable at year-end?

Profitability ratios allow one to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital.

Analysts agree that extraordinary gains/losses should be excluded from ratio analysis because they are one-time events, and can distort annual results from normal operations.

Asset utilization ratios

A firm has current assets of $100,000 and total assets of $300,000. The firm's sales are $900,000. The firm's fixed asset turnover is