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FIN LS CH3
Terms in this set (54)
True or False: A good working knowledge of financial statements is desirable because such statements are the primary means of communication financial information both within and outside the firm.
Although ___ ___ are often poor reflections of reality, they are often the best information available.
At the most fundamental level, firms generate cash and:
Which of the following are sources of cash? (Check all that apply.)
an increase in notes payable
a decrease in accounts receivable
Common-size statements are used for comparing firms with differing _________.
Alpha has assets of $102 million, net income of $4.3 million, and total sales of $97 million. Omega has assets of $12.4 million, net income of $0.76 million, and total sales of $9.3 million. Based on common-size income statements, which company is more profitable?
A common-size balance sheet expresses accounts as a percentage of _________.
An important accounting goal is to report financial information to users in a way that is useful for _______.
Alpha Manufacturing has interest expense of $1.2 million, total assets of $184 million, sales of $17.6 million, long-term debt of $16.4 million, and net income of $15 million. How will interest expense be recorded in the common-size income statement?
Which of the following are traditional financial ratio categories?
Market value ratios,
Asset management ratio,
The current ratio shows the relationship between ________.
current assets and current liabilities
BT Tools has current assets totaling $9.2 million, including $4.3 million in inventory. The company's current liabilities total $8.1 million. What is the quick ratio?
The cash ratio is found by dividing cash by:
Assume current assets = $48; fixed assets = $125, current liabilities = $42, and equity = $100. What is the total debt ratio?
Total capitalization equals total equity plus total:
Which of the following is the correct representation of the cash coverage ratio?
(EBIT + non-cash expenses)/Interest expense
BC Corporation had sales of $1,000,000 and costs of goods sold of $450,000 for the year. Inventory at year end was $180,000. What is the inventory turnover?
What is the impact on the total turnover ratio if sales increase significantly while there is no change in any of the other varaibles?
The total asset turnover ratio will increase.
Better Life Inc. had net income of $375,000 on sales of $3.5 million and assets of $4.1 million this year. What is the profit margin?
Return on equity (ROE) is a measure of _______.
Nestor's has net income of $315,000, total sales of $3.52 million, total assets of $4.4 million, and total equity of $1.98 million. What is the return on equity?
How is the price-earnings (PE) ratio computed?
market price per share/earnings per share
Vera's has earnings per share of $3 and dividends per share of $1.20. The stock sells for $30 a share. What is the PE ratio?
BK Trucking has total equity of $25,380 and 1,500 shares outstanding. Its stock is currently selling at $38 dollars per share. What is the market-to-book ratio?
The EBITDA ratio is similar in spirit to:
Which of the following are uses of cash? (Check all that apply.)
Increases in property, plant and equipment; Decreases in accounts payable; Increases in inventory.
AD Corporation has a return on equity of 20% on total equity of $800,000. AD generated of $1.6 million in sales on $2.7 million in assets. Use the DuPont Identity to match each of the values below to its proper component.
Profit Margin= 20%/(1.6/0.8) = 10%
ROA = 20%/(2.7/0.8) = 5.93%
Equity Multiplier = 2.7/0.8=3.38 times
Which two of the following groups are most interested in liquidity ratios?
Bankers and Suppliers
The inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times respectively. Explaining the upward trend in the inventory turnover ratio requires:
Alder Inc. has net income of $403,000, operating earnings of $640,000, sales of $1.23 million, and total assets of $1.48 million. What is the return on assets?
Whenever ___ information is available, it should be used instead of accounting data.
Which three of the following are most apt to create problems when comparing financial statements for multiple firms?
Differing fiscal years; differing accounting methods; and seasonality
If sales increase while there is no change in accounts receivable, the receivables turnover ratio will _______.
Assume current assets = $11,300; long-term liabilities = $45,000; and total debt = $54,800. What is the current ratio?
The profit margin is equal to net income divided by _______.
How is market-to-book ratio measured?
market value per share/book value per share
A firm has an operating profit (EBIT) of $600 on sales of $1,000. Interest expense is $250 and taxes are $120. What is the times interest earned ratio?
Better Life Corporation has sales of $500,000 on assets of $2,000,000. At year end accounts receivable were still 5% of assets. The firm's receivable turnover is ___ times.
How are firms classified into peer groups for ratio analysis?
According to Standard Industrial Classification codes
If Marley Company has a stock price of $12 per share, 100,000 shares outstanding, $432,000 in liabilities and $100,000 in cash, what is its enterprise value?
______ ______ are the prime source of information about a firm's financial health.
A(n) ______ in net profit margin will increase ROE.
One of the most important uses of financial statement information within the firm is:
What is the debt-equity ratio for a company with $3.5 million in total assets and $1.4 million in equity?
Total Debt = Assets-Equity
Debt/Equity = (2.1/1.4)
When the typical stock in the S&P 500 Index has a PE ratio 12, a company with a PE ratio of 15 may have ______ than average growth prospects, given similar earnings per share.
When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the:
Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent while current liabilities have decreased from 29 to 25%. This indicates the firm has increased its ______.
The _____ identity can help to explain why two firms with the same return on equity may not be operating in the same way.
If a company's common-size income statement shows a lower percentage for cost of goods sold this period compared to last period, the company may be controlling its costs well or it has ____.
raised its prices relative to costs
Which one of the following is the correct equation for computing return on assets (ROA)?
Net income/Total assets
What does a current ratio of 1.2 mean?
The firm has $1.20 in current assets for every $1 in current liabilities.
A firm has a total debt ratio of 0.30 times. This means the firm has ____ in total debt for every $1 in total assets.
A firm with a profit margin of 6.8 percent generates ______ cents in net income for every one dollar in sales.
What is the main difference between the cash coverage ratio and the times interest earned ratio?
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