Five areas that financial ratios concentrate on are:

a) liquidity, profitability, debt, efficiency, market related;

b) profitability, strategy, liquidity, auditing, share prices;

c) liquidity, current ratio, quick ratio, interest cover, dividend cover;

d) market related, share prices, dividend policy, debt policy, strategy;

e) none of the above.

Question 2:

Ratios that measure the ability of the company to pay its short-term debts are called:

a) debt ratios;

b) cover ratios;

c) liquidity ratios;

d) profitability ratios;

e) none of the above.

Question 3:

Current assets divided by current liabilities is the definition of the:

a) interest cover ratio;

b) dividend cover ratio;

c) quick ratio;

d) current ratio;

e) none of the above.

Question 4:

The quick ratio is defined as:

a) current assets divided by current liabilities;

b) current assets divided by total debt;

c) current assets less inventory, divided by total liabilities;

d) current assets less inventory, divided by current liabilities;

e) none of the above.

Question 5:

Return on sales, return on assets and return on equity are examples of:

a) liquidity ratios;

b) profitability ratios;

c) debt ratios;

d) efficiency ratios;

e) market-related ratios.

Question 6:

Return on assets is defined as:

a)operating income divided by owners equity;

b) operating income divided by sales;

c) operating income divided by total assets;

d) operating income divided by long-term assets plus debt;

e) none of the above.

Question 7:

Net income divided by shareholders equity is the definition of:

a) return on sales;

b) return on assets;

c) return on equity;

d) asset turnover;

e) none of the above.

Question 8:

The debt to equity ratio measures;

a) the likelihood of the company going bankrupt in the short term;

b) the efficiency of the company;

c) the relative proportions of debt and equity in the capital structure;

d) liquidity;

e) none of the above.

Question 9:

The interest cover ratio measures:

a) the leverage of the company;

b) the efficiency of debt;

c) the weighted average cost of capital;

d) the relationship between interest and profit;

e) none of the above.

Question 10:

Total asset turnover, receivables turnover and inventory turnover ratios measure:

a) liquidity;

b) profitability;

c) efficiency;

d) debt;

e) market related factors.

Question 11:

The receivables turnover ratio is defined as:

a) sales divided by receivables;

b) receivables divided by sales;

c) receivables divided by one days sales;

d) receivables plus bad debt allowances.

e) none of the above.

Question 12:

To measure the efficiency with which inventory is used the following ratio should be used:

a) inventory turnover ratio;

b) inventory holding period;

c) lower of cost or market valuation of inventory;

d) a or b, but not c;

e) a, b or c.

Question 13:

Earnings per share is affected by:

a) net income;

b) number of shares;

c) dividends;

d) a & b, but not c;

e) a, b & c.

Question 14:

The price to earnings ratio measures:

a) the rationality of the stock market;

b) the liquidity of the company;

c) the publics perception of the company;

d) the ethics of the company;

e) none of the above.

Question 15:

The dividend cover ratio is defined as:

a) dividend divided by net income;

b) dividend less interest paid and taxes;

c) operating income divided by dividend;

d) net income divided by dividend;

e) none of the above.

Part-2 [70 points]: Applications:(Each Question worth 5 points. Showyour computation)

Question 1:

Minden Co has current assets that consist of cash: $20,000, receivables: $70,000 and inventory: $90,000. Current liabilities are $75,000. The current ratio is:

a) 2.4:1;

b) 2.2:1;

c) 2.0:1;

d) 1.8:1:

e) none of the above.

Question 2:

Minden Co has current assets that consist of cash: $20,000, receivables: $70,000 and inventory: $90,000. Current liabilities are $75,000. The quick ratio is:

a) 1.7:1:

b) 1.2:1:

c) 1.0:1;

d) 0.8:1

e) none of the above.

Question 3:

Minden Co has current assets that consist of cash: $20,000, receivables: $70,000 and inventory: $90,000. Current liabilities are $75,000. On the basis of the current ratio and the quick ratio, Minden Co is:

a) highly illiquid;

b) somewhat illiquid;

c) adequately liquid;

d) excessively liquid;

e) none of the above.

Question 4:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on sales is:

a) 8.0%;

b) 10.0%;

c) 12.5%;

d) 16.0%;

e) 20.0%.

Question 5:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on assets is:

a) 8.0%;

b) 10.0%;

c) 12.5%;

d) 16.0%;

e) 20.0%.

Question 6:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on equity is:

a) 8.0%;

b) 10.0%;

c) 12.5%;

d) 16.0%;

e) 20.0%.

Question 7:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their return on equity in comparison to their return on assets is:

a) roa is higher than roe because of leverage;

b) roa is lower than roe because of leverage;

c) roa is the same as roe;

d) they are both related to the return on sales;

e) none of the above.

Question 8:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. Their debt to assets ratio is:

a) 50.00%;

b) 65.00%;

c) 68.75%;

d) 220.00%;

e) none of the above.

Question 9:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. On the basis of the debt to equity ratio, Minden would be considered to have:

a) too much debt, making it a risky company to invest in;

b) just enough debt;

c) too little debt, making it a risky company to invest in;

d) too little debt, making it a low profitability investment;

e) none of the above.

Question 10:

Minden Co has sales of $500,000, operating profit of $50,000, interest expense of $10,000, tax expense of $20,000, total equity of $125,000 and total debt of $275,000. The debt carries interest @ 5% per annum. The interest cover ratio is:

a) 5X;

b) 3X;

c) 2X;

d) 1.5X;

e) none of the above.

Question 11:

Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. Their receivables turnover ratio was:

a) 10.2X;

b) 9.4X;

c) 7.1X;

d) 5.6X;

e) none of the above.

Question 12:

Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. Their inventory holding period (to the nearest day) was:

a) 66 days;

b) 51 days;

c) 46 days;

d) 32 days;

e) none of the above.

Question 13:

Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. a dividend of $10,000 was paid to the common shareholders. There are 1,000 shares in issue. Their earnings per share are:

a) $1:

b) $2;

c) $10;

d) $20;

e) none of the above.

Question 14:

Minden Co has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000), and long-term assets that had cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. a dividend of $10,000 was paid to the common shareholders. There are 1,000 shares in issue, and the share price is $240 per share. The price to earnings ratio is:

a) 24X;

b) 12X;

c) 10X;

d) 8X;

e) none of the above.