FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Analysis of Financial Statements

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger?

A) Increase accounts receivable while holding sales constant.
B) Increase EBIT while holding sales constant.
C) Increase accounts payable while holding sales constant.
D) Increase notes payable while holding sales constant.

E) A) and D)
F) A) and C)

Correct Answer

verified

Show Answer

Question 52

True/False

Review LaterAdd Note

Review Later

One problem with ratio analysis is that relationships can be manipulated. For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase.

A) True
B) False

Correct Answer

verified

Show Answer

Question 53

True/False

Review LaterAdd Note

Market value ratios provide management with an indication of how investors view the firm's past performance and especially its future prospects.

A decline in a firm's inventory turnover ratio suggests that it is managing its inventory more efficiently and also that its liquidity position is improving, i.e., it is becoming more liquid.

Chambliss Corp.'s total assets at the end of last year were $305,000 and its EBIT was 62,500. What was its basic earning power (BEP) ?

Heaton Corp. sells on terms that allow customers 45 days to pay for merchandise. Its sales last year were $425,000, and its year-end receivables were $60,000. If its DSO is less than the 45-day credit period, then customers are paying on time. Otherwise, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when calculating the DSO. A positive answer indicates late payments, while a negative answer indicates early payments.

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -What is the firm's cash flow per share?

Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO) ?

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -What is the firm's days sales outstanding? Assume a 360-day year for this calculation.

ABC Inc. has an 59-day average payables period. The account payables are $2,737.50 at the beginning and $3,589.50 at the end of the covering year. What is the annual cost of goods sold? Use a 365-day year when calculating the APP.

Last year Mason Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $195,000 and its net income was $10,549. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,250 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?

The "apparent," but not the "true," financial position of a company whose sales are seasonal can differ dramatically, depending on the time of year when the financial statements are constructed.

High current and quick ratios ALWAYS indicate that a firm is managing its liquidity position well.

Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one method of measuring changes in a firm's performance over time.

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -What is the firm's EPS?

Suppose Firms A and B have the same amount of assets, pay the same interest rate on their debt, have the same basic earning power (BEP), and have the same tax rate. However, Firm A has a higher debt ratio. If BEP is GREATER than the interest rate on debt, Firm A will have a HIGHER ROE as a result of its higher debt ratio.

Considered alone, which of the following would increase a company's current ratio?

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -What is the firm's profit margin?

Suppose firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets. Under these conditions, then firms that have high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios.

Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.