Q&A Hero

Q: Which of the following best explains the percentage of sales forecasting method? a. It assumes that all fixed assets are dependent on sales. b. It assumes that most variables on the balance sheet and the income statement vary with sales. c. It assumes a specific cash flow dependent on future sales. d. It assumes that earnings per share will be based on sales rather than net income.

Q: The percentage-of-sales forecasting method is useful in forecasting which of the following? a. The amount of internal financing a firm will need for a projected increase in sales. b. The amount of external financing a firm will need for a projected increase in inventory. c. The amount of internal financing a firm will need to expand. d. The amount of external financing a firm will need for a projected increase in sales.

Q: In using the percentage-of-sales forecasting method, which of the following financial statement items are assumed to increase proportionately with sales? I. Dividends II. Long-term debt a. I only b. II only c. Both I and II d. Neither I nor II

Q: In developing a pro forma statement it may be necessary to use a "plug" figure. Which of the following explains what a "plug" figure is? a. It is an asset that needs to be reassessed at its fair market value. b. It is a budgetary item that must be expensed. c. It is additional financing needed to balance the two sides of the balance sheet. d. It is an additional expenditure that is expected to be incurred.

Q: One method of forecasting pro forma statements is using the percentage-of-sales forecasting method. Which of the following best explains the method? a. It forecasts the amount of external financing a firm will need for a projected increase in sales. b. It forecasts the increase in expenses that management will incur to meet its operational objectives. c. It forecasts increases in sales. d. It forecasts changes in financial ratios.

Q: The operational plan is a planning device. It is also which of the following? a. a marketing device. b. a monitoring device. c. a technology needs assessment device. d. an accounting device.

Q: Which of the following statements about strategic planning is/are correct? I. The strategic plan is determined by the long-term goals of the firm. II. The strategic plan considers future financial resources but ignores the overall direction of the firm since that is part of the operational plan. a. I only b. II only c. Both I and II d. Neither I nor II

Q: Production plans consist of all of the following EXCEPT: a. vendor and supplier arrangements b. plant refurbishment and expansions c. channels of distribution d. inventory control

Q: Which of the following best describes financial forecasting? a. It is primarily concerned with whether the firm can predict new niche markets. b. It is primarily concerned with whether the firm can obtain fair market value on its stock. c. It is primarily concerned with whether the firm's management team can accurately predict the firm's future sales revenue. d. It is primarily concerned with whether the firm has sufficient internal resources to meet its operational objectives.

Q: As part of the organizational plan, a marketing plan is used. All of the following are marketing resources in a marketing plan EXCEPT: a. channels of distribution b. advertising strategy c. assignment of sales territory d. product manufacturing

Q: The firm's operational plan begins with which of the following? a. Operational objectives b. Operational resources currently available c. Operational financial statements d. Operational management teams

Q: Which of the following statements is/are correct? I. Strategic planning focuses on the overall direction of the business and industry. II. Operational planning details the future direction of the company and the resources required to get there. a. I only b. II only c. Both I and II d. Neither I nor II

Q: How does management use financial ratios and what do they measure?

Q: Given the following information, calculate the return on equity for Huffin Puffin Muffin Bakeries, Inc.:Net Profit margin = 5%Total asset turnover = 2Debt ratio = 0.73a. 14%b. 7.3%c. 37%d. 21%

Q: Greg is interested in investing in a small company, and he thinks Allen, Co. might be a good investment. He has been given the following information and would like to know the return on stockholder's equity. Assume Allen's marginal tax rate is 40%. Earning before taxes $3 million Net profit margin 3.6% Total liabilities $15.0 million Total stockholder's equity $10.0 million a. 12% b. 20% c. 15% d. 18%

Q: If the Foggy Future Company has a net profit margin of 10% and its inventory turnover is 9, what is its annual cost of sales? You also know that Foggy Future's average inventory is $96,700 and its annual sales are $1,000,000. a. $870,000 b. $850,000 c. $870,300 d. $790,000

Q: Your current assets consist of cash, accounts receivable, and inventory. Total current liabilities equal $200,000. The average collection period is 20 days on average daily credit sales of $2,500. The current ratio is 1.3 and the quick ratio is 0.625. What is the balance in the cash account? a. $ 75,000 b. $ 65,000 c. $135,000 d. $ 50,000

Q: What is the net profit margin for TJX Inc. if the current ratio = 2; total asset turnover =1.5; totalassets=$100,000; and EBIT = $30,000? Assume the marginal tax rate for TJX is 40% and that interest expenses are $10,000. a. 20% b. 8% c. 12% d. 6%

Q: Given the following information, determine Taylor Company's cash balance.Sales = $10,000,000 (all on credit)Current ratio = 3.0Current liabilities = $800,000Average collection period = 36.5 days (Assume 365 days/year)Quick ratio = 1.50Current assets = cash + accounts receivable + inventorya. $200,000b. $1,400,000c. $2,400,000d. none of the above

Q: Given the following information, determine Salem Company's fixed assets. Sales = $10,000,000 Total asset turnover = 4 times Current ratio = 2.40 Current liabilities = $500,000 Total assets = current assets + fixed assets a. $1,200,000 b. $4,800,000 c. $1,300,000 d. Cannot be determined

Q: AK, Inc. is considering issuing additional long-term debt to finance an expansion. The company currently has $20 million in 5% debt outstanding. Its earnings after-tax (EAT) are $3.0 million, and its marginal and average tax rate is 40 percent. The company is required by the debt holders to maintain its times interest earned ratio at 3.0 or greater. How much additional 10 percent debt can the company issue now and maintain its times interest earned ratio at 3.0? Assume for this calculation that earnings before interest and taxes remains at its present level. a. $10 million b. $ 6 million c. $ 1 million d. None of these are correct

Q: Determine the cost of sales for a firm with the following financial ratios and data: Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times a. $2,000,000 b. $6,000,000 c. $3,000,000 d. $1,000,000

Q: What is Babcock's times interest earned, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent. a. 2.65 b. 1.1 c. 2.1 d. 1.2

Q: If Power-On has a total asset turnover of 1.8, a fixed asset turnover of 3.2, a debt ratio of 0.5 and a total debt of $200,000, then fixed assets are a. $56,250 b. $711,111 c. $225,000 d. $720,000

Q: What is the market price per share of Budget Busters, Inc. if the firm had net income of $200,000, earnings per share of $2.70, total equity of $800,000, and a market to book ratio of 1.5? a. $16.20 b. $10.80 c. $7.20 d. $12.30

Q: How much cash and marketable securities does Gray Computer Co. have if the firm has a current ratio of 2.5, a quick ratio of 1.2, and current liabilities of $12,000. Gray's credit sales are $98,000 and its average collection period is 40 days? (Assume 365 days per year.) a. $3,660 b. $14,440 c. $10,740 d. $15,600

Q: If a firm has interest expenses of $10,000 per year, sales of $700,000, a tax rate of 40%, and a net profit margin of 7%, what is the firm's times interest earned ratio? a. 8.17 b. 4.90 c. 13.25 d. 9.17

Q: Wilson Manufacturing Company is considering the issuance of additional long-term debt to finance expansion. At the present time the company has $160 million of 10% debentures outstanding. Its after-tax net income is $48 million, and the company's (marginal) income tax rate is 40%. The company is required by the debenture holders to maintain its coverage ratio at 4.0 or greater. Determine Wilson's present coverage ratio. a. 3.33 b. 2.78 c. 5.00 d. 6.00

Q: A firm's price to earnings ratio is 8, and its market to book ratio is 2. If its earnings per share are $4.00, what is the book value per share? a. $ 8.00 b. $32.00 c. $64.00 d. $16.00

Q: A firm's current ratio is 1.5, and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?a. $ 5,000b. $10,000c. $15,000d. $12,500

Q: If a firm has a total asset turnover of 8 times and a return on total assets of 15%, its net profit margin must be a. 1.875% b. 1.95% c. 2.05% d. 1.5%

Q: What is the cost of sales for a firm with a gross profit margin of 30 percent, a net profit margin of 4 percent, and earnings after taxes of $20,000? a. $200,000 b. $350,000 c. $150,000 d. $500,000

Q: What is the return on stockholders' equity for a firm with a net profit margin of 5.2 percent, sales of $620,000, an equity multiplier of 1.8, and total assets of $380,000? a. 8.48% b. 5.74% c. 15.27% d. 9.36%

Q: What is the return on investment for a firm that has a debt ratio of 0.65, a net profit margin of 6.5%, sales of $740,000, and a total asset turnover of 4? a. 26.0% b. 16.9% c. 6.5% d. 26.5%

Q: What is the market price of a share of stock for a firm that pays dividends of $1.20 per share, has a P/E of 14, and a dividend payout ratio of 0.4? a. $16.80 b. $42 c. $3 d. $28

Q: A firm with a debt ratio of 0.75, will have an equity multiplier of a. 0.25 b. 1.00 c. 0.75 d. 4.00

Q: A firm with an equity multiplier of 4.0, will have a debt ratio of a. 0.25 b. 1.00 c. 0.75 d. 4.00

Q: Given the following information, calculate the inventory for J&C videos: Quick ratio = 1.2; Current assets = $12,000; Current ratio = 2.5 a. $4,800 b. $6,240 c. $7,200 d. $5,660

Q: CVD, Inc. has a debt ratio of 50%, and an equity multiplier of 2. What is CVD's stockholders' equity if total debt is $100,000? a. $100,000 b. $150,000 c. $200,000 d. $50,000

Q: Although ratios can provide valuable information, they can also be misleading for the following reason(s): a. ratios are only as reliable as the accounting data on which they are based. b. compilation of industry norms often do not report information about the distribution of values. c. comparative analysis depends on the availability of data for appropriately defined industries. d. all of these are correct.

Q: To increase the return on stockholders' equity, management could increase the ____. a. current ratio b. price-to-earnings ratio c. dividend yield d. equity multiplier

Q: Stocks with ____ dividend yield often indicate ____ expected future growth. a. high, high b. low, low c. low, high d. high, low

Q: Firms with ____ growth rates would be expected to have ____ payout ratios. a. high, low b. high, high c. low, low d. low, high

Q: The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends. a. dividend yield b. payout c. return on earnings d. earnings

Q: Firms with a positive economic value added (EVA): a. have increasing growth in earnings b. have an increasing rate of return on investment c. have a return on capital greater than their cost of capital d. have a high return on book value

Q: Economic value added (EVA) is a measure of operating performance that indicates how successful a firm has been at: a. increasing the growth in earnings b. increasing the MVA of the enterprise in any given year c. increasing the rate of return on investment d. all of these are correct

Q: The Market Value Added (MVA) is the ____. a. indicator of how successful a firm has been at increasing its financing its assets b. return on total capital minus cost of capital c. indication of an increase in operating efficiency d. positively related to the present value of all expected future EVA

Q: The analysis of the financial performance and condition of a firm with sizable international operations is generally more complicated than analyzing a firm whose operations are largely domestic for all of the following reasons except: a. problems with the translation of foreign operating results b. problems with definition of capital c. fluctuating exchange rates d. all of these are correct reasons

Q: If a firm's price to earnings (P/E) ratio is 10, a. it is not possible for it to be paying dividends also b. its market to book ratio has to be at least 2.0 c. its net profit margin is positive d. its return on stockholders' equity is negative

Q: If a firm's return on investment, i.e., earnings after taxes divided by total assets, is 7%, and the firm has no preferred stock financing, a. it is possible that its return on stockholders' equity is 10% b. it is possible that its return on stockholders' equity is 5% c. it is not possible for its debt-to-equity ratio to be 1.0 d. it is not possible for its net profit margin to be 7%

Q: If a firm's total asset turnover ratio is 2.0, a. its annual sales are less than its total assets b. it is possible that its fixed asset turnover ratio is 1.5 c. its total assets are two times its annual sales d. its annual sales are two times its total assets

Q: If a firm's current ratio is 1.5, a. its current liabilities exceed its current assets b. it is possible for its quick ratio to be 2.0 c. it is possible for its quick ratio to be 1.0 d. its current assets equal its current liabilities

Q: The ____ ratio is a more severe measure of a firm's ability to meet fixed financial obligations than is the times interest earned ratio. a. acid test b. debt c. fixed charge coverage d. debt to equity

Q: The fixed charge coverage ratio includes all of the following except____ in the denominator. a. lease payments b. preferred dividends before tax c. before tax sinking fund d. common stock dividends

Q: When considering the quality of a firm's earnings, high quality earnings tend to be ____. a. cash earnings b. earnings derived from regularly recurring transactions c. cash earnings and earnings derived from regularly recurring transactions d. none of these answers are correct

Q: Return on stockholders' equity is equal to ____ times ____ times ____. a. net profit margin; fixed asset turnover; equity multiplier ratio b. gross profit margin; total asset turnover; equity multiplier ratio c. net profit margin; total asset turnover; equity multiplier ratio d. net profit margin; total asset turnover; debt-to-equity ratio

Q: The ____ ratio, sometimes called the "acid test," is a more stringent measure of ____ than the current ratio. a. quick; liquidity b. fixed-asset turnover; activity c. net profit margin; gross profit margin d. none of these answers are correct

Q: A common-size income statement shows the firm's income and expense items as a percentage of ____. a. stockholders' equity b. net sales c. industry averages d. total assets

Q: A common-size balance sheet shows the firm's assets and liabilities as a percentage of ____. a. stockholders' equity b. industry averages c. total assets d. net sales

Q: ____ ratios indicate how efficiently a firm is using its assets to generate sales. a. Liquidity b. Asset management c. Financial leverage d. none of these answers are correct

Q: Financial leverage ratios measure the a. amount of interest paid by the firm b. firm's use of fixed-charge financing c. amount of equity funds retired by the firm d. static ratio

Q: The major types of financial ratios include all of the following except a. market-based b. liquidity c. financial leverage d. equity

Q: Christy would like to improve the current ratio of her firm, which is now 0.5, so that she will have a better chance of obtaining a working capital loan. Which of the following options would improve her current ratio? a. use cash to pay off notes payable b. collect some of her accounts receivables c. purchase additional inventory on credit d. borrow short-term funds to pay off some payables

Q: Asset management ratios indicate a. how well a firm is using its assets to support sales b. how efficiently a firm is allocating its liabilities c. the return on assets d. the profitability of the firm

Q: An increase in the average collection period may suggest all of the following except a. easing of credit terms b. customers are not paying their bills on time c. sales have decreased d. firm could have a liquidity problem in the future

Q: The analysis of financial statements is affected by inflation because a. the value of long-term debt will increase b. the value of fixed assets may be understated c. the life of long-term assets are decreased d. inventory increases

Q: The quality of a firm's balance sheet may be reduced by a. uninsured losses arising from pending lawsuits b. large amounts of obsolete inventory c. having equipment whose book value is greater than its market value d. All of these answers are correct.

Q: In general, firms with ____ risk and ____ earnings growth prospects will have higher P/E multiples. a. low, low b. high, low c. low, high d. high, high

Q: Which of the following ratios would probably notbe used to assess the profitability of a firm? a. return on stockholders' equity b. return on total assets c. times interest earned d. return on stockholders' equity, and total assets

Q: The ratio group most likely to be used to indicate a firm's ability to meet short-term financial obligations would be a. liquidity ratios b. financial leverage ratios c. activity ratios d. profitability ratios

Q: A fresh fruit wholesaler would normally be expected to have a. high profit margin and high asset turnover b. low profit margin and low asset turnover c. low profit margin and high asset turnover d. high profit margin and low asset turnover

Q: If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must a. decrease its equity multiplier b. increase its equity multiplier c. increase sales and increase assets d. reduce sales and increase assets

Q: Which of the following policies is (are) consistent with an increase in a firm's return on total assets? a. costs increase more than revenues b. the firm's net working capital (current assets minus current liabilities) position declines c. the firm sells off some unused assets and pays the proceeds to existing stockholders in the form of an extra dividend d. net working capital position declines, and he firm sells off some unused assets to provide an extra dividend

Q: The current ratio would normally be increased by a. paying off some current liabilities with cash b. selling bonds and investing the proceeds in marketable securities c. buying treasury stock d. paying off some current liabilities with cash, and selling bonds and investing the proceeds in marketable securities

Q: Which ratio is frequently used in conjunction with the analysis of a bond's quality? a. times interest earned b. deferred liability ratio c. receivables turnover d. dividend coverage ratio

Q: The retained earnings figure represents a. a pool of cash readily available to the firm and its stockholders b. an accounting of that portion of a firm's assets that were financed from past earnings c. a permanent part of the firm's equity base d. a deferred liability owed to preferred stockholders

Q: The earnings per share figure a. is a comparative ratio b. is the best measure of a firm's profitability c. can only be computed if a firm has no debt d. None of these answers are correct.

Q: Financial ratios can be used to analyze a firm's performance from a. day to day b. period to period c. purchase to purchase d. sale to sale

Q: In an inflationary period, a firm is likely to show temporary profit increases because a. accounts receivable collections increase b. cash balances decline c. inventory profits are realized d. all of these are correct

Q: The data from ____ is especially useful when analyzing small firms. a. Prentice-Hall b. Robert Morris Associates c. Dan Bradbury Ltd. d. Securities and Exchange Commission