Question 1 of 20
Company J and Company K each recently reported the same earnings per share (EPS). Company J’s stock, however, trades at a higher price. Which of the following statements is correct?
Company J must have a higher P/E ratio.
Company J must have a higher market to book ratio.
Company J must be riskier
Company J must have fewer growth opportunities.
All of the statements above are correct.
Question 2 of 20
Which of the following statements is correct?
Many large firms operate different divisions in different industries, and this makes it hard to develop a meaningful set of industry benchmarks for these types of firms.
Financial ratios should be interpreted with caution because there exist seasonal and accounting differences that can reduce their comparability.
Financial ratios should be interpreted with caution because it may be difficult to say with certainty what is a “good” value. For example, in the case of the current ratio, a “good” value is neither high nor low.
Ratio analysis facilitates comparisons by standardizing numbers.
All of the statements above are correct.
Question 3 of 20
Which of the following actions can a firm take to increase its current ratio?
Issue short-term debt and use the proceeds to buy back long-term debt with a maturity of more than one year.
Reduce the company’s days sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment.
Use cash to purchase additional inventory.
Statements a and b are correct.
None of the statements above is correct.
Question 4 of 20
Which of the following actions will cause an increase in the quick ratio in the short run?
$1,000 worth of inventory is sold, and an account receivable is created. The receivable exceeds the inventory by the amount of profit on the sale, which is added to retained earnings.
A small subsidiary which was acquired for $100,000 two years ago and which was generating profits at the rate of 10 percent is sold for $100,000 cash. (Average company profits are 15 percent of assets.)
Marketable securities are sold at cost.
All of the answers above
Answers a and b above.
Question 5 of 20
Company A is financed with 90 percent debt, whereas Company B, which has the same amount of total assets, is financed entirely with equity. Both companies have a marginal tax rate of 35 percent. Which of the following statements is correct?
If the two companies have the same basic earning power (BEP), Company B will have a higher return on assets.
If the two companies have the same return on assets, Company B will have a higher return on equity.
If the two companies have the same level of sales and basic earning power (BEP), Company B will have a lower profit margin.
All of the answers above are correct.
None of the answers above is correct.
Question 6 of 20
The Wilson Corporation has the following relationships:
Sales/Total assets 2.0
Return on assets (ROA) 4%
Return on equity (ROE) 6%
What is Wilson’s profit margin and debt ratio?
2% and 0.33
4% and 0.33
4% and 0.67
2% and 0.67
4% and 0.50
Question 7 of 20
Q Corp. has a basic earnings power (BEP) ratio of 15 percent, and has a times interest earned (TIE) ratio of 6. Total assets are $100,000. The corporate tax rate is 40 percent. What is Q Corp.’s return on assets (ROA)?
Question 8 of 20
Kansas Office Supply had $24,000,000 in sales last year. The company’s net income was $400,000. Its total assets turnover was 6.0. The company’s ROE was 15 percent. The company is financed entirely with debt and common equity. What is the company’s debt ratio?
Question 9 of 20 Given the following information, calculate the market price per share of WAM Inc.
Net income = $200,000
Earnings per share = $2.00
Stockholders’ equity = $2,000,000
Market/Book ratio = 0.20
Question 10 of 20
Taft Technologies has the following relationships:
annual sales $1,200,000
current liabilities $375,000
days sales outstanding(DSO)(360-day year) 40
Inventory Turnover Ratio 4.8
current ratio 1.2
The company’s current assets consist of cash, inventories, and accounts receivable. How much cash does Taft have on its balance sheet?
Question 11 of 20
Info Technics Inc. has an equity multiplier of 2.50. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio?
Question 12 of 20
Cutler Enterprises has current assets equal to $5 million. The company’s current ratio is 1.25, and its quick ratio is 0.75. What is the firm’s level of current liabilities (in millions)?
Question 13 of 20
Lewis Inc. has sales of $3,600,000 per year, all of which are credit sales. Its days sales outstanding is 42 days. What is its average accounts receivable balance? Assume 360 days per year.