FS Ratios and Performance Metrics Flashcards
(10 cards)
What is the formula for inventory turnover?
COGS/Avg Inventory
The following information was taken from Baxter Department Store’s financial statements:
Inventory at January 1 $100,000
Inventory at December 31 300,000
Net sales 2,000,000
Net purchases 700,000
What was Baxter’s inventory turnover for the year ending December 31?
A. 2.5
B. 3.5
C. 5
D. 10
A. 2.5
What is the AR receivable turnover ratio formula?
Net Credit sales/Avg net recivables
Assuming constant inventory quantities, which of the following inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy?
A. FIFO (first in, first out).
B. LIFO (last in, first out).
C. Moving average.
D. Weighted average.
A. FIFO (first in, first out).
Depending on whether prices are increasing or decreasing, the costing method used can produce a higher or lower inventory turnover as follows:
FIFO: COGS comprises the earliest costs of purchases. In periods of rising prices, FIFO produces the lowest COGS and the highest ending inventory, resulting in a lower inventory turnover.
LIFO: COGS is made up of the most recent purchase costs. If prices are rising, LIFO results in the highest COGS and the lowest ending inventory, which produces a higher turnover (Choice B).
Select Co. had the following Year 4 financial statement relationships:
Asset turnover 5
Profit margin on sales 0.02
What was Select’s Year 4 percentage return on assets?
A. 0.1%
B. 0.4%
C. 2.5%
D. 10.0%
D. 10.0%
Asset turnover * profit margin = ROA
Net Sales/Avg Assets * Net income/Net sales = Net Income/Avg Assets
Get rid of net sales and you are left with Avg Assets * Net income or 5*.02 = .10 or 10%
A company is experiencing cash flow issues. To help identify the cause of these issues, management is calculating variances between budgeted and actual cash payments for purchases. Purchases on account during November were as follows:
Budgeted Actual
November $10,300 $15,450
The company pays for 70% of each purchase in the month of the purchase, 20% in the month following the purchase, and 10% two months after the purchase. At the end of Q4, what is the variance in budgeted versus actual cash payments for November purchases?
A. $3,605 favorable.
B. $3,605 unfavorable.
C. $4,635 favorable.
D. $4,635 unfavorable.
D. $4,635 unfavorable.
Use the percentages for both figures.
ABC Corp. is calculating variances between budgeted and actual operating results for key accounts.
The budgeted and actual results for several accounts are as follows:
Budget Actual
Sales $93,250 $91,275
Sales discounts 8,900 6,160
Advertising expense 7,090 10,435
Prepaid expense 5,220 2,440
What is the variance between budgeted and actual revenues and expenses?
A. Revenues, $765 favorable; expenses, $3,345 unfavorable.
B. Revenues, $765 favorable; expenses, $565 unfavorable.
C. Revenues, $1,975 unfavorable; expenses, $3,345 favorable.
D. Revenues, $1,975 unfavorable; expenses, $565 favorable.
A. Revenues, $765 favorable; expenses, $3,345 unfavorable.
Prepaid expense is an asset and is not included in expenses.
Selected information for Irvington Company is as follows:
December 31,
Year 1 Year 2
Preferred stock, 8%, par $100, nonconvertible, noncumulative $125,000 $125,000
Common stock 300,000 400,000
Retained earnings 75,000 185,000
Dividends paid on preferred stock for year ended 10,000 10,000
Net income for year ended 60,000 120,000
Irvington’s return on common stockholders’ equity, rounded to the nearest percentage point, for year 2 is
A. 17%
B. 19%
C. 23%
D. 25%
C. 23%
Irvington’s return on common stockholders’ equity for year 2 is computed by dividing net income available to common stockholders (net income less preferred dividends) by average common stockholders’ equity.
$120,000 − $10,000 = 23%
($375,000 + $585,000) / 2
A company launched a digital campaign targeting new customers, budgeting $900 in hopes of gaining 13,500 customers. The campaign’s effectiveness was measured by comparing budgeted new customers with actual customers gained per dollar spent. The campaign resulted in an unfavorable variance of 5 customers per dollar spent. What was the company’s actual expenditure, and how many customers were gained?
A. Expenditure, $500; Customers gained, 10,000.
B. Expenditure, $1,000; Customers gained, 5,000.
C. Expenditure, $1,100; Customers gained, 11,000.
D. Expenditure, $0; Customers gained, 5.
C. Expenditure, $1,100; Customers gained, 11,000.
In this scenario, a company hoped to gain 15 customers per dollar spent on a digital campaign (13,500 customers / $900 spent). However, the campaign resulted in an unfavorable variance of 5 customers per dollar spent, meaning that the company actually gained only 10 customers per dollar spent (10 actual − 15 budgeted = 5 unfavorable variance).
Therefore, we can use the following formula to determine the company’s actual expenditure and customers gained:
CustomersgainedActualexpenditure=10customersperdollarspent
Customersgained
Actualexpenditure
=
10
customersperdollarspent
Because there are two unknowns in the equation, each answer choice can be plugged in to find the correct values. Only a $1,100 expenditure resulting in 11,000 customers gained satisfies the equation ($1,100 / 11,000 = 10), confirming this as the correct answer.
What is the debt to equity formula?
Total debt/Total equity (this includes short term liabilities
