Chapter 003 Working with Financial Statements 1. Which one of the following is a breakdown of the ROE into its three component parts? a. equity analysis b. efficiency breakout e. Du Pont identity d. sustainable growth e. profitability ratios 2. A common-size income statement: I. expresses all values as a percent of total assets. II. should reflect a relatively constant cost of goods sold unless a firm changed the percent that it uses to mark up the wholesale price to get the retail price. III. expresses net income as 100 percent. IV. can be used to compare the performance of a firm both over time and against its industry a. I and III only b. II and IV only c. III and IV only d. 1, 11, and only e. II, III, and IV only 3. Which of the following transactions will increase the liquidity of a firm? I. purchasing equipment with cash II. collecting an account receivable III. selling inventory at cost IV. selling inventory at a profit a. I and III only b. II and IV only c. I and IV only d. II and III only e. II, III, and IV only 4. Which one of the following statements is correct, all else constant? a. Increasing the inventory level will increase the inventory turnover rate. b. Increasing the inventory level will increase the days' sales in inventory. c. Increasing the receivables turnover rate will increase the days' sales in receivables. d. Increasing sales will lower the total asset turnover. e. Increasing sales will increase the capital intensity ratio. 5. The Fruit Co. has total assets of $7,800, fixed assets of $7,100, current liabilities of $1,500. and long-term liabilities of $4,600. What is the total debt ratio? a. 41 b. .60 c. .65 d. .78 e. .86 3-1