A firm’s annual stockholders’ report ________. |
summarizes and documents the firm’s financial activities during the past year |
The rule-setting body, which authorizes generally accepted accounting principles is the ________. |
FASB |
Accounting practices and procedures used to prepare financial statements are called ________. |
GAAP |
The federal regulatory body governing the sale and listing of securities is called the ________. |
SEC |
The stockholders’ annual report must include ________. |
an income statement |
The 2002 Sarbanes-Oxley Act was designed to ________. |
eliminate the many disclosure and conflict-of-interest problems of corporations |
The 2002 law that established the Public Company Accounting Oversight Board (PCAOB) was called ________. |
the Sarbanes-Oxley Act |
The Public Company Accounting Oversight Board (PCAOB) ________. |
is a not-for-profit corporation that oversees auditors of public corporations |
The stockholder’s report includes ________. |
a statement of retained earnings |
Total assets less net fixed assets equals ________. |
current assets |
A(n) ________ provides a financial summary of a firm’s operating results during a specified period. |
income statement |
Gross profit is ________. |
sales revenue minus cost of goods sold |
Operating profit is ________. |
gross profit minus operating expenses |
Net profit after taxes is ________. |
EBIT minus interest and taxes |
Operating profit is known as ________. |
earnings before interest and taxes |
Earnings available for common stockholders is calculated as net profits ________. |
after taxes minus preferred dividends |
Which of the following is a current liability? |
notes payable |
Which of the following represents a current asset? |
marketable securities |
Which of the following is a fixed asset? |
land |
The net value of fixed assets is also called its ________. |
book value |
Retained earnings on the balance sheet represents the ________. |
cumulative total of all earnings reinvested in the firm |
The ________ represents a summary statement of a firm’s financial position at a given point in time. |
balance sheet |
The statement of cash flows ________. |
provides insight into a firm’s operating, investment, and financing cash flows |
When preparing the retained earnings statement, ________ is(are) subtracted in order to derive at the ending balance of retained earnings. |
dividends |
The firm’s earnings available to common shareholders for 2014 is ________. |
$302.40 |
The firm’s earnings per share for 2014 is ________. |
$0.3024 |
The firm’s net profit after taxes for 2014 is ________. |
$320.40 |
On the balance sheet, net fixed assets represent ________. |
gross fixed assets at cost minus accumulated depreciation |
Paid-in capital in excess of par represents the amount of proceeds ________. |
in excess of the par value from the original sale of common stock |
Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm’s net profit after taxes? |
$49,000 |
Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no interest expense. What was Candy Corporation’s earnings per share? |
$7.42 |
A firm’s year-end retained earnings balances are $670,000 and $560,000, for 2014 and 2015 respectively. The firm paid $10,000 in dividends in 2015. The firm’s net profit after taxes in 2015 was ________. |
-$100,000 |
A firm’s year-end retained earnings balances are $320,000 and $400,000, for 2014 and 2015 respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm’s dividend payment for 2015 is ________. |
$20,000 |
A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm’s retained earnings balance at 2015 year end is ________. |
$240,000 |
A firm’s year-end retained earnings balance are $670,000 and $560,000 for 2014 and 2015, respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm paid dividends of ________ in 2015. |
$210,000 |
Information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements can be found on ________. |
the notes to the financial statements |
FASB Standard No. 52 mandates that U.S.-based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the ________. |
current rate |
Ratios provide a ________ measure of a company’s performance and condition. |
relative |
Present and prospective shareholders are mainly concerned with a firm’s ________. |
risk and return |
The primary concern of creditors when assessing the strength of a firm is its ________. |
short-term liquidity |
) ________ analysis involves the comparison of different firms’ financial ratios at the same point in time. |
Cross-sectional |
________ analysis involves comparison of current to past performance and the evaluation of developing trends. |
Time-series |
Which of the following is used to analyze a firm’s financial performance over different years? |
time-series analysis |
Which of the following is true of benchmarking? |
It is an analysis in which a firm’s ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate. |
Cross-sectional ratio analysis is used to ________. |
measure relative performance of a firm with its peers |
Time-series analysis is often used to ________. |
assess developing trends |
In ratio analysis, a comparison to a standard industry ratio is made to isolate ________ deviations from the norm. |
negative |
Which of the following is a limitation of ratio analysis? |
Ratios that reveal large deviations from the norm merely indicate the possibility of a problem. |
An analyst should be careful when conducting ratio analysis to ensure that ________. |
the overall performance of a firm is not judged on a single ratio |
The analyst should be careful when analyzing ratios that ________. |
right interpretation of the ratio value is made |
Inflation can distort ________. |
book value of inventory costs |
Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms. |
older; newer |
Which of the following groups of ratios primarily measure risk? |
liquidity, activity, and debt |
The ________ ratios are primarily used as measures of return. |
profitability |
The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they come due. |
liquidity |
The two categories of ratios that should be utilized to assess a firm’s true liquidity are the ________. |
liquidity and activity ratios |
The two basic measures of liquidity are ________. |
current ratio and quick ratio |
A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might ________. |
decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios |
If the only information you are given about Ryan Corporation, a large public company in business for many years, is that it has a current ratio of 2.9, what could you infer from this? |
It can meet the short-term obligations without any difficulty. |
Which of the following is true of current ratio? |
A higher current ratio indicates a greater degree of liquidity. |
Which of the following is excluded when calculating quick ratio? |
inventory |
________ ratios are a measure of the speed with which various accounts are converted into sales or cash. |
Activity |
Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________. |
10; 36.5 |
________ may indicate a firm is experiencing stockouts and lost sales. |
Inventory turnover ratio |
If an inventory turnover is divided into 365, it becomes a measure of ________. |
the average age of the inventory |
) The ________ measures the activity, or liquidity, of a firm’s stock of goods. |
inventory turnover ratio |
A(n) ________ is useful in evaluating credit policies. |
average collection period |
The ________ ratio may indicate poor collections procedures or a relaxed credit policy. |
average collection period |
ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________. |
57 days |
Which of the following ratios is difficult for the creditors of a firm to analyze from the published financial statements? |
average payment period |
Nico Corporation has annual purchases of $300,000 and accounts payable of $30,000, then average purchases per day are ________ and the average payment period is ________. |
821.9; 36.5 |
________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm. |
Lenders and suppliers |
The ________ ratio indicates the efficiency with which a firm uses its assets to generate sales. |
total asset turnover |
A firm’s total asset turnover increased from 0.75 to 0.90. Which of the following is true about the given data? |
Its assets have been efficiently used to derive the optimum level of sales. |
A firm with a total asset turnover that is lower than industry standard but with a current ratio that meets industry standard must have excessive ________. |
fixed assets |
A firm with a total asset turnover lower than industry standard may have ________. |
insufficient sales |
________ is a term used to describe the magnification of risk and return introduced through the use of fixed-cost financing, such as preferred stock and debt. |
Financial leverage |
________ ratio measures the proportion of total assets financed by the firm’s creditors |
Debt |
________ ratio measures a firm’s ability to pay contractual interest payments. |
Times interest earned |
________ ratio indicates that a firm will be able to meet interest obligations due on outstanding debt. |
Times interest earned |
The higher, the value of ________ ratio, the better able a firm is to fulfill its interest obligations. |
times interest earned |
When assessing the fixed-payment coverage ratio, ________. |
the lower its value the more risky is the firm |
Inventory for CEE in 2013 was ________. (See Table 3.1) |
$27,500 |
Notes payable for CEE in 2013 was ________. (See Table 3.1) |
$ 10,609 |
Accounts receivable for CEE in 2013 was ________. (See Table 3.1) |
$19,861 |
Net fixed assets for CEE in 2013 were ________. (See Table 3.1) |
$45,484 |
Total assets for CEE in 2013 were ________. (See Table 3.1) |
$ 97,345 |
Long-term debt for CEE in 2013 was ________. (See Table 3.1) |
$30,763 |
Two frequently cited ratios of profitability that can be read directly from the common-size income statement are ________. |
the gross profit margin and the net profit margin |
The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales. |
common-size income statement |
________ indicates the percentage of each sales dollar remaining after the firm has paid for its goods. |
Gross profit margin |
________ measures the percentage of profit earned on each sales dollar before interest and taxes but after all costs and expenses. |
Operating profit margin |
A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________. |
general and administrative expenses |
________ measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. |
Net profit margin |
________ measures the overall effectiveness of management in generating profits with its available assets. |
Return on total assets |
________ measures the return earned on the common stockholders’ investment in the firm. |
Return on equity |
A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders’ investment of $750,000 has a return on equity of ________. |
4 percent |
A ________ ratio is commonly used to assess owners’ appraisal of the share value. |
price/earnings |
P/E ratio measures the ________. |
market value of the stock to earnings per share |
Book value per share is the ratio of ________. |
common stock equity to number of outstanding common shares |
The DuPont system merges the income statement and balance sheet into two summary measures of profitability, ________. |
return on total assets, and return on common equity |
The ________ is used by financial managers as a structure for dissecting a firm’s financial statements to assess its financial condition. |
DuPont system of analysis |
In the DuPont system of analysis, the return on total assets (asset) is equal to ________. |
net profit margin) × (total asset turnover) |
The modified DuPont formula relates the firm’s return on total assets (ROA) to its ________. |
return on equity (ROE) |
In the DuPont system of analysis, the return on equity is equal to ________. |
(return on total assets) × (financial leverage multiplier) |
A firm with a low net profit margin can improve its return on total assets by ________. |
increasing its total asset turnover |
Other things being equal, a decrease in total asset turnover will result in ________ in the return on total assets. |
a decrease |
A firm with a low return on total assets can improve its return on equity, all else remaining the same, by ________. |
increasing its debt ratio |
The three basic ratios used in the DuPont system of analysis are ________. |
net profit margin, total asset turnover, and equity multiplier |
The financial leverage multiplier is an indicator of how much ________ a corporation is utilizing. |
total debt |
Financial leverage multiplier is the ratio of ________. |
total assets to common stockholders’ equity |
Using the DuPont system of analysis, holding other factors constant, an increase in financial leverage will result in ________. |
an increase in the return on equity |
As the financial leverage multiplier increases, this may result in ________. |
a decrease in the net profit margin and return on investment, due to the increase in interest expense as debt increases |