BUSINESS

27) The primary concern of creditors when assessing the strength of a firm is the firm’s

A) profitability.

B) leverage.

C) short-term liquidity.

D) share price

 

 

28) The analyst should be careful when conducting ratio analysis to ensure that

A) the overall performance of the firm is not judged on a single ratio.

B) the dates of the financial statements being compared are the same.

C) audited statements are used.

D) the same accounting procedures were used.

E) all of the above.

 

 

29) The current ratio provides a better measure of overall liquidity only when a firm’s inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity.

A) True

B) False

 

 

30) The ________ measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted.

A) net profit margin

B) operating profit margin

C) gross profit margin

D) earnings available to common shareholders

 

 

Table 3.2

 

Dana Dairy Products Key Ratios

 

Income Statement

Dana Dairy Products

For the Year Ended December 31, 2010

 

Balance Sheet

Dana Dairy Products

December 31, 2010

 

31) The current ratio for Dana Dairy Products in 2005 was ________. (See Table 3.2)

A) 1.58

B) 0.63

C) 1.10

D) 0.91

 

 

32) Since 2009, the liquidity of Dana Dairy Products ________. (See Table 3.2)

A) has deteriorated

B) remained the same

C) has improved

D) cannot be determined

 

 

33) The inventory turnover for Dana Dairy Products in 2010 was ________. (See Table 3.2)

A) 43

B) 5

C) 20

D) 25

 

 

34) The average collection period for Dana Dairy Products in 2010 was (See Table 3.2)

A) 32.5 days.

B) 11.8 days.

C) 25.3 days.

D) 35.9 days.

 

 

35) If Dana Dairy Products has credit terms which specify that accounts receivable should be paid in 25 days, the average collection period ________ since 2009. (See Table 3.2)

A) has deteriorated

B) remained the same

C) has improved

D) cannot be determined

 

 

36) The debt ratio for Dana Dairy Products in 2010 was ________.(See Table 3.2)

A) 50 percent

B) 11 percent

C) 55 percent

D) 44 percent

 

 

37) Dana Dairy Products’ gross profit margin was inferior to the industry standard. This may have resulted from ________. (See Table 3.2)

A) a high sales price.

B) the high cost of goods sold.

C) excessive selling and administrative expenses.

D) excessive interest expense.

 

 

38) The gross profit margin and net profit margin for Dana Dairy Products in 2010 were ________. (See Table 3.2)

A) 13 percent and 0.9 percent, respectively.

B) 13 percent and 1.5 percent, respectively.

C) 2 percent and 0.9 percent, respectively.

D) 2 percent and 1.5 percent, respectively.

 

 

39) The return on total assets for Dana Dairy Products for 2010 was ________. (See Table 3.2)

A) 0.9 percent

B) 5.5 percent

C) 25 percent

D) 2.5 percent

 

 

40) The return on equity for Dana Dairy Products for 2010 was ________. (See Table 3.2)

A) 0.6 percent

B) 5.6 percent

C) 0.9 percent

D) 50 percent

 

 

41) A corporation

A) must use the same depreciation method for tax and financial reporting purposes.

B) must use different depreciation methods for tax and financial reporting purposes.

C) may use different depreciation methods for tax and financial reporting purposes.

D) must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes.

 

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