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Finance Flashcards

Finance Ch 3

Comon size financial statements present all balance sheet account values as a percentage of Total assets
The ratios that are based on financial statement values and used for comparison purposes are called financial ratios
The Du Pont identity can be totally defined by which one of the following? Equity multiplier and return on assets
which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? internal growth rate
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of thefollowing conditions? No new equity and constant debt-equity ratio
Which one of the following is the abbreviation for the U.S. government coding system that classifies afirm by its specific type of business operations? SIC
Builder’s Outlet just hired a new chief financial officer. To get a feel for the company, she wants tocompare the firm’s sales and costs over the past 3 years determine if any trends are present and alsodetermine where the firm might need to make changes. Which one of the following statements will bestsuit her purposes? Common-size income statement
A common-size balance sheet helps financial managers determine: If changes are occurring in a firms mix of assets
High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form ofannual dividends. Given this, the percent shown on a common-size income statement for the dividendaccount will: Vary in direct relation to the net profit percentage
Which one of the following transactions will increase the liquidity of a firm? Credit sale of inventory at cost
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
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this, you know for certain that the firm: has positive net working capital
Fred is the owner of a local feed store. Which one of the following ratios should he compute if he wantsto know how long the store can pay its bills given the amount of cash the store currently has? Cash Ratio
Which one of the following is a measure of long-term solvency? Equity multiplier
The cash coverage ratio is used to evaluate the: Ability of a firm to pay the interest on its debt
The equity multiplier is equal to : one plus the debt-equity ratio
Blooming Gardens has an inventory turnover of 16. this means the firm: Sells its inventory an average of 16 times per year
Which of the following best indicates a firm utilizing its assets more efficiently than it has in the past? Decrease in the capital intensity ratio
Kelso’s Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. Which one of thefollowing ratios would reflect this relationship? Total asset trunover
which one of the following will increase the profit margin of a firm, all else constant? Decrease in tax rate
You would like to borrow money three years from now to build a new building. In preparation forapplying for that loan, you are in the process of developing target ratios for your firm. Which set of ratiosrepresents the best target mix considering that you want to obtain outside financing in the relatively nearfuture? Cash coverage ratio = 2.6Debt-equity ratio = .3
All else constant, which one of the following will decrease if a firm increases its net income? Price-earnings ratio
Which one of the following statements is true concerning the price-earnings (PE) ratio? A high PE ratio may indicate that a firm is expecteed to grow significantly
New Century Products is a company that was founded last year. While the outlook for the company ispositive, it currently has negative earnings. If you wanted to measure the progress of this firm, which oneof the following ratios would probably be best to monitor given the firm’s current situation? Price-sales ratio
The Du Pont ID 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.A. II and III onlyB. I and III onlyC. II, III, and IV onlyD. I, II, and III only***E. I, II, III, and IV***
The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This costimprovement will increase which of the following ratios? I. Profit marginII. Return on assetsIII. Total asset turnoverIV. Return on equityA. I and II onlyB. I and III onlyC. II, III, and IV only*******D. I, II, and IV onlyE. I, II, III, and IV
Martha’s Sweet Shop reduced its fixed assets this year without affecting the shop’s operations, sales, orequity. This reduction will increase which of the following ratios? I. Capital intensity ratioII. Return on assetsIII. Total asset turnoverIV. Return on equityA. I and II onlyB. II and III onlyC. II, III, and IV onlyD. I, II, and IV onlyE. I, II, III, and IV
Donovan Brothers, Inc. would like to increase its internal rate of growth. Decreasing which one of thefollowing will help the firm achieve its goal? Dividend payout ratio
If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is: Zero percent
Which of the following are determinants of a firms 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. Percent of net income distributed as dividendsA. I and III onlyB. II and IV only******C. I, II, and IV onlyD. II, III, and IV onlyE. I, II, III, and IV
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 ratioA. I and II only******B. III and IV onlyC. II and IV onlyD. I, III, and IV onlyE. I, II, III, and IV
Financial statement analysis: provides usful information that can serve as a basis for forcasting future performance
which one of the following statements is correct? Adjustments have to be made when comparing the icome statments of firms which use different methods of accounting for inventory.

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