Chapter 3 Flashcards
(20 cards)
The Times Interest Earned ratio and Cash coverage ratio directly measure the ability of a company to meet its obligation to pay:
A. an invoice to a supplier.
B. wages to an employee.
C. interest to a lender.
D. Taxes to the government
E. a dividend to a shareholder.
C. Interest to a lender
Which one of the following is a source of cash for a tax-exempt firm?
A. Increase in accounts receivable
B. Increase in depreciation
C. Decrease in accounts payable
D. Increase in common stock
E. Increase in inventory
D. Increase in common stock
On the statement of cash flows, which one of the following is considered a financing activity?
A. Increase in inventory
B. Decrease in accounts payable
C. Increase in net working capital
D. Dividends paid
E. Decrease in fixed assets
D. Dividends paid
Which one of the following is a use of cash?
A. Decrease in fixed assets
B. Decrease in inventory
C. Increase in long-term debt
D. Decrease in accounts receivables
E. Decrease in accounts payable
E. Decrease in accounts payable
Which one of the following statements is correct?
A. Book values should always be given precedence over market values.
B. Financial statements are rarely used as the basis for performance evaluations.
C. Historical information is useful when projecting a company’s future performance.
D. Potential lenders place little value on financial statement information.
E. Reviewing financial information over time has very limited value.
C. Historical information is useful when projecting a company’s future performance.
On the statement of cash flows, which one of the following is considered an operating activity?
A. Increase in net fixed assets
B. Decrease in accounts payable
C. Purchase of equipment
D. Dividends paid
E. Repayment of long-term debt
B. Decrease in accounts payable
A firm has sales of $4690, costs of $2490, interest paid of $164, and depreciation of $463. The tax rate is 30 percent. What is the cash coverage ratio?
A) 10.59 times
B) 13.41 times
C) 9.54 times
D) 6.71 times
E) 17.49 times
B. 13.41 times
Cash Coverage Ratio = (EBIT + Depr)/Interest Expense
EBIT = Sales - Cost - Depr
Mario’s Home Systems has sales of $2840, costs of goods sold of $2180, inventory of $508, and accounts receivable of $432. How many days, on average, does it take Mario’s to sell its inventory?
A) 72.33 days
B) 65.29 days
C) 55.52 days
D) 83.89 days
E) 85.06 days
E. 85.06 Days
Days sales in inventory/inventory period = 365/ inventory turnover
Inventory Turnover = COGS/Inv = Days sales in Inv = 365/__
Lee Sun’s has sales of $3800, total assets of $3500, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity?
A) 8.90 percent
B) 5.43 percent
C) 11.23 percent
D) 6.00 percent
E) 6.51 percent
C. 11.23 percent
OE = NI/TE
Profit Margin = Net Income/Sales
$38000.06=
Equity = If the debt ratio is 42%, then the equity will be the 58% of assets
Equity = 35000.58=2030
ROE = ____/2030= ___
A firm has a return on equity of 20 percent. The total asset turnover is 1.9 and the profit margin is 8 percent. The total equity is $5400. What is the net income?
A) $432
B) $1080
C) $821
D) $2052
E) $568
B. $1080
ROE = NI/TE
If we rearrange the formula
NI = Total Equity * ROE
5400 * 0.20 = $1080
A firm has total debt of $1360 and a debt equity ratio of 0.21. What is the value of the total assets? _______
A) $6476.19
B) $1645.60
C) $2856.00
D) $7836.19
E) $2100.00
D. $7836.19
If the debt/Equity= .21, then for every $1.00 in Equity you have 21 cents in debt. Therefore Equity/debt would be equal to $1/.21= 4.76. Hence the equity is 4.76 times more than debt. Total Assets= Total Debt + Equity
= $1360 + (1360* 4.76)=
Lawn Care, Incorporated, has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 21 percent. The firm has total assets of $328,700, long-term debt of $62,400, and current liabilities of $76,300. What is the return on equity?
A) 39.9%
B) 16.76%
C) 21%
D) 23.78%
E) 29.02%
A. 39.9%
Cain’s has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income?
$44,200
$88,880
$85,748
$41,548
$74,909
C. $85,748
According to the statement of cash flows, an increase in inventory will ______ the cash flow from ______ activities.
A. increase; operating
B. decrease; financing
C. decrease; operating
D. increase; financing
E. increase; investment
C. decrease; operating
Hennessey Chicken and Waffles had $594,500 in sales, and a net profit margin of 4 percent. The firm has 2,750 shares of stock outstanding, with a market price per share of $42.40. What is the price-earnings ratio?
A) 3.97
B) 4.90
C)8.85
D)1.9
E)1.2
B. 4.90
Muro Press has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars’ worth of sales are generated from every $1 in total assets?
A. $1.08
B. $1.14
C. $1.19
D. $84
E. $93
A. $1.08
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
A)0.25
B)0.5
C)0.75
D)1.0
E)1.5
B. 0.5
Castaneda Accounting has sales of $332,700, cost of goods sold of $221,800, inventory $13,700, accounts receivable of $22,400, and accounts payable of $11,900. How many days of sales are in receivables?
A)14.85 Days
B)19.58 days
C)24.58 days
D)44.5 days
E) 35 days
D. 24.58 Days
When developing a common-size balance sheet to evaluate last year’s performance, all accounts are expressed as a percentage of:
A. last year’s sales.
B. last year’s total assets.
C. the base year’s total equity.
D. the base year’s sales.
E. the base year’s total assets.
B. Last year’s total assets
Ratios that measure a firm’s liquidity are known as ______ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. B&C
E. B&C
