Q&A Hero

Q: A company has a debt-to-assets ratio of 0.45 and a return on equity ratio of 10%. If the company then issues additional shares of common stock for cash, which of the following is a correct statement? A) The debt-to-assets ratio will decrease and the return on equity ratio will decrease. B) The debt-to-assets ratio will increase and the return on equity ratio will increase. C) The debt-to-assets ratio will not change and the return on equity ratio will not change. D) The debt-to-assets ratio will decrease and the return on equity ratio will increase.

Q: Which of the following could indicate bad news? A) An increase in fixed asset turnover ratio B) A decrease in days to sell C) A decrease in EPS D) A decrease in the debt-to-assets ratio

Q: A debt-to-assets ratio of 0.50 indicates that the company has: A) more liabilities than stockholders equity. B) equal amounts of liabilities and stockholders equity. C) more stockholders equity than liabilities. D) no liabilities.

Q: The ratio that measures the percentage of financing from creditors is the: A) current ratio. B) times interest earned ratio. C) debt-to-assets ratio. D) Price/Earnings ratio.

Q: The debt-to-assets ratio is the: A) ratio of current liabilities to current assets. B) ratio of long term liabilities to fixed assets. C) ratio of total liabilities to total assets. D) proportion of short-term liabilities to total liabilities.

Q: A current ratio of less than one is not so much of a concern when the company has a: A) low fixed asset turnover ratio. B) high days to collect number. C) high inventory turnover ratio. D) high debt-to-equity ratio.

Q: A company that has a current ratio less than one cannot cover: A) current liabilities with its current cash flow. B) current expenses with its current sales revenue. C) expenses with its current revenues. D) current liabilities with its current assets.

Q: A current ratio of 2.5 means that for every dollar of: A) accounts payable, there is $2.50 of cash. B) current liabilities, there is $2.50 of current assets. C) current assets, there is $2.50 of current liabilities. D) total liabilities, there is $2.50 of cash.

Q: Judging only from the ratios below, which of the following clothing wholesalers is least likely to be having cash flow problems? A) Company A: Receivable turnover of 5; inventory turnover of 2 B) Company B: Receivable turnover of 2; inventory turnover of 5 C) Company C: Receivable turnover of 10; inventory turnover of 10 D) Company D: Receivable turnover of 1; inventory turnover of 1

Q: The ratio that measures how many times a company replenishes its inventory in a year is the: A) days to sell ratio. B) receivables turnover ratio. C) inventory turnover ratio. D) days to collect ratio.

Q: If cost of goods sold remains unchanged, an increase in the inventory turnover ratio is indicative of a(n): A) reduction in the cost of goods sold. B) decrease in inventory. C) increase in inventory. D) increase in sales revenue.

Q: A decrease in receivables turnover ratio is indicative of: A) an increase in sales revenue. B) slower-selling inventory. C) an increase in accounts receivable. D) a decline in cost of goods sold.

Q: E. Choudhury Companys price/earnings ratio is 15.3. Its closest competitor, Bhatt, Inc. has a Price/Earnings ratio of 9.4. Which of the following would not be a valid conclusion to draw from a comparison of the two companies Price/Earnings ratios? A) E. Choudhury Companys stock is overpriced. B) Investors believe E. Choudhury Co. has a brighter future than Bhatt, Inc. C) E. Choudhury Company has been more profitable than Bhatt, Inc. D) The stock price of E. Choudhury Company has been bid up due to rumors of a merger.

Q: Which of the following statements about the Price/Earnings ratio is not correct? A) The Price/Earnings ratio indicates how much investors are willing to pay for a share of a companys stock as a multiple of current earnings. B) A high Price/Earnings ratio may mean that investors have pushed the price of the stock up in anticipation of higher future net income. C) If EPS decreases and there is no change in the market price of the stock, the Price/Earnings ratio will decrease. D) If the market price of the stock increases and there is no change in EPS, the Price/Earnings ratio will increase.

Q: Which ratio is used to evaluate how well a company is managing its property, plant, and equipment? A) Receivables turnover B) Inventory turnover C) Fixed asset turnover D) Asset turnover

Q: Which of the following ratios is used to evaluate how efficient a company is in using its fixed assets to generate revenues? A) Current ratio B) Debt-to-assets ratio C) Return on fixed assets ratio D) Fixed asset turnover ratio

Q: An increase in the gross profit percentage indicates that: A) cost of goods sold as a percentage of sales has decreased. B) cost of goods sold as a percentage of sales has increased. C) operating expenses as a percentage of sales have increased. D) operating expenses as a percentage of sales have decreased.

Q: If net income is rising, but net sales revenue and the gross profit percentage remain the same, then: A) operating expenses are falling. B) operating expenses are rising. C) cost of goods sold is falling. D) cost of goods sold is rising.

Q: When evaluating its net profit margin for the current year, Coca Cola would most likely use all of the following benchmarks except: A) Anheuser Buschs net profit margin. B) the Fortune 500s net profit margin. C) Pepsicos net profit margin. D) the average net profit margin for the soft drink manufacturing industry.

Q: Which type of analysis could reveal that a company is relying heavily on debt financing? A) Common size statements B) Horizontal analysis C) The fixed asset turnover ratio D) Trend analysis

Q: Use the information above to answer the following question. The fixed asset turnover ratio for the current year is closest to: A) 1.28. B) 1.24. C) 0.75. D) 1.64.

Q: Use the information above to answer the following question. Which of the following would be shown on B. Darins horizontal analysis when calculating percentage changes from the prior year to the current year? A) An increase in sales revenue of 23% B) An increase in gross profit of 41.5% C) An increase in interest expense of 100% D) An increase in net income of 57%

Q: Use the information above to answer the following question. The gross profit percentage for the current year is closest to: A) 42%. B) 13.5%. C) 57.7%. D) 21.15%.

Q: Which of the following ratios does not use net income in its calculation? A) Net profit margin B) Earnings per share C) Return on equity D) Fixed asset turnover

Q: The following information is taken from the financial statements of Lopez Company. : Total Assets $200,000 Total Liabilities 90,000 Total Stockholders Equity 110,000 Net Income 70,000 Income Tax Expense 21,000 Interest Expense 5,000 The companys times interest earned ratio is closest to: A) 19.2. B) 4.7. C) 15.0. D) 18.2.

Q: Company X has net sales revenue of $436,000, cost of goods sold of $343,000, and net income of $3,000. If interest expense is $10,000 and income tax expense is $1,000, the times interest earned ratio is closest to: A) 1.4. B) 0.33. C) 1.3. D) 0.40.

Q: A company has a debt-to-assets ratio of 0.45. If the company then borrows cash from the bank to finance a building acquisition, which of the following is a correct statement? A) The debt-to-assets ratio will be unchanged. B) The debt-to-assets ratio will increase. C) The debt-to-assets ratio will decrease. D) The debt-to-assets ratio will increase as a result of the cash received and then decrease as a result of the building acquisition.

Q: A company has current assets of $450,000 and a current ratio is 2.5. Assume that the company prepays rent for 9 months in the amount of $20,000. The current ratio after this transaction is closest to: A) 2.39. B) 2.61. C) 2.5. D) 2.81.

Q: Which of the following ratios is calculated by dividing current assets by current liabilities? A) Quick ratio B) Solvency ratio C) Debt ratio D) Current ratio

Q: Which of the following is calculated by dividing cost of goods sold by average inventory and then dividing this result into 365 days? A) Inventory turnover B) Current ratio C) Days to collect ratio D) Days to sell ratio

Q: A company has $72,500 in inventory at the beginning of the accounting period and $65,500 at the end of the accounting period. Sales revenue is $986,400, cost of goods sold is $572,700, and net income is $124,200 for the accounting period. On average, the number of days to sell inventory is approximately: A) 203. B) 44. C) 61. D) 26.

Q: A company has $72,500 of inventory at the beginning of the year and $65,500 at the end of the year. Sales revenue is $986,400, cost of goods sold is $572,700, and net income is $124,200 for the year. The inventory turnover ratio is closest to: A) 1.8. B) 8.3. C) 6.0. D) 14.3.

Q: Cost of goods sold divided by average inventory is the calculation for which of the following ratios? A) Net profit margin ratio B) Current ratio C) Inventory turnover ratio D) Fixed asset turnover ratio

Q: During the current accounting period, revenue from credit sales is $671,000. The Accounts Receivable balance is $51,480 at the beginning of the period and $52,200 at the end of the period. Which of the following statements is correct? A) The receivables turnover ratio is 12.9. B) On average, it takes 12.9 days to collect payment from credit customers. C) The receivables turnover ratio is 28.3. D) On average, the company sells its inventory every 28.3 days.

Q: Which of the following is calculated by dividing net sales revenue by average net receivables? A) Days to sell ratio B) Current ratio C) Profit margin D) Receivables turnover ratio

Q: A share of stock sells for $20. The company has $64 million in earnings and 200 million outstanding shares. The Price/Earnings ratio for the company is closest to: A) 62.5. B) 200. C) 0.31. D) 6.4.

Q: A company has earnings per share of $1.20, it paid a dividend of $.50 per share, and the market price of the companys stock is $45 per share. The price/earnings ratio is closest to: A) 37.50. B) 64.29. C) 2.40. D) 2.0.

Q: Vesuvius Company has net sales revenue of $780,000, cost of goods sold of $343,200, net income of $119,200, and preferred dividends of $10,000 during the current year. At the beginning of the year, 503,000 shares of common stock were outstanding, and, at the end of the year, 537,000 shares of common stock were outstanding. A total of 1,000 preferred shares were outstanding throughout the year. The companys earnings per share for the current year is closest to: A) $1.50. B) $0.84. C) $0.21. D) $0.87. Answer: C Feedback: Solution: Earnings per share (EPS) = (Net income Preferred dividends) Average number of common shares outstanding = ($119,200 $10,000) [(503,000 + 537,000) 2] = $0.21

Q: Which of the following is calculated by dividing (net income less preferred dividends) by average common stockholders equity? A) Return on assets ratio B) Return on equity ratio C) Earnings per share D) Net profit margin ratio

Q: Company X has net sales revenue of $1,250,000, cost of goods sold of $760,000, and all other expenses of $290,000. The beginning balance of stockholders' equity is $400,000 and the beginning balance of fixed assets is $361,000. The ending balance of stockholders' equity is $600,000 and the ending balance of fixed assets is $389,000. The fixed asset turnover ratio is closest to: A) 0.53. B) 2.50. C) 3.33. D) 0.80.

Q: Which of the following is calculated by dividing net revenue by average net fixed assets? A) Net profit margin B) Fixed asset turnover C) Total asset turnover D) Current ratio

Q: Net revenue divided by average net fixed assets is the calculation for which of the following ratios? A) Net profit margin B) Fixed asset turnover C) Current ratio D) Return on assets

Q: Company X has net sales revenue of $780,000, cost of goods sold of $343,200, and all other expenses of $327,600. The gross profit percentage is closest to: A) 32%. B) 56%. C) 86%. D) 14%.

Q: Which of the following ratios is calculated by dividing net income by revenues? A) Return on equity ratio B) Net profit margin ratio C) Current ratio D) Fixed asset turnover ratio

Q: Company X has net sales revenue of $780,000, cost of goods sold of $343,200, and all other expenses of $327,600. The net profit margin is closest to: A) 0.32. B) 0.56. C) 0.86. D) 0.14.

Q: Which of the following is calculated by dividing net income by revenues? A) Gross profit margin B) Current ratio C) Net profit margin D) Asset turnover

Q: Which of the following ratios is a solvency ratio? A) Net profit margin ratio B) Current ratio C) Fixed asset turnover ratio D) Debt-to-assets ratio

Q: Which of the following ratios is used to evaluate solvency? A) Fixed asset turnover ratio B) Days to sell ratio C) Current ratio D) Times interest earned

Q: Which of the following measures would assist in assessing the solvency of a company? A) Debt-to-assets B) Fixed asset turnover C) Return on equity D) Current ratio

Q: Which of the following ratios is used to evaluate solvency? A) Earnings per share (EPS) B) Fixed asset turnover C) Debt-to-assets D) Current ratio

Q: Which of the following ratios is used to evaluate a companys liquidity? A) Debt-to-assets ratio B) Fixed asset turnover ratio C) Return on equity ratio D) Current ratio

Q: Which of the following measures would assist in assessing the liquidity of a company? A) Return on equity B) Fixed asset turnover ratio C) Receivables turnover ratio D) Times interest earned

Q: Which of the following is a liquidity ratio? A) Inventory turnover B) Price/Earnings ratio C) Net profit margin D) Times interest earned

Q: Which of the following is not a profitability ratio? A) Return on equity (ROE) B) Earnings per share C) Fixed asset turnover D) Days to sell

Q: Which of the following is a profitability measure? A) Net income Revenues B) Total assets Total stockholders equity C) Total liabilities Total stockholders equity D) Cost of goods sold Average inventory

Q: Which of the following measures would assist in assessing the profitability of a company? A) Fixed asset turnover B) Times interest earned ratio C) Inventory turnover ratio D) Debt-to-assets ratio

Q: Which of the following measures would assist in assessing the profitability of a company? A) Debt-to-assets ratio B) Fixed asset turnover ratio C) Receivables turnover ratio D) Current ratio

Q: Which of the following statements about liquidity and solvency ratios is correct? A) Unlike solvency ratios, liquidity ratios relate to the company's long-run survival. B) Both liquidity ratios and solvency ratios measure a company's ability to meet its financial obligations. C) Liquidity ratios include the return on equity ratio and the times interest earned ratio. D) Solvency ratios include the current ratio and the net profit margin ratio.

Q: If an analyst wanted to assess a company's long-run survival, which of the following categories of ratios would most likely be used? A) Liquidity B) Market share C) Profitability D) Solvency

Q: Solvency ratio data are primarily concerned with the ability of a company to: A) produce profits. B) maintain long-term survival and repay its debt. C) manage its cash flow. D) provide income for stockholders.

Q: If an analyst wants to examine a company's short-run ability to survive, which of the following would best be considered? A) Liquidity B) Market share C) Profitability D) Solvency

Q: If an analyst wants to examine a company's current ability to generate income, which of the following would best be considered? A) Liquidity B) Market share C) Profitability D) Solvency

Q: If you wish to examine how one aspect of a business is doing relative to other aspects of the business at the current time, you are most likely to use: A) time-series analysis. B) ratio analysis. C) horizontal analysis. D cross-sectional analysis.

Q: On a common size balance sheet what is the percentage that would be shown next to the dollar amount of current assets? A) 100% B) 44% C) 30% D) 33%

Q: On a common size income statement for this year, what is the percentage that would be shown next to the dollar amount of cost of goods sold? A) 76% B) 24% C) 31% D) 18%

Q: Use the information above to answer the following question. The gross profit percentage for the current year rounded to the nearest whole percent is closest to: A) 24%. B) 76%. C) 60%. D) 31%.

Q: Use the information above to answer the following question. On a common size income statement for the year, what is the percentage that would be shown next to the dollar amount of sales revenue? A) 100% B) 14% C) 60% D) Cannot be determined

Q: In a common size income statement, each item on the income statement is expressed as a percentage of: A) net income. B) gross profit. C) total expenses. D) sales revenue.

Q: In a common size balance sheet, each item on the balance sheet is expressed as a percentage of: A) total assets. B) total liabilities. C) net income. D) total stockholders equity.

Q: A companys sales are $285,000 and $200,000 during the current and prior years, respectively. The percentage change is: A) 42.5%. B) 70%. C) 29.8%. D) 130%.

Q: Net income was $418,600 in the current year and $364,000 in the prior year. The year-to-year percentage change in net income is closest to: A) 15%. B) 55%. C) 87%. D) 13%.

Q: A trend analysis to determine a year-to-year dollar amount change is calculated by subtracting the: A) previous period amount from the current amount. B) current period amount from the previous period amount. C) current period amount from the previous period amount and then dividing the result by the previous period amount. D) previous period amount from the current period amount and then dividing the result by the current period amount.

Q: Which of the following statements about trend analysis is correct? A) Time-series analysis is an example of trend analysis. B) Trend data are always in dollars. C) Trend analysis is also known as vertical analysis. D) Common-size analysis is an example of trend analysis.

Q: Which of the following analysis techniques does not pertain to changes over time? A) Trend analysis B) Horizontal analysis C) Time-series analysis D) Vertical analysis

Q: The primary objective of external financial reporting is to: A) enhance the ability of the company to acquire financial capital from external sources. B) accurately provide financial results for tax purposes. C) comply with external regulations and requirements of government and professional associations. D) provide useful information to decision makers, especially investors and creditors.

Q: Special items, such as gains or losses relating to changes in the value of certain balance sheet accounts, are reported below the net income line on the income statement.

Q: Gains or losses from discontinued operations are reported on a separate line on the income statement net of income tax effects.

Q: According to the full disclosure principle, financial reports should present detailed information about every transaction.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term 1. _____ Cash Inflow 2. _____ Property, Plant, and Equipment 3. _____ Comparative Balance Sheet 4. _____ Free Cash Flow 5. _____ Noncash Investing and Financing Activities 6. _____ Net Income 7. _____ Statement of Cash Flows 8. _____ Cash Outflow Definition A. A financial statement that tracks the flow of cash into and out of a company according to the three types of activities that generate the flows. B. Cash flows in excess of net income. C. Reported as supplement disclosures or in the notes section to the financial statements rather than within the body of the statement of cash flows. D. Results from activities such as sales of goods and assets, receipt of cash dividends, and receipts of interest. E. Cash a company receives that is not subject to income tax. F. Purchases and sales of this are classified as investing activities. G. The starting point for calculating operating cash flows with the direct method. H. Cash flows from operations in excess of amount paid to replace property, plant and equipment and to pay cash dividends to stockholders. I. The percent of a company's net cash flow that comes from investing and financing activities. J. An adjustment made when using the indirect method of calculating cash flows from operating activities. K. The starting point for calculating operating cash flows with the indirect method. L. Purchases and sales of this are classified as operating activities. M. A balance sheet that shows the starting and ending balance of the different accounts; it is used to calculate the net cash flow provided by operating activities. N. Results from activities such as purchases of goods and assets, payment of debt, payment of cash dividends, and payment of taxes.

Q: Choose the appropriate letter to match the term and the definition. Not all definitions will be used. Term 1. _____ Operating Activities 2. _____ Indirect Method 3. _____ Working Capital 4. _____ Cash Equivalents 5. _____ Investing Activities 6. _____ Supplemental Disclosures 7. _____ Direct Method 8. _____ Financing Activities Definition A. Cash inflows and outflows related to components of net income. B. Include assets that are very liquid and are purchased by the entity within three months of maturity. C. These activities include only purchases made with borrowed funds. D. Reports the components of cash flows from operating activities as gross receipts and gross payments. E. This ratio uses net income instead of operating cash flow to analyze a company's ability to finance the cost of its debt. F. Measures the ability of a company to finance its interest payments with its operating cash flow before taxes and interest. G. A measure of the amount by which current assets exceed current liabilities. H. These activities include money lent by a company as well as money borrowed by a company. I. Must include cash paid for interest and income tax in a separate schedule. J. Cash inflows and outflows related to the sale or purchase of investments and long-lived assets. K. Cash inflows and outflows related to financing sources external to the company (owners and lenders). L. Presents the operating activities section of the cash flow statement by adjusting net income to compute cash flows from operating activities.