CHAPTER 3

Working with Financial Statements

I. DEFINITIONS ............................................................................................................ 1 II. CONCEPTS ................................................................................................................ 8 III. PROBLEMS ........................................................................................................ 16

I. DEFINITIONS

SOURCES OF CASH a 1. Activities of the firm that generate cash are known as: a. sources of cash. b. uses of cash. c. cash payments. d. cash receipts. e. cash on hand. USES OF CASH b 2. Activities of the firm in which cash is spent are known as: a. sources of cash. b. uses of cash. c. cash payments. d. cash receipts. e. cash on hand. STATEMENT OF CASH FLOWS d 3. The financial statement that summarizes the sources and uses of cash over a specified period of time is the: a. income statement. b. balance sheet. c. tax reconciliation statement. d. statement of cash flows. e. statement of operating position. COMMON-SIZE STATEMENTS e 4. A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively. a. tax reconciliation statement b. statement of standardization c. statement of cash flows d. common-base year statement e. common-size statement COMMON-BASE YEAR STATEMENTS c 5. A _____ standardizes items on the income statement and balance sheet relative to their values as of a common point in time. a. statement of standardization b. statement of cash flows c. common-base year statement

CHAPTER 3 d. e. common-size statement tax reconciliation statement

FINANCIAL RATIOS a 6. Relationships determined from a firms financial information and used for comparison purposes are known as: a. financial ratios. b. comparison statements. c. dimensional analysis. d. scenario analysis. e. solvency analysis. SHORT-TERM SOLVENCY RATIOS c 7. Financial ratios that measure a firms ability to pay its bills over the short run without undue stress are known as _____ ratios. a. asset management b. long-term solvency c. short-term solvency d. profitability e. market value CURRENT RATIO b 8. The current ratio is measured as: a. current assets minus current liabilities. b. current assets divided by current liabilities. c. current liabilities minus inventory, divided by current assets. d. cash on hand divided by current liabilities. e. current liabilities divided by current assets. QUICK RATIO d 9. The quick ratio is measured as: a. current assets divided by current liabilities. b. cash on hand plus current liabilities, divided by current assets. c. current liabilities divided by current assets, plus inventory. d. current assets minus inventory, divided by current liabilities. e. current assets minus inventory minus current liabilities. CASH RATIO e 10. The cash ratio is measured as: a. current assets divided by current liabilities. b. current assets minus cash on hand, divided by current liabilities. c. current liabilities plus current assets, divided by cash on hand. d. cash on hand plus inventory, divided by current liabilities. e. cash on hand divided by current liabilities.

CHAPTER 3 INTERVAL MEASURE d 11. The financial ratio measured as current assets divided by average daily operating costs is the: a. cash ratio. b. net working capital to total assets ratio. c. acid-test ratio. d. interval measure. e. operating measure. LONG-TERM SOLVENCY RATIOS b 12. Ratios that measure a firms financial leverage are known as _____ ratios. a. asset management b. long-term solvency c. short-term solvency d. profitability e. market value TOTAL DEBT RATIO a 13. The financial ratio measured as total assets minus total equity, divided by total assets, is the: a. total debt ratio. b. equity multiplier. c. debt-equity ratio. d. current ratio. e. times interest earned ratio. DEBT-EQUITY RATIO c 14. The debt-equity ratio is measured as total: a. equity minus total debt. b. equity divided by total debt. c. debt divided by total equity. d. debt plus total equity. e. debt minus total assets, divided by total equity. EQUITY MULTIPLIER e 15. The equity multiplier ratio is measured as total: a. equity divided by total assets. b. equity plus total debt. c. assets minus total equity, divided by total assets. d. assets plus total equity, divided by total debt. e. assets divided by total equity.

CHAPTER 3 TOTAL CAPITALIZATION b 16. The total long-term debt and equity of the firm is frequently called: a. total assets. b. total capitalization. c. total financing. d. debt-equity consolidation. e. debt-equity reconciliation. LONG-TERM DEBT RATIO d 17. The financial ratio measured as the firms long-term debt divided by its total capitalization is the: a. interval measure. b. equity multiplier. c. total debt ratio. d. long-term debt ratio. e. debt-equity ratio. TIMES INTEREST EARNED RATIO c 18. The financial ratio measured as earnings before interest and taxes, divided by interest expense is the: a. cash coverage ratio. b. debt-equity ratio. c. times interest earned ratio. d. gross margin. e. total debt ratio. CASH COVERAGE RATIO a 19. The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is the: a. cash coverage ratio. b. debt-equity ratio. c. times interest earned ratio. d. gross margin. e. total debt ratio. ASSET MANAGEMENT RATIOS a 20. Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios. a. asset management b. long-term solvency c. short-term solvency d. profitability e. market value

CHAPTER 3 INVENTORY TURNOVER c 21. The inventory turnover ratio is measured as: a. total sales minus inventory. b. inventory times total sales. c. cost of goods sold divided by inventory. d. inventory times cost of goods sold. e. inventory plus cost of goods sold. DAYS SALES IN INVENTORY e 22. The financial ratio days sales in inventory is measured as: a. inventory turnover plus 365 days. b. inventory times 365 days. c. inventory plus cost of goods sold, divided by 365 days. d. 365 days divided by the inventory. e. 365 days divided by the inventory turnover. RECEIVABLES TURNOVER b 23. The receivables turnover ratio is measured as: a. sales plus accounts receivable. b. sales divided by accounts receivable. c. sales minus accounts receivable, divided by sales. d. accounts receivable times sales. e. accounts receivable divided by sales. DAYS SALES IN RECEIVABLES d 24. The financial ratio days sales in receivables is measured as: a. receivables turnover plus 365 days. b. accounts receivable times 365 days. c. accounts receivable plus sales, divided by 365 days. d. 365 days divided by the receivables turnover. e. 365 days divided by the accounts receivable. NET WORKING CAPITAL TURNOVER a 25. The net working capital turnover ratio is measured as: a. sales divided by net working capital. b. sales minus net working capital. c. sales times net working capital. d. net working capital divided by sales. e. net working capital plus sales.

CHAPTER 3 FIXED ASSET TURNOVER c 26. The fixed asset turnover ratio is measured as: a. sales minus net fixed assets. b. sales times net fixed assets. c. sales divided by net fixed assets. d. net fixed assets divided by sales. e. net fixed assets plus sales. TOTAL ASSET TURNOVER b 27. The total asset turnover ratio is measured as: a. sales minus total assets. b. sales divided by total assets. c. sales times total assets. d. total assets divided by sales. e. total assets plus sales. PROFITABILITY RATIOS d 28. Ratios that measure how efficiently a firms management uses its assets and equity to generate bottom line net income are known as _____ ratios. a. asset management b. long-term solvency c. short-term solvency d. profitability e. market value PROFIT MARGIN a 29. The financial ratio measured as net income divided by sales is known as the firms: a. profit margin. b. return on assets. c. return on equity. d. asset turnover. e. earnings before interest and taxes. RETURN ON ASSETS b 30. The financial ratio measured as net income divided by total assets is known as the firms: a. profit margin. b. return on assets. c. return on equity. d. asset turnover. e. earnings before interest and taxes.

CHAPTER 3 RETURN ON EQUITY c 31. The financial ratio measured as net income divided by total equity is known as the firms: a. profit margin. b. return on assets. c. return on equity. d. asset turnover. e. earnings before interest and taxes. PRICE-EARNINGS RATIO d 32. The financial ratio measured as the price per share of stock divided by earnings per share is known as the: a. return on assets. b. return on equity. c. debt-equity ratio. d. price-earnings ratio. e. Du Pont identity. MARKET-TO-BOOK RATIO e 33. The market-to-book ratio is measured as: a. total equity divided by total assets. b. net income times market price per share of stock. c. net income divided by market price per share of stock. d. market price per share of stock divided by earnings per share. e. market value of equity per share divided by book value of equity per share. DU PONT IDENTITY a 34. The _____ breaks down return on equity into three component parts. a. Du Pont identity b. return on assets c. statement of cash flows d. asset turnover ratio e. equity multiplier SIC CODES c 35. The U.S. government coding system that classifies firms by their specific type of business operations is known as the: a. NASDAQ 100. b. Standard & Poors 500. c. Standard Industrial Classification system. d. governmental ID system. e. Government Engineering Enterprise system.

CHAPTER 3 II. CONCEPTS SOURCES OF CASH a 36. An increase in which one of the following is a source of cash? a. accounts payable b. cash c. inventory d. fixed assets e. accounts receivable SOURCES OF CASH b 37. Which of the following is (are) sources of cash? I. an increase in accounts receivable II. a decrease in common stock III. an increase in long-term debt IV. a decrease in accounts payable a. I only b. III only c. II and IV only d. I and III only e. I, II, and IV only USES OF CASH e 38. Which one of the following is a use of cash? a. payment received from a customer on their account b. sale of inventory c. decrease in the cash balance d. sale of common stock e. payment to a supplier USES OF CASH e 39. Which of the following is (are) uses of cash? I. payment of a note payable II. repurchase of common stock III. granting of credit to a customer IV. sale of a fixed asset a. I only b. IV only c. II and III only d. I and III only e. I, II, and III only STATEMENT OF CASH FLOWS d 40. Which one of the following is found in the financing activity section of a statement of cash flows? a. fixed asset acquisition b. depreciation c. increase in accounts receivable d. dividends paid e. net income

CHAPTER 3 STATEMENT OF CASH FLOWS a 41. According to the statement of cash flows, an increase in accounts receivable will _____ the cash flow from _____ activities. a. decrease; operating b. decrease; financing c. increase; operating d. decrease; financing e. decrease; investment STATEMENT OF CASH FLOWS d 42. Which of the following are types of activities shown on a statement of cash flows? I. investment II. liquidating III. operating IV. financing a. I and III only b. II and IV only c. II, III, and IV only d. I, III, and IV only e. I, II, and III only COMMON-SIZE BALANCE SHEET d 43. On a common-size balance sheet, all _____accounts are shown as a percentage of: a. income; total assets. b. liability; net income. c. asset; sales. d. liability; total assets. e. equity; sales. COMMON-BASE YEAR FINANCIAL STATEMENT a 44. On a common-base year financial statement, all accounts are expressed relative to the base: a. year amount. b. amount of sales. c. amount of total assets. d. net income. e. net cash flow. RATIO ANALYSIS a 45. Which one of the following statements is correct concerning ratio analysis? a. A single ratio is often computed differently by different individuals. b. Ratios do NOT address the problem of size differences among firms. c. There is only a very limited number of ratios which can be used for analytical purposes. d. Each ratio has a specific formula that is used consistently by all analysts. e. Ratios can NOT be used for comparison purposes over periods of time.

CHAPTER 3 LIQUIDITY RATIOS e 46. Which of the following are liquidity ratios? I. interval measure II. current ratio III. quick ratio IV. net working capital to total assets a. II and III only b. I and II only c. II, III, and IV only d. I, III, and IV only e. I, II, III, and IV LIQUIDITY RATIOS c 47. An increase in which one of the following accounts increases a firms current ratio without affecting its quick ratio? a. accounts payable b. cash c. inventory d. accounts receivable e. fixed assets LIQUIDITY RATIOS b 48. A supplier, who requires payment within ten days, is most concerned with which one of the following ratios when granting credit? a. current b. cash c. debt-equity d. quick e. total debt LIQUIDITY RATIOS b 49. A firm has an interval measure of 83. This means that the firm must: a. pay its creditors within the next 83 days or go bankrupt. b. get additional financing within the next 83 days or possibly face closing the firm. c. sell all of its common stock in the next 83 days or become privately owned. d. pay a dividend to its shareholders every 83 days. e. pay interest on its debt every 83 days. LONG-TERM SOLVENCY RATIOS d 50. A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for every: a. $1 in equity. b. $1 in total sales. c. $1 in current assets. d. $.53 in equity. e. $.53 in total assets.

CHAPTER 3 LONG-TERM SOLVENCY RATIOS d 51. The long-term debt ratio is probably of most interest to a firms: a. credit customers. b. employees. c. suppliers. d. mortgage holder. e. shareholders. LONG-TERM SOLVENCY RATIOS e 52. A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _____ and a times interest earned ratio of_____: a. .75; .75. b. .50; 1.00. c. .45; 1.75. d. .40; 2.50. e. .35; 3.00. LONG-TERM SOLVENCY RATIOS b 53. From a cash flow position, which one of the following ratios best measures a firms ability to pay the interest on its debts? a. times interest earned ratio b. cash coverage ratio c. cash ratio d. quick ratio e. interval measure ASSET MANAGEMENT RATIOS a 54. The higher the inventory turnover measure, the: a. faster a firm sells its inventory. b. faster a firm collects payment on its sales. c. longer it takes a firm to sell its inventory. d. greater the amount of inventory held by a firm. e. lesser the amount of inventory held by a firm. ASSET MANAGEMENT RATIOS d 55. Which one of the following statements is correct if a firm has a receivables turnover measure of 10? a. It takes a firm 10 days to collect payment from its customers. b. It takes a firm 36.5 days to sell its inventory and collect the payment from the sale. c. It takes a firm 36.5 days to pay its creditors. d. The firm has an average collection period of 36.5 days. e. The firm has ten times more in accounts receivable than it does in cash. ASSET MANAGEMENT RATIOS d 56. A total asset turnover measure of 1.03 means that a firm has $1.03 in: a. total assets for every $1 in cash. b. total assets for every $1 in total debt. c. total assets for every $1 in equity. d. sales for every $1 in total assets. e. long-term assets for every $1 in short-term assets.

CHAPTER 3 ASSET MANAGEMENT RATIOS e 57. If a firm wishes to increase its net working capital turnover rate, it should _____, all else constant. a. increase its current assets b. increase its total assets c. decrease its current liabilities d. decrease its total liabilities e. increase its sales ASSET MANAGEMENT RATIOS a 58. Bobs Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of .84. Gerolds Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of .96. Both companies have similar operations. Bobs Toys: a. is using its fixed assets more efficiently than Gerolds Toys. b. is using its total assets more efficiently than Gerolds Toys. c. is generating $1 in sales for every $1.20 in net fixed assets. d. is generating $1.20 in net income for every $1 in net fixed assets. e. has $.84 in total assets for every $.96 Gerolds has in total assets. PROFITABILITY RATIOS c 59. Puffys Pastries generates five cents of net income for every $1 in sales. Thus, Puffys has a _____ of 5 percent. a. return on assets b. return on equity c. profit margin d. Du Pont measure e. total asset turnover PROFITABILITY RATIOS a 60. If a firm produces a 10 percent return on assets and also a 10 percent return on equity, then the firm: a. has no debt of any kind. b. is using its assets as efficiently as possible. c. has no net working capital. d. also has a current ratio of 10. e. has an equity multiplier of 2. PROFITABILITY RATIOS c 61. If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the: a. profit margin. b. return on assets. c. return on equity. d. equity multiplier. e. earnings per share.

CHAPTER 3 PROFITABILITY RATIOS a 62. BGL Enterprises increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the: a. return on equity will increase. b. return on assets will decrease. c. profit margin will decline. d. equity multiplier will decrease. e. price-earnings ratio will increase. PROFITABILITY RATIOS d 63. The only difference between Joes and Moes is that Joes has old, fully depreciated equipment. Moes just purchased all new equipment which will be depreciated over eight years. Assuming all else equal: a. Joes will have a lower profit margin. b. Joes will have a lower return on equity. c. Moes will have a higher net income. d. Moes will have a lower profit margin. e. Moes will have a higher return on assets. MARKET VALUE RATIOS e 64. Last year, Alfreds Automotive had a price-earnings ratio of 15. This year, the price earnings ratio is 18. Based on this information, it can be stated with certainty that: a. the price per share increased. b. the earnings per share decreased. c. investors are paying a higher price for each share of stock purchased. d. investors are receiving a higher rate of return this year. e. either the price per share, the earnings per share, or both changed. MARKET VALUE RATIO b 65. Turners Inc. has a price-earnings ratio of 16. Alfreds Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfreds: a. has a higher market price than one share of stock in Turners. b. has a higher market price per dollar of earnings than does one share of Turners. c. sells at a lower price per share than one share of Turners. d. represents a larger percentage of firm ownership than does one share of Turners stock. e. earns a greater profit per share than does one share of Turners stock. MARKET VALUE RATIOS b 66. Which two of the following are most apt to cause a firm to have a higher price-earnings ratio? I. slow industry outlook II. high prospect of firm growth III. very low current earnings IV. investors with a low opinion of the firm a. I and II only b. II and III only c. II and IV only d. I and III only e. III and IV only MARKET VALUE RATIOS

CHAPTER 3 d 67. Vinnies Motors has a market-to-book ratio of 3. The book value per share is $4.00. This means that a $1 increase in the book value per share will: a. cause the accountants to increase the equity of the firm by an additional $2. b. increase the market price per share by $1. c. increase the market price per share by $12. d. tend to cause the market price per share to rise. e. only affect book values but not market values.

MARKET VALUE RATIOS d 68. Which one of the following sets of ratios applies most directly to shareholders? a. return on assets and profit margin b. quick ratio and times interest earned c. price-earnings ratio and debt-equity ratio d. market-to-book ratio and price-earnings ratio e. and times equity multiplier DU PONT IDENTITY

69. I. II. III. IV. a. b. c. d. e. 70. a. b. c. d. e. 71. a. b. c. d. e.

The three parts of the Du Pont identity can be generally described as: operating efficiency, asset use efficiency and firm profitability. financial leverage, operating efficiency and asset use efficiency. the equity multiplier, the profit margin and the total asset turnover. the debt-equity ratio, the capital intensity ratio and the profit margin. I and II only II and III only I and IV only I and III only III and IV only If a firm decreases their operating costs, all else constant, then: the profit margin increases while the equity multiplier decreases. the return on assets increases while the return on equity decreases. the total asset turnover rate decreases while the profit margin increases. both the profit margin and the equity multiplier increase. both the return on assets and the return on equity increase. Which one of the following statements is correct? Book values should always be given precedence over market values. Financial statements are frequently the basis used for performance evaluations. Historical information has no value when predicting the future. Potential lenders place little value on financial statement information. Reviewing financial information over time has very limited value.

DU PONT IDENTITY

EVALUATING FINANCIAL STATEMENTS

CHAPTER 3 EVALUATING FINANCIAL STATEMENTS c 72. It is easier to evaluate a firm using their financial statements when the firm: a. is a conglomerate. b. is global in nature. c. uses the same accounting procedures as other firms in their industry. d. has a different fiscal year than other firms in their industry. e. tends to have one-time events such as asset sales and property acquisitions. EVALUATING FINANCIAL STATEMENTS a 73. Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm? I. comparing the current financial ratios to those of the same firm from prior time periods II. comparing a firms financial ratios to those of other firms in the firms peer group who have similar operations III. comparing the financial statements of the firm to the financial statements of similar firms operating in other countries IV. comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic area a. I and II only b. II and III only c. III and IV only d. I and IV only e. I and III only EVALUATING FINANCIAL STATEMENTS e 74. Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods for inventory purposes. IV. The two firms may be seasonal in nature and have different fiscal year ends. a. I and II only b. II and III only c. I, III, and IV only d. I, II, and III only e. I, II, III, and IV

CHAPTER 3 III. PROBLEMS 75 and 77 are obligatory SOURCES AND USES OF CASH d 75. Last year Tys Grocery had inventory of $237,500 and fixed assets of $51,400. This year, Tys has inventory of $231,900 and fixed assets of $48,700. Depreciation for this year is $6,300. Which one of the following statements is true given this information? a. Both inventory and fixed assets are uses of cash in the amounts of $5,600 and $3,600, respectively. b. Both inventory and fixed assets are uses of cash in the amounts of $5,600 and $2,700, respectively. c. Inventory is a source of cash in the amount of $5,600 and fixed assets is a use of cash in the amount of $2,700. d. Inventory is a source of cash in the amount of $5,600 and fixed assets is a use of cash in the amount of $3,600. e. Both inventory and fixed assets are sources of cash in the amounts of $5,600 and $3,600 respectively. SOURCES AND USES OF CASH b 76. During the year, Dougs Bakery decreased their accounts receivable by $50, increased their inventory by $100, and decreased their accounts payable by $50. For these three accounts, the firm has a net: a. $200 use of cash. b. $100 use of cash. c. $0 use of cash. d. $100 source of cash. e. $200 source of cash. SOURCES AND USES OF CASH c 77. A firm generates net income of $530. The depreciation expense is $60 and dividends paid are $80. Accounts payable decrease by $40, accounts receivable decrease by $30, inventory increases by $20, and net fixed assets decrease by $40. What is the net cash from operating activity? a. $480 b. $530 c. $560 d. $580 e. $600 COMMON-SIZE STATEMENTS b 78. A firm has sales of $1,200, net income of $200, net fixed assets of $500, and current assets of $300. The firm has $100 in inventory. What is the common-size statement value of inventory? a. 8.3 percent b. 12.5 percent c. 20.0 percent d. 33.3 percent e. 50.0 percent

CHAPTER 3 COMMON-SIZE STATEMENTS a 79. A firm has sales of $1,500, net income of $100, total assets of $1,000, and total equity of $700. Interest expense is $50. What is the common-size statement value of the interest expense? a. 3.3 percent b. 5.0 percent c. 7.1 percent d. 16.7 percent e. 50.0 percent COMMON-BASE YEAR STATEMENTS e 80. Last year, which is used as the base year, a firm had cash of $60, accounts receivable of $100, inventory of $200, and fixed assets of $500. This year the firm has cash of $50, accounts receivable of $150, inventory of $250, and fixed assets of $550. What is the common-base year value of accounts receivable? a. .12 b. .15 c. .67 d. 1.16 e. 1.50 LIQUIDITY RATIOS b 81. Jessicas Boutique has cash of $50, accounts receivable of $60, accounts payable of $200, and inventory of $150. What is the value of the quick ratio? a. .30 b. .55 c. .77 d. 1.30 e. 1.82 LIQUIDITY RATIOS a 82. Sing Lees has accounts payable of $300, inventory of $250, cash of $50, fixed assets of $500, accounts receivable of $200, and long-term debt of $400. What is the value of the net working capital to total assets ratio? a. .20 b. .33 c. .40 d. .50 e. .67 LIQUIDITY RATIOS a 83. A firm has total assets of $2,640 and net fixed assets of $1,500. The average daily operating costs are $170. What is the value of the interval measure? a. 6.71 b. 8.82 c. 11.03 d. 13.33 e. 15.53

CHAPTER 3 LONG-TERM SOLVENCY RATIOS a 84. A firm has a debt-equity ratio of .40. What is the total debt ratio? a. .29 b. .33 c. .67 d. 1.40 e. 1.50 LONG-TERM SOLVENCY RATIOS e 85. A firm has total debt of $1,200 and a debt-equity ratio of .30. What is the value of the total assets? a. $1,560 b. $3,000 c. $3,600 d. $4,000 e. $5,200 LONG-TERM SOLVENCY RATIOS d 86. A firm has sales of $3,600, costs of $2,800, interest paid of $100, and depreciation of $400. The tax rate is 34 percent. What is the value of the cash coverage ratio? a. 2 b. 4 c. 6 d. 8 e. 10 LONG-TERM SOLVENCY RATIOS d 87. Rositas Resources paid $250 in interest and $130 in dividends last year. The times interest earned ratio is 3.8 and the depreciation expense is $60. What is the value of the cash coverage ratio? a. 2.40 b. 3.52 c. 3.80 d. 4.04 e. 4.28 ASSET MANAGEMENT RATIOS c 88. Marios Home Systems has sales of $2,800, costs of goods sold of $2,100, inventory of $500, and accounts receivable of $400. How many days, on average, does it take Marios to sell their inventory? a. 65.2 days b. 85.2 days c. 86.9 days d. 96.9 days e. 117.3 days

CHAPTER 3 ASSET MANAGEMENT RATIOS d 89. Syeds Industries has accounts receivable of $700, inventory of $1,200, sales of $4,200, and cost of goods sold of $3,400. How long does it take Syeds to both sell their inventory and then collect the payment on the sale? a. 128 days b. 146 days c. 163 days d. 190 days e. 211 days ASSET MANAGEMENT RATIOS b 90. A firm has net working capital of $400, net fixed assets of $2,400, sales of $6,000, and current liabilities of $800. How many dollars worth of sales are generated from every $1 in total assets? a. $1.33 b. $1.67 c. $1.88 d. $2.33 e. $2.50 ASSET MANAGEMENT RATIOS d 91. Fredas, Inc. has sales of $3,200, current liabilities of $900, total assets of $3,000, and net working capital of $500. How many dollars worth of sales are generated from every $1 in net fixed assets? a. $.91 b. $1.07 c. $1.67 d. $2.00 e. $2.29 PROFITABILITY RATIOS b 92. Rositas Restaurante has sales of $4,500, total debt of $1,300, total equity of $2,400, and a profit margin of 5 percent. What is the return on assets? a. 5.00 percent b. 6.08 percent c. 7.39 percent d. 9.38 percent e. 17.31 percent PROFITABILITY RATIOS c 93. Lee Suns has sales of $3,000, total assets of $2,500, and a profit margin of 5 percent. The firm has a total debt ratio of 40 percent. What is the return on equity? a. 6 percent b. 8 percent c. 10 percent d. 12 percent e. 15 percent

CHAPTER 3 MARKET VALUE RATIOS d 94. Jupiter Explorers has $6,400 in sales. The profit margin is 4 percent. There are 6,400 shares of stock outstanding. The market price per share is $1.20. What is the priceearnings ratio? a. 13 b. 14 c. 21 d. 30 e. 48 MARKET VALUE RATIOS c 95. Pattis has net income of $1,800, a price-earnings ratio of 12, and earnings per share of $1.20. How many shares of stock are outstanding? a. 1,200 b. 1,400 c. 1,500 d. 1,600 e. 1,800 MARKET VALUE RATIOS d 96. A firm has 5,000 shares of stock outstanding, sales of $6,000, net income of $800, a price-earnings ratio of 10, and a book value per share of $.50. What is the market-tobook ratio? a. 1.6 b. 2.4 c. 3.0 d. 3.2 e. 3.6 DU PONT IDENTITY c 97. Fredericos has a profit margin of 6 percent, a return on assets of 8 percent, and an equity multiplier of 1.4. What is the return on equity? a. 6.7 percent b. 8.4 percent c. 11.2 percent d. 14.6 percent e. 19.6 percent DU PONT IDENTITY d 98. Samuelsons has a debt-equity ratio of 40 percent, sales of $8,000, net income of $600, and total debt of $2,400. What is the return on equity? a. 6.25 percent b. 7.50 percent c. 9.75 percent d. 10.00 percent e. 11.25 percent

CHAPTER 3 DU PONT IDENTITY a 99. A firm has a return on equity of 15 percent. The debt-equity ratio is 50 percent. The total asset turnover is 1.25 and the profit margin is 8 percent. The total equity is $3,200. What is the amount of the net income? a. $480 b. $500 c. $540 d. $600 e. $620

The following balance sheet and income statement should be used for questions #100 through #110:
Windswept, Inc. 2005 Income Statement ($ in millions) Net sales Less: Cost of goods sold Less: Depreciation Earnings before interest and taxes Less: Interest paid Taxable Income Less: Taxes Net income Windswept, Inc. 2004 and 2005 Balance Sheets ($ in millions) 2004 2005 $ 120 $ 140 930 780 1,480 1,520 $2,530 $2,440 3,150 3,600 $5,680 $6,040 2004 2005 $1,110 $1,120 840 1,210 3,200 3,000 530 710 $5,680 $6,040 $8,450 7,240 400 810 70 $ 740 259 $ 481

Cash Accounts rec. Inventory Total Net fixed assets Total assets

Accounts payable Long-term debt Common stock Retained earnings Total liabilities & equity

LIQUIDITY RATIOS a 100. What is the quick ratio for 2005? a. .82 b. .95 c. 1.36 d. 2.18 e. 2.28

CHAPTER 3 ASSET MANAGEMENT RATIOS b 101. What is the days sales in receivables? (use 2005 values) a. 31.8 days b. 33.7 days c. 38.4 days d. 41.9 days e. 47.4 days ASSET MANAGEMENT RATIOS d 102. What is the fixed asset turnover? (use 2005 values) a. 1.4 b. 1.7 c. 2.1 d. 2.3 e. 2.6 FINANCIAL LEVERAGE RATIOS a 103. What is the equity multiplier for 2005? a. 1.6 b. 1.8 c. 2.0 d. 2.3 e. 2.5 FINANCIAL LEVERAGE RATIOS d 104. What is the cash coverage ratio for 2005? a. 11.6 b. 12.8 c. 13.7 d. 17.3 e. 18.8 PROFITABILITY RATIOS c 105. What is the return on equity for 2005? a. 5.7 percent b. 6.8 percent c. 13.0 percent d. 15.3 percent e. 16.0 percent PROFITABILITY RATIOS d 106. Windswept, Inc. has 90 million shares of stock outstanding. Their price-earnings ratio for 2005 is 12. What is the market price per share of stock? a. $57.12 b. $59.94 c. $62.82 d. $64.13 e. $65.03

CHAPTER 3 STATEMENT OF CASH FLOWS b 107. What amount should be included in the financing section of the 2005 statement of cash flows for dividends paid? a. $180 million b. $301 million c. $481 million d. $530 million e. $710 million STATEMENT OF CASH FLOWS e 108. What is the amount of the net cash from investment activity for 2005? a. -$50 million b. $250 million c. $450 million d. $700 million e. $850 million STATEMENT OF CASH FLOWS d 109. What is the net change in cash during 2005? a. -$40 million b. -$20 million c. $0 d. $20 million e. $40 million STATEMENT OF CASH FLOWS a 110. How will accounts payable appear on the 2005 statement of cash flows? a. increase of $10 million in cash from an operating activity b. decrease of $10 million in cash from an operating activity c. increase of $10 million in cash from an investment activity d. decrease of $10 million in cash from a financing activity e. increase of $10 million in cash from a financing activity

The following balance sheet and income statement should be used for questions #111 through #121:
Bayside Inc. 2005 Income Statement ($ in thousands) Net sales Less: Cost of goods sold Less: Depreciation Earnings before interest and taxes Less: Interest paid Taxable Income Less: Taxes Net income Bayside, Inc. $5,680 4,060 420 1,200 30 $1,170 410 $ 760

CHAPTER 3 2004 and 2005 Balance Sheets ($ in thousands) 2004 2005 $ 70 $ 180 980 840 1,560 1,990 $2,610 $3,010 3,600 3,360 $6,210 $6,370 2004 2005 $1,350 $1,170 720 500 3,200 3,500 940 1,200 $6,210 $6,370

Cash Accounts rec. Inventory Total Net fixed assets Total assets

Accounts payable Long-term debt Common stock Retained earnings Total liabilities & equity

LIQUIDITY RATIOS c 111. What is the net working capital to total assets ratio for 2005? a. 18.4 percent b. 21.9 percent c. 28.9 percent d. 31.0 percent e. 47.3 percent ASSET MANAGEMENT RATIOS e 112. How many days on average does it take Bayside to sell their inventory? (Use 2005 values) a. 126.1 days b. 127.9 days c. 153.8 days d. 176.5 days e. 178.9 days ASSET MANAGEMENT RATIOS d 113. How many dollars of sales are being generated from every dollar of fixed assets? (use 2005 values) a. $.59 b. $.89 c. $1.02 d. $1.69 e. $1.76 FINANCIAL LEVERAGE RATIOS c 114. What is the debt-equity ratio for 2005? a. 22.5 percent b. 26.2 percent c. 35.5 percent d. 45.1 percent e. 47.7 percent

CHAPTER 3 FINANCIAL LEVERAGE RATIOS c 115. What is the times interest earned ratio for 2005? a. 30 b. 36 c. 40 d. 50 e. 54 FINANCIAL LEVERAGE RATIOS b 116. What is the equity multiplier for 2005? a. 1.21 b. 1.36 c. 1.44 d. 1.82 e. 1.91 PROFITABILITY RATIOS a 117. What is the return on equity for 2005? a. 16.2 percent b. 20.9 percent c. 21.7 percent d. 22.1 percent e. 23.3 percent STATEMENT OF CASH FLOWS c 118. What is the net cash flow from investment activity for 2005? a. -$320 thousand b. -$240 thousand c. $180 thousand d. $240 thousand e. $660 thousand STATEMENT OF CASH FLOWS e 119. How does inventory affect the statement of cash flows for 2005? a. a use of $430 thousand of cash as an investment activity b. a source of $430 thousand of cash as an operating activity c. a use of $400 thousand of cash as a financing activity d. a source of $400 thousand of cash as an investment activity e. a use of $430 thousand of cash as an operating activity STATEMENT OF CASH FLOWS c 120. How does the long-term debt affect the statement of cash flows for 2005? a. a source of $500 thousand of cash as a financing activity b. a use of $500 thousand of cash as an operating activity c. a use of $220 thousand of cash as a financing activity d. a source of $220 thousand of cash as financing activity e. a source of $220 thousand of cash as an operating activity

CHAPTER 3 STATEMENT OF CASH FLOWS d 121. What is the net change in cash for 2005? a. -$180 thousand b. -$110 thousand c. $70 thousand d. $110 thousand e. $180 thousand