Question 1

Earnings per share is the ________.

Accepted Answer

A)  price per share divided by the earnings per share
B)  net income divided by the number of outstanding shares
C)  market value per shares divided by the book value per share
D)  P/E ratio divided by the earnings growth rate times 100E) B) and D)
F) C) and D)

Question 2

The DuPont identity measures ROE by multiplying ________.

Accepted Answer

A)  the current ratio × total asset turnover × the equity multiplier
B)  the profitability ratio × times interest earned × the equity multiplier
C)  the profitability ratio × total asset turnover × the equity multiplier
D)  the current ratio × times interest earned × the equity multiplierE) None of the above
F) A) and B) C

Question 3

Benchmarking compares a company's current performance against its own previous performance or against that of its competitors.

Accepted Answer

A) True 
 B)False

Question 4

Financial analysts provide recommendations to their clients about what company ________.

Accepted Answer

A)  to buy
B)  to invest in
C)  to sell or divest
D)  all of theseE) C) and D)
F) A) and B)

Question 5

Industries operate differently in terms of ________.

Accepted Answer

A)  labor intensity
B)  cash management
C)  capital intensity
D)  all of theseE) A) and C)
F) A) and B)

Question 6

Once financial statements are made public,the external analysis of the company begins by ________.

Accepted Answer

A)  financial analysts
B)  certified tax planners
C)  the advertising department
D)  all of theseE) B) and D)
F) All of the above

Question 7

A standard interpretation of the P/E ratio is that firms with high P/E ratios need to have high growth rates to justify the current price.

Accepted Answer

A) True 
 B)False

Question 8

The revenue is $10,000,the cost of goods sold is $2,000,the selling,general and administrative expenses are $3,000,addition to retained earnings are $2,000,and depreciation is $1,000.What is the EBIT?

Accepted Answer

A)  -$1,000
B)  $2,000
C)  $3,000
D)  $4,000E) A) and B)
F) C) and D)

Question 9

A current ratio greater than 1 can tell us that the company ________.

Accepted Answer

A)  should be able to cover the current liabilities
B)  should be able to keep away from short-term cash problems
C)  may have too much capital tied up in current assets
D)  All of theseE) All of the above
F) A) and C)

Question 10

The current ratio,the quick ratio,and the cash ratio are asset management ratios.

Accepted Answer

A) True 
 B)False

Question 11

Which of the statements below is FALSE?

Accepted Answer

A)  The cash coverage ratio is EBIT plus depreciation divided by interest expense.
B)  Times interest earned equals EBIT divided by interest expense.
C)  The times interest earned ratio tells us the number of times a company has resorted to debt financing over the year.
D)  The debt ratio basically tells us the amount in debt for every dollar of assets.E) B) and D)
F) A) and B) C

Question 12

Computing liquidity ratios is ________ but interpreting them is ________.

Accepted Answer

A)  complex; even more complex
B)  complex; more straightforward
C)  straightforward; more complex
D)  None of theseE) C) and D)
F) B) and D) C

Question 13

Which of the statements below is FALSE?

Accepted Answer

A)  The acid ratio test equals current assets minus inventories divided by current liabilities.
B)  Examples of liquidity ratios include the current ratio,the cash coverage ratio,and the quick ratio.
C)  The current ratio is current assets divided by current liabilities.
D)  Inventory turnover equals cost of goods sold divided by inventory.E) C) and D)
F) A) and B)

Question 14

To convert an income statement into a common-size income statement,we restate all the numbers as percentages of ________.

Accepted Answer

A)  total revenues
B)  cost of goods sold
C)  net income
D)  total assetsE) A) and B)
F) A) and C)

Question 15

Describe why firms in the oil and gas industry have so much debt compared to other industries.What industry has the lowest profit margin? What industry converts the greatest amount of sales dollars into profit?

Accepted Answer

The oil and gas industry is a very capit...

Question 16

The debt-to-equity ratios for Firm 1,Firm 2,Firm 3,and Firm 4 are 0.25,0.35,0.35,and 0.45,respectively.The earnings per share for Firm 1,Firm 2,Firm 3,and Firm 4 are $4.5,$3.5,$3,and $2.5,respectively.Generally speaking,which firm is placing fewer burdens on its borrowing?

Accepted Answer

A)  Firm 1
B)  Firm 2
C)  Firm 3
D)  Firm 4E) A) and D)
F) A) and B)

Question 17

Describe the three components of the DuPont ratio.

Accepted Answer

The three components are: operating effi...

Question 18

When performing financial ratio analysis,we need to know not only what the ratios are but also what the trends are over time.

Accepted Answer

A) True 
 B)False

Question 19

The financial statements of a company are the primary sources of information that enable us to communicate the financial results ________.

Accepted Answer

A)  of the company externally
B)  of the company internally
C)  to internal managers but not externally to the public
D)  of the company,both internally and externallyE) All of the above
F) B) and D)

Question 20

Which of the following statements is TRUE?

Accepted Answer

A)  The current ratio is current assets divided by current liabilities.
B)  Total asset turnover is net income divided by total assets.
C)  The cash coverage ratio equals cash divided by current liabilities.
D)  The quick ratio equals current assets - current liabilities divided by current liabilities.E) A) and B)
F) B) and D)

Exam 14: Financial Ratios and Firm Performance

Earnings per share is the ________.

Correct AnswerverifiedShow Answer

The DuPont identity measures ROE by multiplying ________.

Correct AnswerverifiedC

Benchmarking compares a company's current performance against its own previous performance or against that of its competitors.

Correct AnswerverifiedShow Answer

Financial analysts provide recommendations to their clients about what company ________.

Correct AnswerverifiedShow Answer

Industries operate differently in terms of ________.

Correct AnswerverifiedShow Answer

Once financial statements are made public,the external analysis of the company begins by ________.

Correct AnswerverifiedShow Answer

A standard interpretation of the P/E ratio is that firms with high P/E ratios need to have high growth rates to justify the current price.

Correct AnswerverifiedShow Answer

The revenue is $10,000,the cost of goods sold is $2,000,the selling,general and administrative expenses are $3,000,addition to retained earnings are $2,000,and depreciation is $1,000.What is the EBIT?

Correct AnswerverifiedShow Answer

A current ratio greater than 1 can tell us that the company ________.

Correct AnswerverifiedShow Answer

The current ratio,the quick ratio,and the cash ratio are asset management ratios.

Correct AnswerverifiedShow Answer

Which of the statements below is FALSE?

Correct AnswerverifiedC

Computing liquidity ratios is ________ but interpreting them is ________.

Correct AnswerverifiedC

Which of the statements below is FALSE?

Correct AnswerverifiedShow Answer

To convert an income statement into a common-size income statement,we restate all the numbers as percentages of ________.

Correct AnswerverifiedShow Answer

Describe why firms in the oil and gas industry have so much debt compared to other industries.What industry has the lowest profit margin? What industry converts the greatest amount of sales dollars into profit?

Correct AnswerverifiedThe oil and gas industry is a very capit...View AnswerShow Answer

The debt-to-equity ratios for Firm 1,Firm 2,Firm 3,and Firm 4 are 0.25,0.35,0.35,and 0.45,respectively.The earnings per share for Firm 1,Firm 2,Firm 3,and Firm 4 are $4.5,$3.5,$3,and $2.5,respectively.Generally speaking,which firm is placing fewer burdens on its borrowing?

Correct AnswerverifiedShow Answer

Describe the three components of the DuPont ratio.

Correct AnswerverifiedThe three components are: operating effi...View AnswerShow Answer

When performing financial ratio analysis,we need to know not only what the ratios are but also what the trends are over time.

Correct AnswerverifiedShow Answer

The financial statements of a company are the primary sources of information that enable us to communicate the financial results ________.

Correct AnswerverifiedShow Answer

Which of the following statements is TRUE?

Correct AnswerverifiedShow Answer

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C

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C

Computing liquidity ratios is but interpreting them is .

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C

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The oil and gas industry is a very capit...
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The three components are: operating effi...
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