Finance CH 3

Which one of the following is a measure of long-term solvency? Equity multiplier
A common-size balance sheet helps financial managers determine: if changes are occurring in a firm’s mix of assets.
Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? Decrease in the capital intensity ratio
Which of the following will increase the sustainable rate of growth for a firm?I. Decreasing the profit marginII. Increasing the dividend payout ratioIII. Decreasing the capital intensity ratioIV. Increasing the target debt-equity ratio III and IV only
Blooming Gardens has an inventory turnover of 16. This means the firm: sells its inventory an average of 16 times each year.
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? Internal Growth Rate
The cash coverage ratio is used to evaluate the: ability of a firm to pay the interest on its debt.
Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has? Cash ratio
Martha’s Sweet Shop reduced its fixed assets this year without affecting the shop’s operations, sales, or equity. This reduction will increase which of the following ratios?I. Capital intensity ratioII. Return on assetsIII. Total asset turnoverIV. Return on equity II and III only
High Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will: vary in direct relation to the net profit percentage.
The equity multiplier is equal to: one plus the debt-equity ratio.
The DuPont identity can be totally defined by which one of the following? Equity multiplier and return on assets
New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm’s current situation? Price-sales ratio
Which of the following are determinants of a firm’s sustainable rate of growth?I. Amount of sales generated from each dollar invested in assetsII. Amount of debt per dollar of equityIII. Amount of current assets per dollar of current liabilitiesIV. Percentage of net income distributed as dividends I, II, and IV only
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. Cash payment of an account payable
Which one of the following will increase the profit margin of a firm, all else constant? Decrease in the tax rate
Which one of the following transactions will increase the liquidity of a firm? Credit sale of inventory at cost
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? No new equity and a constant debt-equity ratio
The DuPont identity can be used to help a financial manager determine the:I. degree of financial leverage used by a firm.II. operating efficiency of a firm.III. utilization rate of a firm’s assets.IV. rate of return on a firm’s assets. I, II, III, and IV
Builder’s Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm’s sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? Common-size income statement
A firm has a current ratio of 1.4 and a quick ratio of 0.9. Given this, you know for certain that the firm: has positive net working capital.
Which one of the following statements is true concerning the price-earnings (PE) ratio? A high PE ratio may indicate that a firm is expected to grow significantly.
Kelso’s Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of the following ratios would reflect this relationship? Total asset turnover
Common-size financial statements present all balance sheet account values as a percentage of: total assets.
The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This cost improvement will increase which of the following ratios?I. Profit marginII. Return on assetsIII. Total asset turnoverIV. Return on equity I, II, and IV only
Profit Margin = Net Income / Sales
Return on Assets ROA= Net Income / Total Assets
Return on Equity ROE = Net Income / Total Equity= Profit Margin x Total Asset Turnover x Equity Multiplier = Return on Assets x Equity Multiplier
Assets = Debt + Equity
Earnings per Share EPS= Net Income / # of Shares
Dividends per Share = Total Dividends / # of Shares
Book Value per Share = Ending Equity / # of Shares
Market to Book Ration = Mkt Value / Book Value
Price Earnings Ratio =Stock Price / Earnings Per Share
Price Sales Ratio =Stock Price / Sales Per Share
Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (Current Assets – Inventory) / Current Liabilities
Equity Multiplier EM = 1 + Debt/Equity Ratio
Sustainable Growth Rate = ROE x b / 1 – ROE x b
Payout Ratio = 1 – b
Receivables Turnover Credit Sales / Receivables
Day’s sales in receivables 365 / Receivables turnover
Cash Ratio Cash / current liability
Capital Intensity Ratio = 1 / total asset turnover
b = growth rate / ROE (1 + growth rate)

Leave a Reply

Your email address will not be published. Required fields are marked *