Chap003 (1)

Chapter 03 - Working with Financial StatementsChapter 03 Working with Financial Statements Multiple Choice Questions 1. Common-size financial statements present all balance sheet account values as a percentage of: A. the forecasted budget. B. sales. C. total equity. D. total assets. E. last year's account value. 2. The ratios that are based on financial statement values and used for comparison purposes are called: A. financial ratios. B. industrial statistics. C. equity standards. D. accounting returns. E. analytical standards. 3. The Du Pont identity can be totally defined by which one of the following? A. Return on equity, total asset turnover, and equity multiplier B. Equity multiplier and return on assets C. Profit margin and return on equity D. Total asset turnover, profit margin, and debt-equity ratio E. Equity multiplier, return on assets, and profit margin 4. Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A. Du Pont rate B. External growth rate C. Sustainable growth rate D. Internal growth rate E. Cash flow rate 3-1 Chapter 03 - Working with Financial Statements 5. The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? A. No new external financing of any kind B. No new debt but additional external equity equal to the increase in retained earnings C. New debt and external equity in equal proportions D. New debt and external equity, provided the debt-equity ratio remains constant E. No new equity and a constant debt-equity ratio 6. Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations? A. BEC B. SED C. BID D. SIC E. SBC 7. Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past 3 years determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? A. Income statement B. Balance sheet C. Common-size income statement D. Common-size balance sheet E. Statement of cash flows 8. A common-size balance sheet helps financial managers determine: A. which customers are paying on a timely basis. B. if costs are increasing faster or slower than sales. C. if changes are occurring in a firm's mix of assets. D. if a firm is generating more or less sales per dollar of assets than in prior years. E. the rate at which the firm's dividends are changing. 3-2 Chapter 03 - Working with Financial Statements 9. High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form of annual dividends. Given this, the percent shown on a common-size income statement for the dividend account will: A. remain constant over time. B. be equal to the dividend amount divided by the net income. C. vary in direct relation to the net profit percentage. D. vary in direct relation to changes in the sales level. E. vary but not in direct relation to any other variable. 10. Which one of the following transactions will increase the liquidity of a firm? A. Cash purchase of new production equipment B. Payment of an account payable C. Cash purchase of inventory D. Credit sale of inventory at cost E. Cash payment of employee wages 11. Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0. A. Cash purchase of inventory B. Cash payment of an account receivable C. Cash payment of an account payable D. Credit sale of inventory at cost E. Cash sale of inventory at a loss 12. A firm has a current ratio of 1.4 and a quick ratio of 0.9. Given this, you know for certain that the firm: A. pays cash for its inventory. B. has more than half its current assets invested in inventory. C. has more cash than inventory. D. has more current liabilities than it does current assets. E. has positive net working capital. 3-3 Quick ratio E. B. Receivables turnover E.Working with Financial Statements 13. B. Which one of the following is a measure of long-term solvency? A. one plus the total asset turnover. C. one divided by the total asset turnover. Cash coverage ratio D. 16. Debt ratio C. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has? A. liquidity of a firm. D. The equity multiplier is equal to: A. length of time that a firm can pay its bills if no additional cash becomes available. C. relationship between the firm's cash balance and its current liabilities.Chapter 03 . Price-earnings ratio B. E. D. Profit margin C. Equity multiplier D. Quick ratio 15. The cash coverage ratio is used to evaluate the: A. total debt divided by total equity. one plus the debt-equity ratio. Fred is the owner of a local feed store. 3-4 . speed at which a firm generates cash. total equity divided by total assets. Cash ratio 14. Current ratio B. E. ability of a firm to pay the interest on its debt. Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? A. Decrease in sales 3-5 . Receivables turnover B. Increase in depreciation expense D. sells its entire inventory every 16 days. Which one of the following will increase the profit margin of a firm. Decrease in the capital intensity ratio C. sells its inventory by granting customers 16 days credit. Decrease in the total asset turnover B. Equity multiplier C. E. Profit margin D. Blooming Gardens has an inventory turnover of 16. Kelso's Pharmacy generates $2 in sales for every $1 the firm has invested in total assets. B. Total asset turnover 20. Increase in days' sales in receivables D. D. Decrease in the profit margin E. This means the firm: A. Return on assets E. all else constant? A. Increase in fixed costs C. Which one of the following ratios would reflect this relationship? A. buys 16 days of inventory with each order. C. 18. Decrease in the inventory turnover rate 19. Decrease in the tax rate E. sells its inventory an average of 16 times each year. only stocks its inventory every 16 days.Chapter 03 .Working with Financial Statements 17. Increase in interest paid B. PE ratios are unaffected by the accounting methods employed by a firm.3 E. Price-sales ratio E. E.2 C. Price-earnings ratio 23. Price-sales ratio B. A high PE ratio may indicate that a firm is expected to grow significantly.6 B. Market-to-book ratio C. you are in the process of developing target ratios for your firm. ROE E.2 22. total debt ratio = 0. Cash coverage ratio = 0. Cash coverage ratio = 2. The PE ratio is classified as a profitability ratio. debt-equity ratio = 1. debt-equity ratio = 1.8. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. Return on assets B.Chapter 03 . The PE ratio is a constant value for each firm. 24. If you wanted to measure the progress of this firm. Times interest earned = 1.5. While the outlook for the company is positive.8 D. C.6. which one of the following will decrease if a firm increases its net income? A. D. Which one of the following statements is true concerning the price-earnings (PE) ratio? A. Profit margin C. it currently has negative earnings. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future? A. You would like to borrow money three years from now to build a new building. debt-equity ratio = 0. In preparation for applying for that loan. All else constant.5.7. Cash coverage ratio = 0. New Century Products is a company that was founded last year. B. debt-equity ratio = 0. Times interest earned = 1. Profit margin D. ROA 3-6 . which one of the following ratios would probably be best to monitor given the firm's current situation? A.Working with Financial Statements 21. Return on equity D. and III only E. operating efficiency of a firm. or equity. I and II only B. III. Martha's Sweet Shop reduced its fixed assets this year without affecting the shop's operations. and IV only E. I and III only C. II. I and III only C. Profit margin II. The T-shirt Hut successfully managed to reduce its general and administrative costs this year.Working with Financial Statements 25. I. A. I. Total asset turnover IV. II. and IV only D. II and III only C. sales. III. II. Return on equity A. II. and IV only E. Return on assets III. The Du Pont identity can be used to help a financial manager determine the: I.Chapter 03 . and IV 27. III. rate of return on a firm's assets. II. Return on equity A. This reduction will increase which of the following ratios? I. and IV only D. utilization rate of a firm's assets. This cost improvement will increase which of the following ratios? I. Return on assets III. and IV only D. and IV 26. Total asset turnover IV. II. I. I. Capital intensity ratio II. I. and IV 3-7 . degree of financial leverage used by a firm. I. IV. III. III. II. II. II and III only B. III. III. I and II only B. II. II. Working with Financial Statements 28. and IV only D. 100 percent. zero percent. Inc. II. Return on equity 29. II. C. would like to increase its internal rate of growth. Donovan Brothers. Decreasing which one of the following will help the firm achieve its goal? A. III. If a firm has a 100 percent dividend payout ratio. Dividend payout ratio E. III. II and IV only C. Amount of debt per dollar of equity III. II. Percent of net income distributed as dividends A.Chapter 03 . B. then the internal growth rate of the firm is: A. negative. Amount of sales generated from each dollar invested in assets II. E. I. Net income C. 30. D. Amount of current assets per dollar of current liabilities IV. infinite. Return on assets B. and IV 3-8 . I and III only B. equal to the ROA. Which of the following are determinants of a firm's sustainable rate of growth? I. Retention ratio D. and IV only E. I. Which of the following will increase the sustainable rate of growth for a firm? I. III. II. and IV 32. G. Peer group analysis is easier when a firm is a conglomerate versus when it only has a single B. Peer group analysis is easier when seasonal firms have different fiscal years. Financial statement analysis: A. 3-9 . I and II only B. provides useful information to shareholders but not to debt holders. B. Increasing the dividend payout ratio III. Increasing the target debt-equity ratio A. D. D.Working with Financial Statements 31. set of accounting standards. III. Adjustments have to be made when comparing the income statements of firms which use different methods of accounting for inventory. E. is primarily used to identify account values that meet the normal standards. Comparing results across geographic locations is easier since all countries now use a common F. I. II and IV only D. C. I. and IV only E. line of business. is limited to internal use by a firm's managers. III and IV only C. is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods. provides useful information that can serve as a basis for forecasting future performance.Chapter 03 . Decreasing the capital intensity ratio IV. Peer group analysis is simplified when firms use varying methods of depreciation. C. E. Which one of the following statements is correct? A. Decreasing the profit margin II. 33. 19 percent D.68 percent 35. A firm has inventory of $11.09 percent E. 19. total equity of $154.800. 48. 9.500. 26. What is the common-size percentage for the cost of goods sold if that expense amounted to $379. and total sales of $311. 33. and total equity of $11. Delmont Movers has a profit margin of 6. 42.Working with Financial Statements 34.400. What is the common-size percentage for the net income? A. cash of $850.900.600.05 percent 3-10 . Foreign Travel Services has net income of $48. net fixed assets of $12.75 percent 36. 13.150.2 percent and net income of $48.700.Chapter 03 .10 percent E. 23. 41.700.000. accounts receivable of $6.90 percent C.90 percent B. 48. 49. 33.53 percent D.00 percent B. accounts payable of $9.08 percent E.27 percent 37. 51.06 percent E.81 percent B. Russell's Hardware has inventory of $218.800.60 percent B.50 percent C. 22.25 percent D. total assets of $647.400.000 for the year? A. 26. 12.800. total assets of $219.66 percent C. 37. 39. 31.200.000. long-term debt of $9. What is the common-size percentage for the net fixed assets? A. What is the common-size percentage for the inventory account? A.67 percent C. equity of $421.700. 15. and sales of $587.12 percent D. Peter's Motor Works has total assets of $689. 1. 1. 1.99 percent B. 1.800. The profit margin is 3. 0. 0.18 percent C.91 C. 0.4 percent and the retention ratio is 60 percent.Working with Financial Statements 38.800 and current assets of $11.92 3-11 .500. 1. 1.500.60 C.65 E. 2.84 D. 0. 0. and sales of $721. 0. 0. long-term debt of $52.Chapter 03 . net fixed assets of $71. 1. What is the current ratio? A.400. What is the common-size percentage for the dividends paid? A.000. total equity of $275.18 41. What is the current ratio? A.21 percent D.67 E.700.000. and total debt of $78. long-term debt of $299. net fixed assets of $497. A firm has net working capital of $3.700.000 for the year. If inventory is $31. 1. Healthy Foods has total assets of $129.800.18 E.36 percent E.500.33 B. A firm has sales of $428. 2.34 B. 2.60 B.6 percent. 0.48 D. 1. what is the current ratio? A.01 D.42 percent 39.800. The profit margin is 4.16 40.46 C. 470. What is the cash ratio? A. and inventory of $56.08 B. 0.76 B.18 C. net working capital of $2.660. Tasty Dee-Lite has current liabilities of $6. 1. What is the quick ratio? A. What is the quick ratio? A.67 C.900. 0.900. 0. accounts receivable of $27.750.800.860. 1.46 E.630.80 D.32 D.30 B.Chapter 03 .700. You are analyzing a company that has cash of $11.600.200. 0.950.800.24 B.09 E. 1.98 E.Working with Financial Statements 42.25 E. Tressler Dry Cleaners has inventory of $1. 0. 0. cash of $1. 0. and accounts receivable of $3. accounts payable of $31.46 C. 0. Slightly Used Goods has cash of $2.51 43. 1.19 45. 0.37 44.91 D. accounts payable of $11. inventory of $28.150. and accounts receivable of $4. 0. 0. What is the cash ratio? A.680. 0. and sales of $36.53 D. 0.300. 1. fixed assets of $9.200.180. 0.84 C. inventory of $2. fixed assets of $124. 0.34 3-12 . accounts payable of $4. 600. 0. Inc. 1. 0.26 C. 0. and total debt of $215. 0.49 E.67 D.86 48. 0. net fixed assets of $37. What is the cash ratio? A. and net working capital of $1.21 E.400. 0. has total equity of $389. inventory of $33. long-term debt of $116.22 B. 3.70 C.87 D. 0.600.45 47. Wilson's Realty has total assets of $46. 0.400.100. and total assets of $527. What is the debt-equity ratio? A. What is the total debt ratio? A. current assets of $186.600. Denton.Working with Financial Statements 46.Chapter 03 . 1. accounts receivable of $9.500. 0.08 C. What is the total debt ratio? A.000. current liabilities of $6.41 B.100. 2.800.000.43 E.48 B. 0.100. Your firm has cash of $3. net working capital of $1. 1. 0. 3.100.04 B.13 3-13 .60 C. A firm has total assets of $523.600. current liabilities of $141. and long-term liabilities of $24.78 E. 0.800.85 49. 1.10 D.66 D.600. 0. 28 B. 0.4 percent.67.60 B. What is the equity multiplier? A.35 C. 0.Working with Financial Statements 50. B.900 and total debt of $318.67. 2.67 51.33. What is the equity multiplier? A. and a profit margin of 2. 1. A firm has an equity multiplier of 1. 2. 2. This means that the firm has a: A.5.17 52. 0.600 and an equity multiplier of 1. 0.700.84 3-14 . Underwood Homes Sales has total assets of $589. 0.60 E. total debt ratio of 0. 0. E.47 D.63 C. 53. 1.46 B. debt-equity ratio of 0.50.58 E.35. What is the debtequity ratio? A. a debt-equity ratio of 1.600. 0. 0. 0.000.Chapter 03 .33. The Jelly Jar has total assets of $79.6. total assets of $198. total debt ratio of 0.85 E. C. total debt ratio of 0. Preston's Market has sales of $213. 1.54 C.21 D.83 D. debt-equity ratio of 0. D. 400.29 B. 14. depreciation of $37.87 D. 3. 1.14 D.800.542. What is the times interest earned ratio? A. 17. depreciation of $5. 5. 0.10 55.100.300. The tax rate is 35 percent.Chapter 03 . 5. 8. The tax rate is 34 percent. 4. 10. What is the cash coverage ratio? A.680 and net income of $12.82 B.45 3-15 .33 57.000. 8.78 B.19 C. 3. The tax rate is 34 percent. What is the times interest earned ratio? A. 5. 3. A firm has net income of $31. cost of goods sold of $369. Friendly's Shoe Store has earnings before interest and taxes of $21.59 E. and interest expense of $13. The Berry Patch has sales of $438. 4.600.130.32 E. 5.67 C.88 B. A firm has net income of $5.38 E.79 56. 6.100. What is the firm's times interest earned ratio? A.10 C.38 D. 16. 2.67 E.Working with Financial Statements 54.46 C. and interest paid of $3. taxes of $14.000. 4.09 D.890 and interest expense of $2. The Global Network has sales of $418. 5.40 days B. 10.29 C.33 B.100. 8. and interest of $1. 48.Working with Financial Statements 58. 61.700.76 D.14 E. and inventory of $61.06 days E.23 E.400. 6. The total asset turnover rate is 1. 7. depreciation of $3.33 B. cost of goods sold of $264. 57.5 days to collect payment on its sales. How long on average does it take the firm to sell its inventory? A.2.47 60. 1.900. and inventory of $94. What is the inventory turnover rate? A.68 D.200. 6.23 days C. 10.79 B. cost of goods sold of $603. 6. Galaxy Sales has sales of $746. 7. What is the inventory turnover rate? A. The Tourist Stop takes an average of 63 days to sell its inventory and an average of 1. What is the cash coverage ratio? A. 9. 4. 7.98 59.300. Blue Water Cafe has $28. Earnings before interest and taxes are equal to 28 percent of sales.10 D. 10.51 C. 7.28 C.42 61. 11.68 days D.10 days 3-16 .700.900.700 in total assets.Chapter 03 . 8.18 E. on average. 45.132 D. Kessler.28 days C. Textile Mills has sales of $923. What is the average value of the firm's inventory? A.78 D. 11. 42.41 C.600.33 days 3-17 . 8. 11. 9. Costs of goods sold for the year are $631.19 days E. 11.Working with Financial Statements 62. 9.506 C. Handy Hardware sells its inventory in 85 days. $161. 12.99 B. total assets of $311. How long on average does it take the firm's customers to pay for their purchases? A. $123. The firm has sales of $568.65 days B. and accounts receivable of $106.55 65.706 B. $182.700. $114. cost of goods sold of $748. Inc.000.513 63.23 B.500. What is the accounts receivables turnover rate? A.42 D. cost of goods sold of $208.000. and a capital intensity ratio of 1. 9.700 and costs of goods sold of $398. 25. 11.13 C. 8.800. has accounts receivable of $31.Chapter 03 .096 E.61 E.400.08. It takes The Corner Store an average of 51 days to sell its inventory and 32 days to collect its accounts receivable.01 days D.72 64.23 E. $147. What is the accounts receivable turnover rate? A.800. 9. 12. 11.1 percent.79 B.Chapter 03 .400. 1.500. 1. and a debt-equity ratio of 0. 1. What is the capital intensity ratio? A.900 in receivables and $211.04 B.800 in total assets.28 68.26 69. and current assets of $89.360. 1. Martha's Fabric House has sales of $137. What is the total asset turnover rate? A. 9.19 D.16 days B. What is the total asset turnover rate? A.08 C.13 D.25 days E. net fixed assets of $154.000. The total asset turnover rate is 1. 1. 1. 1.06 D. A firm has $42. 1. has sales of $291.20 E.11 C. 0.300.200. 1.99 days 67.200. and a capital intensity ratio of 0. 1. total equity of $74.83 C. Holiday House has sales of $648.27 3-18 .2 percent. Aardvaark & Co.45 days C. net profit of $11. 7. 1. How long on average does it take the firm to collect its receivables? A. 1.84.Working with Financial Statements 66.19 E.45. 31. 1.24 E. 0. 50.08 B.45 and the profit margin is 4.68 days D. a profit margin of 6. cost of goods sold of $163.500. Earnings before interest and taxes is equal to 21 percent of sales. and total equity of $738. 16. total assets of $389. 0.300.2 percent. $134. and a return on assets of 9 percent. a profit margin of 6. a profit margin of 11. 12. and a profit margin of 6. 12. What is the net income? A.29 percent B. 1.86 C. 6.900 in interest. Tally Ho Inn has annual sales of $737.2 percent. $149.01 percent E.38 71. the firm paid $7.897 73.33 percent D. Circle Stores has net income of $41. For the period.29 percent E.83 percent D.34 E.000.54 percent C.27 percent 3-19 . $113.100.Working with Financial Statements 70. $85.311 E. What is the profit margin if the tax rate is 35 percent? A. What is the capital intensity ratio? A.46 percent B. 7.Chapter 03 . 0. The Medicine Cabinet has a return on equity of 18. What is the return on assets? A.74 B.95 percent C.875 C.6 percent.000.7 percent. $142. The Next Life has sales of $428.16 D. 15.11 percent 72. 6.000. 7.316 D. 6. 1.608 B. 1. 13. Goshen Industrial Sales has sales of $828.33 percent 75. What are the earnings per share? A.67 percent B. 12.67 percent D. 5. 7. total equity of $539.18 percent D.200. 6.000.Working with Financial Statements 74.31 C. $3.08 percent C. 8.98 B. 6.8 percent. and a capital intensity ratio of 0. $4. $2.42 percent E.82 percent B.89 E.200 and a profit margin of 5. 6.67 percent 76. Freedom Health Centers has total equity of $861.49 percent C.89 percent B.02 3-20 .900. What is the return on equity? A. What is the return on assets? A.86 percent E. 5. The Closet Shoppe has total sales of $713.68 percent E. 6. the firm has 12.56 D. Currently.2 percent.Chapter 03 . 8.79. 3. 6.6 percent and a debt-equity ratio of 0.55. a profit margin of 4. and a profit margin of 5.56 percent C. sales of $1. 6.500 shares outstanding. 4. What is the return on assets? A. 13.48 million.39 percent D. a profit margin of 4.8 percent. Cross Hairs Gun Shop has sales of $189.94 percent 77.300. $3. $3. 200. 28.600. A firm has sales of $311. 10.Working with Financial Statements 78. Ratzell's Place has a market-to-book ratio of 2.98 B. There are 45.Chapter 03 . 55. What is the price-earnings ratio? A. The Green House has a profit margin of 5. 11.84 81.38 D.7. The firm has a profit margin of 7. 65.95 3-21 . 17. 24.000. What is the price-earnings ratio? A. What is the price-earnings ratio? A.09 E. a book value per share of $37. 22.93 E.400.12 E. 4.26 D. 12. 20. What is the price-sales ratio? A. 16.02 C.000 shares of stock outstanding at a market price of $11.72 80.16 C. net income of $68.000 shares of stock outstanding with a market value of $28 a share. The firm currently has 15.99 C.60 per share.38 B.1 percent and a total asset turnover of 1. Baxter & Baxter has total assets of $710.34 B. Currently. 3. 6.000 shares outstanding at a market price of $36 per share. 5. 19.000 and net income of $21.15 E. there are 18.6 percent on sales of $311. and 45.11 C. 11.41 79.50 D.08 B.29.10 D. 2. 59.000 shares of stock outstanding. 9. 48 percent B. and net income of $7. and a price-earnings ratio of 17. and a return on equity of 14. 1.48 percent 85.14 percent B.58 B.21. earnings per share of $1. The common stock of The Burger Hut is selling for $16.42 and a book value per share of $9. 8.61 84.92 83.68 C.75 D. a debt-equity ratio of 0. The Inside Door has total debt of $78.5 percent.6. Swanton Foods has a book value per share of $12. The company has earnings per share of $0. What is the return on equity? A.01 percent D.73 percent C.25 a share. 2. What is the market-to-book ratio? A. 1. 1.28.61 percent C.69 C. 1. 21.32 B.65.45 percent D.600.68. What is the return on assets? A. 1. 39.61 percent E.47 E.99 D. 9.Chapter 03 . 34. total equity of $214. 9.87 E.46 percent E. 1. The Noodle Place has total assets of $123.100.61 percent 3-22 .000. 10. 1.800. 3. What is the market-to-book ratio? A. 2.Working with Financial Statements 82. 13. 1. 3. 8 percent. 20.56 percent 87. 8.98 percent C. 18.76 percent B.16.30.6 percent.16 percent D.100 and net income of $64.67 percent C.20 percent E. What is the return on equity? A. What is the profit margin? A.000. a profit margin of 14. What is the profit margin? A. 22. 2.6.91 percent B. 8.Chapter 03 . 12.90 percent D.45 and the total asset turnover is 1. 17. Morrison Motors has total equity of $289.46 percent 3-23 . 32.60 percent 89.28 percent D. 3.67 percent D. a return on assets of 12.21 percent E.500.28 percent E. 5. The Blue Lantern has a return on equity of 17.Working with Financial Statements 86. and an equity multiplier of 1.60. 6. The debt-equity ratio is 0. 24. Computer Geeks has sales of $521. 5. an equity multiplier of 1.45. and a debt-equity ratio of 0. and a total asset turnover of 1.11 percent B.11 percent E.23 percent C. 4. 5.62 percent 88. 18.9. What is the return on equity? A. a total asset turnover rate of 2.000.10 percent B.57 percent C. 41. 3.8 percent. 9. A firm has net income of $114. 19.03 percent 91. $70. 15. a capital intensity ratio of 0. What is the amount of the firm's sales? A. $53.200.86 percent E.3. Webster & Jones has net income of $49. New Steel Products has total assets of $991.26 percent B. 6.63 B. $58. What is the firm's net income? A.548.303.500 3-24 .14 D. a debtequity ratio of 0. $185. Eastern Hardwood Sales has total equity of $89.200 B. a total asset turnover rate of 1.000. 4. 9.885.8.67 93. 10.67 percent B.550 C. 12.236.Working with Financial Statements 90.28 percent D. $168.620 E. 8. $187. $77.65 percent D.6.09 percent 92.430 D. What is the return on equity? A.1 percent. $64.5.8 percent.74. What is the return on equity? A.000. a total asset turnover rate of 1. and an equity multiplier of 1.624. The Saw Mill has a return on assets of 6.21 percent E.5.Chapter 03 . sales of $936. and a return on equity of 8.76 percent C. an equity multiplier of 1.6.98 percent C. $181.09 E.7 percent.1. and a debt-equity ratio of 1. a profit margin of 4. 14.33 C. and a total asset turnover of 1.800. 12. $173. 22 percent C.34 percent E.71 percent. The Veggie Hut has net income of $26.000. and dividends paid of $6. 21. 16. What is the internal growth rate? A. 28. 8.Working with Financial Statements 94. The dividend payout ratio is 0.24 percent E. What is the return on assets? A.92 percent 3-25 . A firm earns $0.000.94 percent 97. 6. 13.53 percent C.60 for every $1 of equity. 17.15 percent D. Quick Foods has sales of $238.9. and total assets of $189.63 percent B. 8.26 percent B. net income of $18.900. 26. 10. 6.99 percent B.41 percent 95.57 percent C.48 percent B. a debt-equity ratio of 0.06 percent C.17 in profit for every $1 of equity in the firm. and a total asset turnover of 0. What is the internal growth rate? A.Chapter 03 . 10.07 percent E.67 percent D.30.700. 7. 25.33 percent 96. 7. 7.87 percent E. The company borrows $0.700.500. 15. total equity of $102. 13. total assets of $217. What is the firm's return on assets? A.81 percent D. Tessler Farms has a return on equity of 12.75.300.67 percent D. 5. total equity of $121. 7.400. What is the sustainable growth rate? A. 4.12 percent E. Given this.80 percent D.000.33 percent D. 6.88 percent B. 7.67 in assets for every $1 of sales.65 percent 100. The firm pays out 20 percent of its profits to its shareholders. an equity multiplier of 1. Joshua's Antiques has a total asset turnover rate of 1.37 percent 99. 7. A firm has a return on equity of 16 percent. 7.Chapter 03 .62 percent 3-26 .98 percent B.91 percent 101. 9. what is the maximum growth rate for the firm if it has net income of $12. total equity of $94. total assets of $156.58 percent E.100. a return on assets of 11 percent.2.62 percent D. and a 40 percent dividend payout ratio? A. 8.07 in profit on every $1 of sales and has $0.000.11 percent C.72 percent B. 7.8.000. 5.76 percent C.Working with Financial Statements 98. 10. 9. and total assets of $120. a retention ratio of 0. 6. 7.54 percent E.84 percent C. What is the internal growth rate? A. A firm has adopted a policy whereby it will not seek any additional external financing.67 percent E. Underwood Enterprises earns $0. 8. and a 40 percent dividend payout ratio. 7. a profit margin of 5 percent. 7.20 percent C.12 percent D. What is the sustainable growth rate? A. 6. 5. 9. 6.4.37 percent B. 45.500 in dividends. 10.600.800. 11.000.800 for the year and paid $6. 14. 38. 9.85 percent E.48 percent B. 24.400 and had 12. 12.21 percent E.04 percent 105. The firm has total assets of $92. 11.14 percent 3-27 . 7.100. 3. 8. What is the dividend payout ratio? A. 40.34 percent D. Last year. What is the sustainable growth rate? A. Blakely's Fashions earned net income of $68.20.300. The dividends per share were $2. a firm earned $31. 12.38 percent 103. 10.000 shares of stock outstanding. 32. 44.Chapter 03 . 9. 4.500 in dividends.11 percent D.71 percent C.60 percent D. 22.Working with Financial Statements 102. The Donut Hut has sales of $68. What is the dividend payout ratio? A.62 percent E. The firm had net income of $11. current assets of $11.39 percent 104.29 percent C. What is the sustainable growth rate? A. Last year.79 percent D. 34. total debt of $23.00 percent C. and dividends of $800.98 percent B.900.08 percent E. net income of $5.000. The company paid $7. Valentino's maintains a constant debt-equity ratio of 0. net fixed assets of $54.200 in net income on sales of $217.27 percent C.45 percent B.38 percent B. 50. 54. 53.68 percent 3-28 . 10.20 percent 107. Town Centre Market has sales of $311. 27.33 percent C. 46.Chapter 03 .800.00 percent E.32 percent B. a profit margin of 2.66 percent B.60 percent D.78 percent C.15 percent E.2 percent and a dividend payout ratio of 30 percent.23 percent D.Working with Financial Statements 106. and dividends of $4. Gabriel Furniture has a profit margin of 8.500. 49. 51. 70. 78.9 percent. What is the plowback ratio? A. What is the plowback ratio? A. 15.86 D.02. 1. 0. Use the following financial information to answer this question.15.Chapter 03 . 0.98.16. 0. 0. 0.98. 0.15. 0.02.35 E.86 3-29 . 0.35 C.35 B.16. 2.Working with Financial Statements 108. 2.02. 0. 0. What are the values of the three components of the DuPont identity? Use ending balance sheet values. 1. A. 2. Explain why you selected the three ratios that you did. Identify the three key ratios that you would compute first as you begin to try to understand the financial status of the firm.643 E. Global Ventures has a return on equity of 9. $7. Assume this is your first day on the job as the new chief financial officer of a mid-size company.5 percent. and a profit margin of 4. What are some of the key problems you might encounter in doing this comparison? 3-30 . $9. What is the total equity of the firm? A.360 D.480 Essay Questions 110. You are trying to compare the financial performance of your firm to that of similar firms.Working with Financial Statements 109. $6.8 percent.457 B. a retention ratio of 60 percent.890 C. The company paid $378 in dividends and has net working capital of $100. $11.Chapter 03 . Net fixed assets are $18.550 and current liabilities are $520. 111. $6. Since there are no perfect or ideal standard ratios for a firm.84. $50.000.311.78 days B.29 C.09 B. 113.78 days C.09 days D.9 percent. 26.887. Sunshine Rentals has a debt-equity ratio of 0. Peterboro Supply has a current accounts receivable balance of $391. 24.68 D. Explain why the DuPont identity is so useful to a financial manager. why is ratio analysis still considered a valuable management tool? Multiple Choice Questions 114. What is the net income? A. Credit sales for the year just ended were $5. and total equity is $438.15 days E.667.147. $41.Working with Financial Statements 112. How long did it take on average for credit customers to pay off their accounts during the past year? A. 31. Return on assets is 7. $48.338.648.Chapter 03 .458. $54.411. $63.95 3-31 .02 E.33 days 115. 29. 33. 511.000.500 D. 4.09 percent D.306.Chapter 03 .40 times. $1.67 days' sales in receivables. 3. $984. what is its net income? A. $911.5 million shares outstanding. If management set a goal of increasing the total asset turnover to 1. 13. Inc.320 C.898.088. sales of $898. $841. Total assets are $1. What is the return on equity? A. 15.55.200 E. Taylor. sales of $26.67 percent C.42 percent B. 3.187.03 percent 3-32 . and a debt-equity ratio of 0. $860. 12. $887.300.46 119. 4.40. What is the market-to-book ratio? A.470.419.86 118.257. True Blue Transport has a current stock price of $27. Turner's Store had a profit margin of 6. For the past year.81 C.333 B. and the debt-equity ratio is 0. $904. assuming no increase in total assets? A.892. 11.27 E. the company had net income of $2. If its return on equity is 14 percent. total receivables are $122.415.117. total equity of $13.54 B.16 C.Working with Financial Statements 116.000.8 percent. $1. There are currently 32.48 percent E. 3. and total assets of $798.35 B.16 E.10 D.99 D. Mercier United has net income of $128.315. total assets of $9.200.400. what would the new sales figure need to be. and 2. has sales of $11. $1. 13. $927.480 117. a debt-equity ratio of 0. A fire has destroyed a large percentage of the financial records of the Strongwell Co.97 percent E.000 shares of common stock outstanding. 4. 8.47 B. 6.15 E.33 percent D.68 percent B. and a dividend payout ratio of 30 percent.67 121. Donegal's Industrial Products wishes to maintain a growth rate of 6 percent a year. 2. 2. The firm currently has 12.18. what was the times interest earned ratio? A.000.25. You have found the return on equity to be 13. depreciation expense of $61.92 percent B. 3.00 percent C.42.Working with Financial Statements 120.000. You have the task of piecing together information in order to release a financial report. Wilson Enterprises had sales of $689. cost of goods sold of $470. For the most recent year. the total debt ratio was 0. Sales were $979. 9. Assuming a 35 percent tax rate.19 percent 3-33 .45.29 percent 122. 3. 6.8 percent.58 D.03 percent E. The ratio of total assets to sales is constant at 1. What is the return on assets? A. 5. and the previous year's dividends per share were $1.09 C. 1. 8. 8. and total debt was $548.000. 6. 9. and additions to retained earnings of $48.560.29 percent C. What profit margin must the firm achieve? A.300.Chapter 03 .45 percent D.200. 1.5 percent and the firm uses no external financing sources. A firm wishes to maintain an internal growth rate of 4. 0.06 C. 1. What must the total asset turnover be? A.59 3-34 .Chapter 03 .98 B.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.21 D.44 E.Working with Financial Statements 123. 1. 1. C. B. Section: 3. the forecasted budget. Common-size financial statements present all balance sheet account values as a percentage of: A. E.1 Topic: Common-size statement 3-35 . total equity. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes. D.Chapter 03 . total assets. sales.1. Refer to section 3. last year's account value.Working with Financial Statements Chapter 03 Working with Financial Statements Answer Key Multiple Choice Questions 1. Equity multiplier. Profit margin and return on equity D. C.3 Topic: DuPont identity 3-36 . financial ratios. more importantly. interpret some common ratios. Return on equity. Section: 3. more importantly. return on assets.2. E. The ratios that are based on financial statement values and used for comparison purposes are called: A. profit margin.Chapter 03 .Working with Financial Statements 2.3. B. accounting returns. Total asset turnover. industrial statistics. total asset turnover. Equity multiplier and return on assets C. analytical standards.2 Topic: Financial ratios 3. Section: 3. and equity multiplier B. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. and debt-equity ratio E. Refer to section 3. equity standards. interpret some common ratios. The Du Pont identity can be totally defined by which one of the following? A. D. and profit margin Refer to section 3. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. New debt and external equity.4 Topic: Sustainable growth rate 3-37 .4. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. interpret some common ratios. Section: 3. Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A.Working with Financial Statements 4. The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? A. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. more importantly. No new debt but additional external equity equal to the increase in retained earnings C. External growth rate C. Cash flow rate Refer to section 3. Section: 3. Sustainable growth rate D. more importantly.4 Topic: Internal growth rate 5.Chapter 03 . No new external financing of any kind B. New debt and external equity in equal proportions D.4. No new equity and a constant debt-equity ratio Refer to section 3. Du Pont rate B. provided the debt-equity ratio remains constant E. Internal growth rate E. interpret some common ratios. Which one of the following is the abbreviation for the U. Section: 3. To get a feel for the company. Common-size balance sheet E.Chapter 03 . BEC B. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-04 Identify and explain some of the problems and pitfalls in financial statement analysis.S.1.1 Topic: Common-size statement 3-38 . SIC E. Which one of the following statements will best suit her purposes? A. SBC Refer to section 3. government coding system that classifies a firm by its specific type of business operations? A. Builder's Outlet just hired a new chief financial officer. Common-size income statement D. Section: 3. she wants to compare the firm's sales and costs over the past 3 years determine if any trends are present and also determine where the firm might need to make changes. SED C. Statement of cash flows Refer to section 3. Balance sheet C.5 Topic: SIC code 7. BID D. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes.5. Income statement B.Working with Financial Statements 6. Refer to section 3. be equal to the dividend amount divided by the net income. vary in direct relation to changes in the sales level. D. vary in direct relation to the net profit percentage. if changes are occurring in a firm's mix of assets.Working with Financial Statements 8. E. the percent shown on a common-size income statement for the dividend account will: A. Section: 3.Chapter 03 . C. High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form of annual dividends.1. B. vary but not in direct relation to any other variable. B. if a firm is generating more or less sales per dollar of assets than in prior years.1 Topic: Common-size percentage 3-39 .1. the rate at which the firm's dividends are changing. Section: 3. E. A common-size balance sheet helps financial managers determine: A. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes. D. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-01 Standardize financial statements for comparison purposes. remain constant over time. which customers are paying on a timely basis.1 Topic: Common-size statement 9. if costs are increasing faster or slower than sales. Given this. Refer to section 3. C. Cash purchase of inventory B. Cash sale of inventory at a loss Refer to section 3. Credit sale of inventory at cost E.Chapter 03 . Cash purchase of new production equipment B. Credit sale of inventory at cost E. more importantly. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and. Section: 3.0.2. interpret some common ratios. Cash payment of an account receivable C. interpret some common ratios.2.2 Topic: Liquidity 11. Which one of the following transactions will increase the liquidity of a firm? A. Cash payment of employee wages Refer to section 3. A.Working with Financial Statements 10. Payment of an account payable C. more importantly. Cash purchase of inventory D. all else constant? Assume the current ratio is greater than 1.2 Topic: Current ratio 3-40 . Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-02 Compute and. Which one of the following actions will increase the current ratio. Section: 3. Cash payment of an account payable D. Section: 3. pays cash for its inventory. Debt ratio C. you know for certain that the firm: A.4 and a quick ratio of 0. has more current liabilities than it does current assets. has positive net working capital.2 Topic: Cash ratio 3-41 . interpret some common ratios. has more cash than inventory. D. Quick ratio E.9. B. Refer to section 3.Working with Financial Statements 12. more importantly. has more than half its current assets invested in inventory. Section: 3. Fred is the owner of a local feed store. interpret some common ratios. Cash coverage ratio D.Chapter 03 . Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. E.2 Topic: Quick ratio 13. C. Given this. more importantly. Cash ratio Refer to section 3.2. Current ratio B. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and. A firm has a current ratio of 1.2. Which one of the following ratios should he compute if he wants to know how long the store can pay its bills given the amount of cash the store currently has? A. Section: 3.2 Topic: Cash coverage ratio 3-42 . Profit margin C. length of time that a firm can pay its bills if no additional cash becomes available. Equity multiplier D. more importantly. The cash coverage ratio is used to evaluate the: A.2. ability of a firm to pay the interest on its debt.2. C. D. Receivables turnover E. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. liquidity of a firm. interpret some common ratios.Chapter 03 . Section: 3. Quick ratio Refer to section 3. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. Refer to section 3. relationship between the firm's cash balance and its current liabilities. interpret some common ratios. Price-earnings ratio B. Which one of the following is a measure of long-term solvency? A.Working with Financial Statements 14.2 Topic: Equity multiplier 15. more importantly. B. speed at which a firm generates cash. E. E.2 Topic: Inventory turnover 3-43 . Section: 3. total equity divided by total assets. sells its entire inventory every 16 days. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-02 Compute and. buys 16 days of inventory with each order. B. one plus the total asset turnover. one plus the debt-equity ratio. E. only stocks its inventory every 16 days. C. Section: 3. B. Refer to section 3. Blooming Gardens has an inventory turnover of 16. sells its inventory an average of 16 times each year. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-02 Compute and. The equity multiplier is equal to: A. D.2. C. sells its inventory by granting customers 16 days credit.2 Topic: Equity multiplier 17.2.Working with Financial Statements 16. D. more importantly. total debt divided by total equity. interpret some common ratios.Chapter 03 . more importantly. interpret some common ratios. one divided by the total asset turnover. This means the firm: A. Refer to section 3. interpret some common ratios. more importantly. Decrease in the inventory turnover rate Refer to section 3.2.2 Topic: Total asset turnover 3-44 . Receivables turnover B. Decrease in the profit margin E. Decrease in the total asset turnover B. Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past? A. interpret some common ratios.2 Topic: Capital intensity ratio 19. Total asset turnover Refer to section 3. Return on assets E. more importantly.Chapter 03 . Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and. Section: 3. Kelso's Pharmacy generates $2 in sales for every $1 the firm has invested in total assets.Working with Financial Statements 18. Section: 3. Which one of the following ratios would reflect this relationship? A. Equity multiplier C. Bloom's: Knowledge Difficulty: Basic Learning Objective: 03-02 Compute and. Increase in days' sales in receivables D. Profit margin D. Decrease in the capital intensity ratio C.2. Section: 3.2 Topic: Long term solvency 3-45 . In preparation for applying for that loan. you are in the process of developing target ratios for your firm.2 Topic: Profit margin 21. Cash coverage ratio = 2. debt-equity ratio = 1.3 E.8.8 D.5. more importantly. interpret some common ratios.Chapter 03 . all else constant? A.2. debt-equity ratio = 1. debt-equity ratio = 0.5. Cash coverage ratio = 0. more importantly.7. total debt ratio = 0.6 B. Increase in depreciation expense D. Times interest earned = 1.2 Refer to section 3.Working with Financial Statements 20.6. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future? A. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and. You would like to borrow money three years from now to build a new building. Increase in fixed costs C. Decrease in the tax rate E. Which one of the following will increase the profit margin of a firm. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-02 Compute and.2. Increase in interest paid B. debt-equity ratio = 0. interpret some common ratios.2 C. Section: 3. Decrease in sales Refer to section 3. Times interest earned = 1. Cash coverage ratio = 0. Chapter 03 - Working with Financial Statements 22. All else constant, which one of the following will decrease if a firm increases its net income? A. Return on assets B. Profit margin C. Return on equity D. Price-sales ratio E. Price-earnings ratio Refer to section 3.2. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Price-earnings ratio 23. Which one of the following statements is true concerning the price-earnings (PE) ratio? A. A high PE ratio may indicate that a firm is expected to grow significantly. B. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings. C. PE ratios are unaffected by the accounting methods employed by a firm. D. The PE ratio is classified as a profitability ratio. E. The PE ratio is a constant value for each firm. Refer to section 3.2. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Price-earnings ratio 3-46 Chapter 03 - Working with Financial Statements 24. New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation? A. Price-sales ratio B. Market-to-book ratio C. Profit margin D. ROE E. ROA Refer to section 3.2. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Price-sales ratio 25. The Du Pont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm. II. operating efficiency of a firm. III. utilization rate of a firm's assets. IV. rate of return on a firm's assets. A. II and III only B. I and III only C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV Refer to section 3.3. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.3 Topic: DuPont identity 3-47 Chapter 03 - Working with Financial Statements 26. The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This cost improvement will increase which of the following ratios? I. Profit margin II. Return on assets III. Total asset turnover IV. Return on equity A. I and II only B. I and III only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV Refer to section 3.2. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Profitability ratios 27. Martha's Sweet Shop reduced its fixed assets this year without affecting the shop's operations, sales, or equity. This reduction will increase which of the following ratios? I. Capital intensity ratio II. Return on assets III. Total asset turnover IV. Return on equity A. I and II only B. II and III only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV Refer to section 3.2. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Total asset turnover and return on assets 3-48 4 Topic: Internal growth rate 29. zero percent. Refer to section 3. negative. 100 percent.4. would like to increase its internal rate of growth. Bloom's: Comprehension Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. Return on assets B. Donovan Brothers. Retention ratio D. Return on equity Refer to section 3. then the internal growth rate of the firm is: A. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. Inc. Net income C. Decreasing which one of the following will help the firm achieve its goal? A. C. Dividend payout ratio E. B. infinite. If a firm has a 100 percent dividend payout ratio. equal to the ROA. E.4.4 Topic: Internal growth rate 3-49 . D.Chapter 03 .Working with Financial Statements 28. Which of the following are determinants of a firm's sustainable rate of growth? I.4 Topic: Sustainable growth rate 31. I. Increasing the target debt-equity ratio A. III. and IV only E. and IV Refer to section 3. Percent of net income distributed as dividends A. III and IV only C. Amount of sales generated from each dollar invested in assets II. Decreasing the capital intensity ratio IV. and IV Refer to section 3. I.4.Chapter 03 . and IV only D. III. II. I and III only B. Increasing the dividend payout ratio III. III.Working with Financial Statements 30. III. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.4 Topic: Sustainable growth rate 3-50 . and IV only E. II. Decreasing the profit margin II. I and II only B. Amount of debt per dollar of equity III.4. II and IV only C. II and IV only D. I. Amount of current assets per dollar of current liabilities IV. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. II. Which of the following will increase the sustainable rate of growth for a firm? I. II. I. Which one of the following statements is correct? A.Chapter 03 . E. Section: 3. line of business.5. provides useful information to shareholders but not to debt holders. set of accounting standards. is limited to internal use by a firm's managers. G. E.5 Topic: Financial statement analysis 33. Comparing results across geographic locations is easier since all countries now use a common F. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-04 Identify and explain some of the problems and pitfalls in financial statement analysis. Adjustments have to be made when comparing the income statements of firms which use different methods of accounting for inventory. Refer to section 3.Working with Financial Statements 32.5. Financial statement analysis: A. provides useful information that can serve as a basis for forecasting future performance. Peer group analysis is easier when a firm is a conglomerate versus when it only has a single B. Peer group analysis is easier when seasonal firms have different fiscal years. is primarily used to identify account values that meet the normal standards. D. Section: 3. D. Refer to section 3.5 Topic: Financial statement analysis 3-51 . is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods. C. B. C. Peer group analysis is simplified when firms use varying methods of depreciation. Bloom's: Comprehension Difficulty: Intermediate Learning Objective: 03-04 Identify and explain some of the problems and pitfalls in financial statement analysis. 700 = 33. and sales of $587. A firm has inventory of $11.1 Topic: Common-size ratio 3-52 . 26.09 percent E. net fixed assets of $12.700. cash of $850.150/($850 + $6.200. 33.66 percent C.19 percent D.800. accounts receivable of $6. long-term debt of $9. total assets of $647.800.600 + $11. Section: 3.75 percent NFA common-size percent = $12.19 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes.500. 26. Section: 3. Russell's Hardware has inventory of $218.Working with Financial Statements 34.1 Topic: Common-size percentage 35.67 percent C. 48.68 percent Inventory common-size percent = $218.000/$647.400. accounts payable of $9. 42. 37.600.60 percent B. and total equity of $11. 49.Chapter 03 .150. 19. 51. equity of $421.12 percent D. 39. What is the common-size percentage for the inventory account? A. What is the common-size percentage for the net fixed assets? A.000.81 percent B.66 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes.400 + $12.08 percent E.700.150) = 39. 000/($48. 31.1 Topic: Common-size percent 37.400/$311.50 percent C.05 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes.90 percent B.Chapter 03 . 33.05 percent COGS common-size percent = $379. Section: 3.700 = 15.400. total assets of $219.10 percent E. Delmont Movers has a profit margin of 6.06 percent E.000 for the year? A. 41. total equity of $154.00 percent B. Section: 3.1 Topic: Common-size percent 3-53 .700. 48. and total sales of $311. 15. 9.000.27 percent Net income common-size percent = $48.800.90 percent C.53 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes.900/0.53 percent D. What is the common-size percentage for the cost of goods sold if that expense amounted to $379.900.062) = 48. Foreign Travel Services has net income of $48.Working with Financial Statements 36.2 percent and net income of $48.25 percent D. 23. 12. 13. What is the common-size percentage for the net income? A. 22. 500.$275.4 percent and the retention ratio is 60 percent. 2.6 percent.67 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. and sales of $721.Working with Financial Statements 38.Chapter 03 .000 for the year.034  (1 .21 percent D.000  0. The profit margin is 4.67 E.800.400 .500 . Section: 3. 1. A firm has sales of $428.800)/($689.01 D. 1.99 percent B.1 Topic: Common-size percent 39. total equity of $275. more importantly.18 percent C.36 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-01 Standardize financial statements for comparison purposes.0. long-term debt of $299. 0.500.000. 1. The profit margin is 3. 1. 0. interpret some common ratios.400.60 B. What is the common-size percentage for the dividends paid? A.2 Topic: Current ratio 3-54 . What is the current ratio? A.16 Current ratio = ($689.000) = 1.$497. 1. net fixed assets of $497. Section: 3. 1. 0.91 C.000 = 1.60)]/$428. Peter's Motor Works has total assets of $689.36 percent E.42 percent Dividends paid common-size percent = [$428.$299.400 . 800 .000) = 2.700. 1.800.46 C. 0.700 .$3.48 D. What is the current ratio? A. 1.700. 0.18 Current ratio = ($129. 1.700/($11. more importantly.800 and current assets of $11.500. Section: 3.000. 0.65 E. Section: 3.92 Current ratio = $11. If inventory is $31.$52. interpret some common ratios. Healthy Foods has total assets of $129.33 B.84 D.700 .Chapter 03 .2 Topic: Current ratio 41. more importantly. 0.34 B. 0.2 Topic: Current ratio 3-55 . 2. 2.18 E.60 C. what is the current ratio? A. long-term debt of $52. interpret some common ratios. and total debt of $78.Working with Financial Statements 40.800. net fixed assets of $71.18 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.$71.800) = 1.48 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.500)/($78. A firm has net working capital of $3. 0. 1.08 B. and inventory of $56. more importantly.200 + $27.25 E.30 B. 0.80 D.900 = 0. 0. more importantly. 0.18 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. 0.46 E. You are analyzing a company that has cash of $11.860.25 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.150.800. accounts payable of $11.2 Topic: Cash ratio 43.900. Slightly Used Goods has cash of $2.51 Cash ratio = $2. fixed assets of $124. interpret some common ratios.2 Topic: Quick ratio 3-56 .67 C.470. 1. inventory of $28. accounts receivable of $27.300 = 1.200.660.150/$11.600. interpret some common ratios.37 Quick ratio = ($11.Working with Financial Statements 42.18 C. 0.Chapter 03 . What is the cash ratio? A. 0.300. and accounts receivable of $4.32 D. Section: 3. Section: 3. accounts payable of $31. 0.800)/$31.900. What is the quick ratio? A. fixed assets of $9. more importantly.750)/$6.$2. What is the quick ratio? A.76 B.Working with Financial Statements 44.34 Cash ratio = $1.750.2 Topic: Cash ratio 3-57 .98 E. Tressler Dry Cleaners has inventory of $1.950/$4.800. and accounts receivable of $3. interpret some common ratios. 0. Tasty Dee-Lite has current liabilities of $6.2 Topic: Quick ratio 45.180. inventory of $2.200.46 C.200 = 0. more importantly. 0.Chapter 03 . Section: 3. net working capital of $2. What is the cash ratio? A. and sales of $36.680.46 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. 1. 1.53 D.24 B. Section: 3.09 E.91 D. 0.84 C.950.630. 1.630 + $2. accounts payable of $4.91 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.630 = 0.180 . 0. 0.19 Quick ratio = ($6. 0. interpret some common ratios.700. 0. cash of $1. 100 + $24. 0.87 D.08 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.86 Total debt ratio = ($6. Section: 3. more importantly. 0. and long-term liabilities of $24. interpret some common ratios.21 E.600. net fixed assets of $37.800 + $9.100) = 0.100 .800.60 C. 0.400. 0.600)/$46.100.04 B. and net working capital of $1. 3.08 C.800. What is the total debt ratio? A. 0. 0.800 = 0. inventory of $33.Working with Financial Statements 46.41 B.45 Cash ratio = $3. 1. accounts receivable of $9.66 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.100.78 E. more importantly.600 + $33. current liabilities of $6.$1.2 Topic: Cash ratio 47.100. What is the cash ratio? A. 0. 0.Chapter 03 . interpret some common ratios.66 D.800/($3. Wilson's Realty has total assets of $46. Section: 3.2 Topic: Total debt ratio 3-58 . Your firm has cash of $3.600. current assets of $186.600. What is the total debt ratio? A.70 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.100. 0. Inc. interpret some common ratios.26 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. net working capital of $1. A firm has total assets of $523. more importantly.000.26 C. 3. What is the debt-equity ratio? A. Denton. 0.85 Total debt ratio = ($527. 2. long-term debt of $116.48 B. interpret some common ratios.Working with Financial Statements 48.400.500. current liabilities of $141. 0. 0.Chapter 03 . 1.000.$389.2 Topic: Total debt ratio 49. has total equity of $389. more importantly.600. Section: 3.600)/$527.13 Debt-equity ratio = $215.22 B.600.600 .43 E. and total debt of $215. and total assets of $527.000/($523.49 E.100 . 0. 1.000) = 0. Section: 3.600 = 0.67 D.2 Topic: Debt-equity ratio 3-59 . 1.10 D.70 C.$215. 35 .54 C.Chapter 03 . interpret some common ratios. 0.000.000) = 2.47 D. Section: 3.Working with Financial Statements 50. 0. more importantly. 2.2 Topic: Debt-equity ratio 51. 0.600 and an equity multiplier of 1.21 D.2 Topic: Equity multiplier 3-60 . 0. Underwood Homes Sales has total assets of $589.28 B. Section: 3. interpret some common ratios. 0.35.17 Equity multiplier = $589.85 E.$318.900/($589. 1.58 E. 0.1 = 0. 0.67 Debt-equity ratio = 1.35 C. The Jelly Jar has total assets of $79. What is the equity multiplier? A. more importantly.35 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.17 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.46 B.900 . 1. What is the debtequity ratio? A.900 and total debt of $318. 5. 2.700.50. 0.33. total debt ratio of 0.6 = 2. What is the equity multiplier? A. more importantly. C.4 percent. and a profit margin of 2. 0. This means that the firm has a: A. debt-equity ratio of 0. Refer to section 3. AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.Working with Financial Statements 52. D. total assets of $198. more importantly. A firm has an equity multiplier of 1.6.6 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. total debt ratio of 0. interpret some common ratios. 2. total debt ratio of 0.84 Equity multiplier = 1 + 1. Section: 3.60 B.Chapter 03 . Section: 3.67. B. a debt-equity ratio of 1.63 C.600. debt-equity ratio of 0.2.33.67.83 D.2 Topic: Equity multiplier 3-61 . 1. Preston's Market has sales of $213.2 Topic: Equity multiplier 53.60 E. E. interpret some common ratios. more importantly. 4.680 . cost of goods sold of $369.000 .680 and net income of $12. Friendly's Shoe Store has earnings before interest and taxes of $21.[$12. interpret some common ratios.400.Chapter 03 .$37. The tax rate is 34 percent.29 B.542/(1 . 5.10 Times interest earned ratio = $21.10 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and. Section: 3. 2.Working with Financial Statements 54. depreciation of $37. 0.09 D. Section: 3.000.680/{$21.$369. 3.0.29 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.46 C.38 E. more importantly.88 B.67 C.2 Topic: Times interest earned 55.000.34)]} = 8.800. 8. interpret some common ratios. 1.2 Topic: Times interest earned 3-62 .87 D. and interest expense of $13.800 = 2.59 E. The tax rate is 35 percent. What is the times interest earned ratio? A.000 . 4.79 Times interest earned ratio = ($438. 3.542. What is the times interest earned ratio? A. The Berry Patch has sales of $438.400)/$13. 3. 130}/$2.82 B. taxes of $14. 14.2 Topic: Times interest earned 57.130.34)] + $2.67 E.32 E. 16. 5. interpret some common ratios. 10. Section: 3.890/(1 . depreciation of $5.0. 17. What is the firm's times interest earned ratio? A. A firm has net income of $31.19 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. What is the cash coverage ratio? A.10 C. 4. Section: 3.19 C. interpret some common ratios. 6. A firm has net income of $5.14 D.100)/$3.Working with Financial Statements 56. 8.300 + $14.600 + $3.100 + $5. more importantly.300.100.2 Topic: Cash coverage ratio 3-63 . 5.Chapter 03 . 5.600.100 = 17.130 = 5.45 Cash coverage ratio = ($31. and interest paid of $3. more importantly. The tax rate is 34 percent.890 and interest expense of $2.33 Times interest earned ratio = {[$5.100.78 B.38 D.45 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. The total asset turnover rate is 1.2.900/$61. 10.400.100. 4. What is the cash coverage ratio? A. 8.2 Topic: Cash coverage ratio 59. 6. interpret some common ratios.700)] + $3. 7.Chapter 03 .14 E. Section: 3. depreciation of $3. 7. cost of goods sold of $264.400 = 9.900. Earnings before interest and taxes are equal to 28 percent of sales. Blue Water Cafe has $28.900.900 = 4.28 C.33 B. The Global Network has sales of $418. more importantly. 9.23 E.2  $28. 10.700 in total assets.10 D.100}/$1.2 Topic: Inventory turnover 3-64 .51 C.700. Section: 3. 6. 1. interpret some common ratios. What is the inventory turnover rate? A.47 Inventory turnover = $264.33 B.28  (1.10 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.98 Cash coverage ratio = {[0.76 D. and interest of $1. more importantly.Working with Financial Statements 58.28 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. and inventory of $61. What is the inventory turnover rate? A. 48.200/$94. interpret some common ratios. 10.10 days Inventory turnover = $603.Chapter 03 .40 days B. interpret some common ratios. Galaxy Sales has sales of $746.79 B.06 days E. 7. 6. 8. 5. cost of goods sold of $603. The Tourist Stop takes an average of 63 days to sell its inventory and an average of 1.29 C. How long on average does it take the firm to sell its inventory? A.06 days AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. 61.700. 7.39661 Days sales in inventory = 365/6.Working with Financial Statements 60.79 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. 11.39661 = 57.200. more importantly.42 Inventory turnover = 365/63 = 5. more importantly. and inventory of $94.2 Topic: Days sales in inventory 3-65 . Section: 3. 57.300.300 = 6.68 D.18 E.5 days to collect payment on its sales. Section: 3.23 days C.68 days D.2 Topic: Inventory turnover 61. Chapter 03 . Handy Hardware sells its inventory in 85 days. more importantly.506 C.800.29412 = $147.29412 Inventory = $631.500. interpret some common ratios. $123.2 Topic: Accounts receivable turnover 3-66 .800/4. $114. Section: 3.600 = 9.600. 9.132 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.08.99 B.500/1.132 D.13 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.096 E.Working with Financial Statements 62. Section: 3. Inc. more importantly. What is the accounts receivables turnover rate? A.706 B. on average. $161.42 D. and a capital intensity ratio of 1.61 E. total assets of $311. cost of goods sold of $208.72 Accounts receivable turnover = ($311.513 Inventory turnover = 365/85 = 4. $147. 9. 8. has accounts receivable of $31.400. Kessler.2 Topic: Inventory 63. 9.08)/$31. interpret some common ratios. What is the average value of the firm's inventory? A. 9. Costs of goods sold for the year are $631. $182.13 C. 33 days Accounts receivable turnover = $923.2 Topic: Accounts receivable turnover 65. Textile Mills has sales of $923.65042 = 42. 11.800.700 = 8.700. 11.Chapter 03 . It takes The Corner Store an average of 51 days to sell its inventory and 32 days to collect its accounts receivable. What is the accounts receivable turnover rate? A.000.23 E. How long on average does it take the firm's customers to pay for their purchases? A.28 days C.Working with Financial Statements 64. more importantly.01 days D.700 and costs of goods sold of $398.78 D. and accounts receivable of $106.23 B. 11. Section: 3. cost of goods sold of $748. 8. 11.19 days E.41 C. Section: 3. 42.41 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. 25.2 Topic: Days sales in receivables 3-67 .000/$106. 45.65042 Days sales in receivables = 365/8. 12. interpret some common ratios. The firm has sales of $568.000. 12.19 days AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. interpret some common ratios. more importantly.65 days B.55 Receivables turnover = 365/32 = 11. 500. Section: 3.Chapter 03 .800 in total assets.99 days Receivables turnover = ($211.500 + $89.500) = 1.19 D.19 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. 9.300. has sales of $291. 11.15874 Days sales in receivables = 365/7.800  1. 31.11 C. 7. interpret some common ratios.200.2 Topic: Total asset turnover 3-68 .2 percent. 1.500. What is the total asset turnover rate? A. more importantly.68 days D. 1. more importantly.45 days C.24 E.99 days AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.900 in receivables and $211.28 Total asset turnover = $291. 1. 1.45)/$42.200/($154. 50. and current assets of $89.45 and the profit margin is 4. net profit of $11.15874 = 50.2 Topic: Days sales in receivables 67.360.08 B.16 days B. Aardvaark & Co. interpret some common ratios. Section: 3. How long on average does it take the firm to collect its receivables? A. net fixed assets of $154. 1. A firm has $42.25 days E.Working with Financial Statements 66. cost of goods sold of $163.900 = 7. The total asset turnover rate is 1. total equity of $74.79 B.2 Topic: Total asset turnover 69.2 Topic: Capital intensity ratio 3-69 .79 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.000. a profit margin of 6. and a debt-equity ratio of 0. 1.200 = 0. What is the capital intensity ratio? A.06 D.19 E. and a capital intensity ratio of 0.84. 1. 1.45  $74.27 Total assets = (0.Chapter 03 . What is the total asset turnover rate? A. Section: 3.26 Total asset turnover = 1/0.880/$137.400) + $74. 1. 0.83 C.08 C.45.400. 1. 0.400 = $107.04 B. 1. interpret some common ratios. 1.20 E. Martha's Fabric House has sales of $137. more importantly. interpret some common ratios.84 = 1.19 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.13 D.200. Holiday House has sales of $648. 1. more importantly. Section: 3.Working with Financial Statements 68.880 Capital intensity ratio = $107.1 percent. 33 percent D.000.000.Chapter 03 . interpret some common ratios.46 percent B.74 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.7 percent.2 Topic: Profit margin 3-70 .$7.16 D. Section: 3.34 E.Working with Financial Statements 70. 12. Circle Stores has net income of $41.86 C.74 B.000 = 12.95 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.000/0. 13. and a return on assets of 9 percent.2 Topic: Capital intensity ratio 71.38 Capital intensity ratio = ($41. 12. 1.900]  (1 . more importantly.067) = 0.11 percent Profit margin = {[(0.000) .09)/($41. 1. interpret some common ratios.0. Section: 3. 15.900 in interest. For the period. Tally Ho Inn has annual sales of $737. a profit margin of 6.95 percent C. What is the capital intensity ratio? A. 16. What is the profit margin if the tax rate is 35 percent? A.21  $737.000/0.35)}/$737. more importantly. 0. 0. Earnings before interest and taxes is equal to 21 percent of sales.29 percent E. 1. the firm paid $7. a profit margin of 11. interpret some common ratios.54 percent C.897 Net income = 0. $149.83 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.01 percent E. Section: 3.100 = 6. $85.6 percent.2 percent. interpret some common ratios.311 E. 6.000 = $134. What is the return on assets? A.316 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.Chapter 03 . What is the net income? A. more importantly.316 D. $113.29 percent B.182  $738.062  $428. The Next Life has sales of $428. more importantly.875 C.300)/$389. and a profit margin of 6.2 percent. $142. $134.300.27 percent Return on assets = (0. 6.Working with Financial Statements 72. 6.608 B. The Medicine Cabinet has a return on equity of 18.100. 7.000.2 Topic: Return on equity 73. 7.2 Topic: Return on assets 3-71 . Section: 3. and total equity of $738. total assets of $389.83 percent D. 2 Topic: Return on assets 3-72 .42 percent E.33 percent Return on assets = (0.2 Topic: Return on assets 75. a profit margin of 4. 4. and a capital intensity ratio of 0. What is the return on assets? A.39 percent D.046  $828.Chapter 03 . interpret some common ratios. 13. 6.Working with Financial Statements 74. 3.67 percent B.900.900)/[(1 + 0.79. more importantly.048  $189. Cross Hairs Gun Shop has sales of $189.200. 12. a profit margin of 4. total equity of $539. interpret some common ratios. Section: 3. 6. more importantly.55)  $539.200)] = 4.67 percent Return on assets = (0. 5.08 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.000) = 6. 6. Section: 3.86 percent E. 6. 6.67 percent D.56 percent C.6 percent and a debt-equity ratio of 0. Goshen Industrial Sales has sales of $828.56 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.000)/(0.000.55.89 percent B.8 percent. What is the return on assets? A.08 percent C.79  $189. $4.02 Earnings per share = (0.500 shares outstanding. interpret some common ratios. more importantly.300.82 percent B.89 E. 8.68 percent E. $3.2 Topic: Return on equity 77.200)/12. $3. Section: 3. $2.052  $1.98 B.18 percent D. sales of $1. the firm has 12.058  $713. more importantly. Section: 3.000)/$861. and a profit margin of 5. 6.200 and a profit margin of 5. What is the return on equity? A. 5. 8.500 = $3.Working with Financial Statements 76.48 million.Chapter 03 . $3.480.56 D.300 = 8. Freedom Health Centers has total equity of $861. The Closet Shoppe has total sales of $713.49 percent C.31 C.2 percent.31 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. interpret some common ratios.8 percent.2 Topic: Earnings per share 3-73 .94 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. Currently. 7. What are the earnings per share? A.94 percent Return on equity = (0. 16 C.400/45.7  $37)/($68.071  ($710. more importantly. interpret some common ratios.72 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.29)]/45. Baxter & Baxter has total assets of $710.38 B.38 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.34 B.000  1.12 E. 17. What is the price-earnings ratio? A.000) = 65.000.7.Chapter 03 . 20. Section: 3.10 D. 65.38 D.41 Price-earnings ratio = $28/{[0. Section: 3. What is the price-earnings ratio? A. 24.000} = 19. interpret some common ratios.29. 16. more importantly.72 Price-earnings ratio = (2. net income of $68.2 Topic: Price-earnings ratio 79. 22.09 E. a book value per share of $37.1 percent and a total asset turnover of 1. 59.400.000 shares of stock outstanding. and 45.Working with Financial Statements 78.000 shares of stock outstanding with a market value of $28 a share. 28.2 Topic: Price-earnings ratio 3-74 . 55. Ratzell's Place has a market-to-book ratio of 2.99 C. There are 45. The firm has a profit margin of 7. 19. 98 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.000 shares outstanding at a market price of $36 per share.600. 11.000 and net income of $21. 11.6 percent on sales of $311. more importantly.sales ratio = $36/($311.93 E.200. more importantly.08 B. The firm currently has 15. What is the price-sales ratio? A. 6. 10.02 C. A firm has sales of $311. 9.26 D.84 Price-earnings ratio = $11.000) = 2. there are 18.08 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. What is the price-earnings ratio? A.000 shares of stock outstanding at a market price of $11.98 B. The Green House has a profit margin of 5.11 C.000] = 9.2 Topic: Price-earnings ratio 81. 2. interpret some common ratios. Section: 3.60/[(0. 4.200)/15. 12.15 E.60 per share.000/18.2 Topic: Price-sales ratio 3-75 . 3. 5. Currently. interpret some common ratios.50 D.056  $311.Working with Financial Statements 80.95 Price . Section: 3.Chapter 03 . 6. The company has earnings per share of $0.32 B. 1.75 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.47 E. 2.2 Topic: Market-to-book ratio 3-76 . Section: 3. Swanton Foods has a book value per share of $12. What is the market-to-book ratio? A. Section: 3.68 = 1. 1.2 Topic: Market-to-book ratio 83. interpret some common ratios. 1.61 Market-to-book ratio = ($1. 1. What is the market-to-book ratio? A.25 a share.6)/$12.68.28 = 1.58 B.92 Market-to-book ratio = $16.99 D.42 and a book value per share of $9. The common stock of The Burger Hut is selling for $16. 1. 2. more importantly. more importantly. interpret some common ratios.Working with Financial Statements 82. and a price-earnings ratio of 17.28.25/$9. 1. 1. earnings per share of $1.87 E.21  17.68 C.68 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and.69 C.75 D. 1.Chapter 03 .21. 39.145/[($78. 13.61 percent Return on equity = ($7.65) = 9.46 percent E. 10.800.48 percent Return on assets = 0. 9.65. 9.01 percent D.73 percent C.3 Topic: DuPont identity 3-77 .000] = 10.800)  (1 + 0. The Inside Door has total debt of $78.600 + $214. The Noodle Place has total assets of $123.600.100/$123. What is the return on assets? A. 3.3 Topic: DuPont identity 85. What is the return on equity? A. and net income of $7. total equity of $214.48 percent B.14 percent B. a debt-equity ratio of 0. 8.Chapter 03 .000.61 percent C.45 percent D.000)/$214. 34.100.61 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.46 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. and a return on equity of 14.61 percent E.Working with Financial Statements 84.5 percent. 21. 3. a total asset turnover rate of 2.6] = 9.8 percent. 3.62 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.28 percent D.67 percent C. 5.16  1. 8.11 percent E. 8.10 percent B.500/$289.45)  1.3 Topic: DuPont identity 87.91 percent B. 32. Computer Geeks has sales of $521.56 percent Return on equity = 0. The debt-equity ratio is 0.000.62 percent Profit margin = ($64.67 percent D.56 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.30 = 41.6.148  2. and an equity multiplier of 1. 5. a profit margin of 14.21 percent E.23 percent C. 41.Working with Financial Statements 86.3 Topic: DuPont identity 3-78 . 9. What is the return on equity? A.30.Chapter 03 . What is the profit margin? A.100)/[(1 + 0. 18. 12. Morrison Motors has total equity of $289.45 and the total asset turnover is 1.16.100 and net income of $64.500. 20. What is the return on equity? A.45. and a total asset turnover of 1.3 Topic: DuPont identity 89. The Blue Lantern has a return on equity of 17. 17. 24.16 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.90 percent D.60) = 20. and a debt-equity ratio of 0.8 percent.000.16 percent D.98 percent C.28 percent E.126  (1 + 0.46 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.3 Topic: DuPont identity 3-79 . 18. 3.60. 5.6 percent.178/(1. 6.20 percent E.57 percent C.76 percent B. A firm has net income of $114. What is the profit margin? A. 4. an equity multiplier of 1.60 percent Return on equity = 0.Working with Financial Statements 88. 22.46 percent Profit margin = 0.45  1.9.Chapter 03 .9) = 6. a return on assets of 12.11 percent B. 2. 98 percent C.86 percent E.86 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. 15.26 percent B. What is the return on equity? A. 12.800)  (1/0.5.03 percent Return on equity = 0.1 percent.76 percent C. 19.Chapter 03 . a total asset turnover rate of 1. 6. 10. 4.6) = 15.061  (1 + 1.Working with Financial Statements 90.21 percent E.200.74.65 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. What is the return on equity? A.6. 14.67 percent B.09 percent Return on equity = ($49.8.800.28 percent D. 8. and a debt-equity ratio of 1.3 Topic: DuPont identity 91. a capital intensity ratio of 0. and an equity multiplier of 1.200/$936.3 Topic: DuPont identity 3-80 .5 = 10. The Saw Mill has a return on assets of 6. Webster & Jones has net income of $49.65 percent D. 9. sales of $936.74)  1. 12. $187.3 Topic: DuPont identity 93. $64.000.000  1. $58.430 D. and a return on equity of 8.Working with Financial Statements 92.8 percent. a total asset turnover rate of 1.236. Eastern Hardwood Sales has total equity of $89.548. and a total asset turnover of 1.885.000  1.6).3 = $173.550 C.63 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.7 percent.200 B. $53. a profit margin of 4.3 Topic: DuPont identity 3-81 .303.620 E. $173.6.550 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.33 C.885.09 E. $70.1.087 = [Net income/($991. $181. Net income = $53.Chapter 03 .14 D. What is the amount of the firm's sales? A.1)]  1. New Steel Products has total assets of $991.000.624.63 B.1  (1 + 0. an equity multiplier of 1. What is the firm's net income? A.3. $77.5. a debtequity ratio of 0.5  1. $168.67 Return on equity = 0. $185.500 Sales = $89. 71 percent. 25. The company borrows $0. 26. What is the return on assets? A. 13.07 percent E.63 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.1271/(1 + 0. 13. 28.60 for every $1 of equity.26 percent B. A firm earns $0.63 percent B.75. 7.33 percent Return on assets = ($0.41 percent Return on assets = 0.3 Topic: DuPont identity 95.Working with Financial Statements 94. 10. Tessler Farms has a return on equity of 12. 8.17/$1)/($1.9.67 percent D.Chapter 03 . 15.75) = 7.53 percent C.24 percent E. and a total asset turnover of 0.15 percent D.17 in profit for every $1 of equity in the firm. 17.26 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. a debt-equity ratio of 0.06 percent C. What is the firm's return on assets? A.3 Topic: DuPont identity 3-82 .60/$1) = 10. 21. The Veggie Hut has net income of $26.30)]} = 10. 8.Chapter 03 . What is the internal growth rate? A.67 percent D.Working with Financial Statements 96.700 .22 percent C.900.48 percent B.300.30)]/{1 .000.700. total equity of $121.22 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.400/$189.$6.700 .500)  (1 . and dividends paid of $6.700.87 percent E.[($26. and total assets of $189. 6. 5.700/$217.000)/$18.94 percent Internal growth rate = [($26.000)  [($18. 7. 16. The dividend payout ratio is 0. 7.81 percent D.81 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. Quick Foods has sales of $238.57 percent C.700]}}/ = 6. 7.4 Topic: Internal growth rate 3-83 .400/$189.000.500.0.99 percent B. 10.700]}/ {1 {($18.92 percent Internal growth rate = {($18.400.000)/$18.700/$217.$6.4 Topic: Internal growth rate 97. total assets of $217.30.500)  (1 0.000)  [($18.34 percent E. total equity of $102. net income of $18. 6. What is the internal growth rate? A. [($0. Underwood Enterprises earns $0.65 percent Internal growth rate = [($0.67 percent E.100/$156. Given this.07/$0.11 percent C.37 percent Internal growth rate = [($12.40)]} = 4.76 percent C. 9. 6. A firm has adopted a policy whereby it will not seek any additional external financing. total assets of $156. total equity of $94.07/$0.100/$156. What is the internal growth rate? A. 4.0.20)]} = 9.62 percent D.4 Topic: Internal growth rate 99. what is the maximum growth rate for the firm if it has net income of $12.0. 8.0. 7.000)  (1 0. The firm pays out 20 percent of its profits to its shareholders.07 in profit on every $1 of sales and has $0. 6. 9.40)]/{1 .20)]/{1 .12 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.100.80 percent D.Chapter 03 .67)  (1 .4 Topic: Internal growth rate 3-84 . 5.[($12. 8.12 percent E.000)  (1 . 7.88 percent B.88 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.37 percent B.67)  (1 .Working with Financial Statements 98.000.67 in assets for every $1 of sales. and a 40 percent dividend payout ratio? A.000. 20 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. 5. Joshua's Antiques has a total asset turnover rate of 1. 9. and a 40 percent dividend payout ratio.4 Topic: Sustainable growth rate 3-85 .58 percent E. 7.16  (1 .4 Topic: Sustainable growth rate 101.84 percent C.72 percent B. What is the sustainable growth rate? A.4)  0.91 percent Sustainable growth rate = [(0.54 percent E.12 percent D.40)]/{1 .62 percent Sustainable growth rate = [0.8]} = 7. and total assets of $120. 7.[(0.40)]} = 10.8.20 percent C.05  1. 10.98 percent B. What is the sustainable growth rate? A. an equity multiplier of 1. A firm has a return on equity of 16 percent. 7. a profit margin of 5 percent. 7. a retention ratio of 0.8]/{1 .33 percent D.2  1.62 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.0.Working with Financial Statements 100.4)  0.0.Chapter 03 .[0.2. 7. 6. a return on assets of 11 percent.000.2  1. 6.05  1.4.16  (1 . $800)/ $5.800/[$92.100/($11.79 percent D.000. 12. 7.800]/{1 .$6.27 percent C.300.Chapter 03 .11 percent D.100 .100/($11.Working with Financial Statements 102.$23.48 percent B.4 Topic: Sustainable growth rate 3-86 .500 in dividends.800.500) /$11.29 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.38 percent Sustainable growth rate = {$11. 12. 10.000/(1 + 0.45)]}  [($11.900 .800]} = 9.{$11.62 percent E.900 . 9.900. The firm had net income of $11.800)]  [($5.{[$5.000/(1 + 0.$6. The Donut Hut has sales of $68. 8.4 Topic: Sustainable growth rate 103. 9.100 . total debt of $23. The firm has total assets of $92.100]}/{1 .300 + $54. What is the sustainable growth rate? A. and dividends of $800.11 percent AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.800)]  [($5.39 percent Sustainable growth rate = {[$5. 10.100]}} = 11.45.800 . net income of $5.08 percent E.800 .$800) /$5.000.$23. 11. current assets of $11.45)]}  [($11.300 + $54.38 percent B. 11.100.800 for the year and paid $6.500)/$11.800/[$92. Valentino's maintains a constant debt-equity ratio of 0.29 percent C. What is the sustainable growth rate? A. net fixed assets of $54. 34 percent D. What is the dividend payout ratio? A. 4.4 Topic: Dividend payout ratio 105.20.00 percent C. 32.21 percent E. 3.85 percent E.98 percent B.20/($68.60 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. 34.Working with Financial Statements 104. 40.4 Topic: Dividend payout ratio 3-87 .71 percent C.04 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. Last year. What is the dividend payout ratio? A. 14.400/12.500 in dividends.000) = 38.500/$31. 44.14 percent Dividend payout ratio = $2. 22.200 = 24.04 percent Dividend payout ratio = $7. Last year. a firm earned $31.400 and had 12.000 shares of stock outstanding.Chapter 03 . The company paid $7.600.200 in net income on sales of $217.60 percent D. The dividends per share were $2. Blakely's Fashions earned net income of $68. 24. 38.45 percent B. Town Centre Market has sales of $311. What is the plowback ratio? A. Gabriel Furniture has a profit margin of 8.Working with Financial Statements 106.Chapter 03 .20 percent Plowback ratio = 1 . 70.68 percent Plowback ratio = 1 .32 percent B.4 Topic: Plowback ratio 107.9 percent. 51.60 percent D.[$4.2 percent and a dividend payout ratio of 30 percent.00 percent E.30 = 0.500. 50.15 percent E.23 percent AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. a profit margin of 2.4 Topic: Plowback ratio 3-88 . What is the plowback ratio? A. and dividends of $4. 54.70 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. 10. 53.800)] = 50.0.66 percent B.800. 46.23 percent D.33 percent C.78 percent C.029  $311. 78. 49.500/(0. 27. 15.02. 1. 0.340/($1.86 D.86 3-89 .Chapter 03 . 0.200 = 0.15. 0. 0.02. 0.200/$8. 0. Use the following financial information to answer this question. What are the values of the three components of the DuPont identity? Use ending balance sheet values.220/$8. 1. 0.16.15. A.98.98.420) = 2.98 Equity multiplier = $8.35 E.16.35 C. 2.02.86 Profit margin = $1.500 + $1.Working with Financial Statements 108. 0.35 B. 2. 0. 2. 0.15 Total asset turnover = $8.340 = 0. 643 E.000 ROE = PM  (Sales/Total equity) = 0.045  ($21.360 D.000/TE). $11.Working with Financial Statements AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. $9.3 Topic: DuPont identity 3-90 .098 = 0. Net fixed assets are $18.890 C. $6.8 percent. a retention ratio of 60 percent.457 B.5 percent. TE = $9. The company paid $378 in dividends and has net working capital of $100. $6.Chapter 03 .60) = $945 Sales = $945/0. Global Ventures has a return on equity of 9.3 Topic: DuPont identity 109.480 Net income = $378/(1 . What is the total equity of the firm? A.643 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.0.045 = $21. $7. and a profit margin of 4.550 and current liabilities are $520. and modes of operation. Assume this is your first day on the job as the new chief financial officer of a mid-size company.3 Topic: Ratio analysis 111. This is a particular problem for conglomerates and firms with international operations. Identify the three key ratios that you would compute first as you begin to try to understand the financial status of the firm. Explain why you selected the three ratios that you did.Chapter 03 . A key for grading is the strength and the logic of the student explanations for their ratio selections.5 Topic: Financial analysis problems 3-91 . AACSB: Reflective thinking Bloom's: Evaluation Difficulty: Intermediate Learning Objective: 03-02 Compute and. Section: 3. International firms encounter various accounting and regulatory standards and currency conversion problems. What are some of the key problems you might encounter in doing this comparison? The first problem is identifying an appropriate peer group. You are trying to compare the financial performance of your firm to that of similar firms. Student answers will vary but should include a measure of liquidity as the inability of a firm to pay its bills would be a top priority for a CFO. seasonal factors. various accounting methods.Working with Financial Statements Essay Questions 110. interpret some common ratios. AACSB: Reflective thinking Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-04 Identify and explain some of the problems and pitfalls in financial statement analysis. Conglomerates have operations in multiple industrial sectors. Section: 3. Even national firms operating in a single industrial sector still encounter problems when comparing firms because of different fiscal years. more importantly. why is ratio analysis still considered a valuable management tool? Ratios allow managers to compare the financial performance of a firm over time to view trends which helps managers identify areas of improvement as well as areas of performance deterioration. The total asset turnover shows the amount of sales that can be generated per each dollar of assets and helps managers determine if the firm has acquired the right assets.3 Topic: DuPont identity 113.5 Topic: Financial analysis 3-92 . Explain why the DuPont identity is so useful to a financial manager. Ratios also allow managers to compare the performance of their firms to that of their peers.Working with Financial Statements 112. The equity multiplier is the amount of assets that a firm has at its disposal per dollar of equity and reveals how much leverage a firm utilizes. Ratios do not provide managers with answers but they do provide key information that aid in the management process.Chapter 03 . Since there are no perfect or ideal standard ratios for a firm. Section: 3. AACSB: Reflective thinking Bloom's: Evaluation Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. The profit margin relates to the efficiency of a firm's operations and the ability to generate a profit on sales. AACSB: Reflective thinking Bloom's: Evaluation Difficulty: Intermediate Learning Objective: 03-04 Identify and explain some of the problems and pitfalls in financial statement analysis. This comparison helps identify common industrial trends and areas of discrepancies. Student answers will vary but a good answer will explain that the DuPont identity helps identify how various aspects of a firm affect the firm's return to its shareholders. 079  (1 + 0. interpret some common ratios.14536  $438.887.648. 29.9 percent. $48.338.68 D. Return on assets is 7.Working with Financial Statements Multiple Choice Questions 114.667. How long did it take on average for credit customers to pay off their accounts during the past year? A.14536 Net income = 0.Chapter 03 . 24.000.63064 = 26.63064 Days sales in receivables = 365/13.02 E.78 days C.411.667.2 Topic: Accounts receivable period 115. Credit sales for the year just ended were $5.15 days E. more importantly.68 EOC #: 3. Sunshine Rentals has a debt-equity ratio of 0. 33. $50. $54.000 = $63.338.411/$391. What is the net income? A.311.3 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and. and total equity is $438. 26.84.95 Return on equity = 0. $63.3 Topic: DuPont identity 3-93 .147.78 days EOC #: 3.78 days B. 31.10 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.458. Peterboro Supply has a current accounts receivable balance of $391.09 days D. Section: 3.33 days Accounts receivable turnover = $5.09 B.29 C.84) = 0. $41.648 = 13. Chapter 03 - Working with Financial Statements 116. Turner's Store had a profit margin of 6.8 percent, sales of $898,200, and total assets of $798,000. If management set a goal of increasing the total asset turnover to 1.40 times, what would the new sales figure need to be, assuming no increase in total assets? A. $860,333 B. $984,320 C. $1,088,500 D. $1,117,200 E. $1,257,480 Total asset turnover = 1.40  $798,000 = $1,117,200 EOC #: 3.22 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Total asset turnover 117. True Blue Transport has a current stock price of $27. For the past year, the company had net income of $2,187,400, total equity of $13,892,300, sales of $26,511,000, and 2.5 million shares outstanding. What is the market-to-book ratio? A. 3.54 B. 3.81 C. 3.99 D. 4.27 E. 4.86 Book value per share = $13,892,300/2,500,000 = $5.55692 Market-to-book = $27/$5.55692 = 4.86 EOC #: 3.24 AACSB: Analytic Bloom's: Analysis Difficulty: Basic Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Market-to-book ratio 3-94 Chapter 03 - Working with Financial Statements 118. Taylor, Inc. has sales of $11,898, total assets of $9,315, and a debt-equity ratio of 0.55. If its return on equity is 14 percent, what is its net income? A. $841.35 B. $887.16 C. $904.10 D. $911.16 E. $927.46 Return on equity = 0.14 = (Net income/$9,315)  (1 + 0.55); Net income = $841.35 EOC #: 3.26 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.3 Topic: DuPont identity 119. Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is 0.40. What is the return on equity? A. 11.42 percent B. 12.67 percent C. 13.09 percent D. 13.48 percent E. 15.03 percent Return on equity = ($128,470/$1,419,415)  (1 + 0.40)] = 12.67 percent EOC #: 3.29 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3.3 Topic: DuPont identity 3-95 Chapter 03 - Working with Financial Statements 120. For the most recent year, Wilson Enterprises had sales of $689,000, cost of goods sold of $470,300, depreciation expense of $61,200, and additions to retained earnings of $48,560. The firm currently has 12,000 shares of common stock outstanding, and the previous year's dividends per share were $1.18. Assuming a 35 percent tax rate, what was the times interest earned ratio? A. 1.47 B. 2.09 C. 2.58 D. 3.15 E. 3.67 Net income = $48,560 + ($1.18  12,000) = $62,720 Earnings before taxes = [$62,720/(1 - 0.35)] = $96,492.31 Earnings before interest and taxes = $689,000 - $470,300 - $61,200 = $157,500 Interest = $157,500 - $96,492.31 = $61,007.69 Times interest earned = $157,500/$61,007.69 = 2.58 EOC #: 3.31 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and; more importantly; interpret some common ratios. Section: 3.2 Topic: Times interest earned 3-96 72414) = 8.42/(1 .19 percent Sustainable growth = 0.45)]  (1 .2 Topic: Return on assets 122.68 percent B. What is the return on assets? A. 8. 4. You have the task of piecing together information in order to release a financial report. 9. and a dividend payout ratio of 30 percent.06 = {[(PM  (1/1.8 percent.33 percent D.{[(PM  (1/1.42) = 0. a debt-equity ratio of 0. The ratio of total assets to sales is constant at 1.38 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. What profit margin must the firm achieve? A.00 percent EOC #: 3.29 percent Debt-equity ratio = 0. interpret some common ratios. 6.138/(1 + 0. You have found the return on equity to be 13.00 percent C.97 percent EOC #: 3. Sales were $979.92 percent B.29 percent C.0.03 percent E.25.4 Topic: Sustainable growth rate 3-97 .30)}} = 6.30)}/{1 .45)]  (1 . the total debt ratio was 0. 5.25)  (1 + 0. A fire has destroyed a large percentage of the financial records of the Strongwell Co.0. 6.45.45 percent D. Donegal's Industrial Products wishes to maintain a growth rate of 6 percent a year. 8.000.32 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-02 Compute and.42.000.97 percent E.0. 8.Working with Financial Statements 121.72414 Return on assets = 0. more importantly.25)  (1 + 0. and total debt was $548. 6. Section: 3.Chapter 03 . 9. What must the total asset turnover be? A.98 B.075  TAT  (1 . 1.60)]/{1 .Working with Financial Statements 123.Chapter 03 .[0.59 Internal growth rate = 0.075  TAT  (1 .5 percent and the firm uses no external financing sources.045 = [0.06 C. The current profit margin is 7.21 D. 0. 1.4 Topic: Internal growth rate 3-98 .40 AACSB: Analytic Bloom's: Analysis Difficulty: Intermediate Learning Objective: 03-03 Assess the determinants of a firm's profitability and growth Section: 3. 1.0.44 EOC #: 3. TAT = 1.5 percent and a dividend payout ratio of 60 percent. A firm wishes to maintain an internal growth rate of 4.0. 1.44 E.60)]}.