QUESTION 1

Determine the cost of sales for a firm with the following financial ratios and data: Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times

	a.	$6,000,000
	b.	$3,000,000
	c.	$2,000,000
	d.	$1,000,000

8.3 points

QUESTION 2

What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.

	a.	2.65
	b.	2.1
	c.	1.1
	d.	1.2

8.3 points

QUESTION 3

A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?

	a.	$20,000
	b.	$ 5,000
	c.	$10,000
	d.	$15,000

8.3 points

QUESTION 4

If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must

	a.	increase its equity multiplier
	b.	increase sales and increase assets
	c.	decrease its equity multiplier
	d.	reduce sales and increase assets

8.3 points

QUESTION 5

The sales-to-inventory ratio:

	a.	is technically inferior to other commonly used ratios.
	b.	is superior to the inventory turnover ratio.
	c.	as a determination of financial performance, is good comparison tool.
	d.	was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole.

8.5 points

QUESTION 6

Primary sources of comparative financial data include

	a.	Dun and Bradstreet
	b.	Richard Moore, Inc.
	c.	Framingham Financial Library
	d.	New York Times

8.3 points

QUESTION 7

____ indicate the ability of the firm to meet its short-term financial obligations

	a.	Leverage ratios
	b.	Profitability ratios
	c.	Activity ratios
	d.	Liquidity ratios

8.3 points

QUESTION 8

If a firms common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:

	a.	on total assets as a percentage of long-term liabilities.
	b.	on cost of goods sold as a percentage of sales.
	c.	on taxes paid as a percentage of stockholders equity.
	d.	on expenses as a percentage of current assets.

8.3 points

QUESTION 9

The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.

	a.	payout
	b.	earnings
	c.	return on earnings
	d.	dividend yield

8.3 points

QUESTION 10

The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:

	a.	based on the company's accounting information system (AIS)
	b.	constructed in conformity with generally accepted accounting principles
	c.	developed using management's choice of accounting enhancement techniques
	d.	an accurate picture of the company's market position

8.3 points

QUESTION 11

The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.

	a.	liquidity
	b.	profitability
	c.	size
	d.	risk

8.3 points

QUESTION 12

The type of ratio that indicates the firms ability to provide adequate returns in the form of dividends and share price appreciation is:

	a.	Profitability ratios
	b.	Asset management ratios
	c.	Financial leverage management ratios
	d.	Liquidity ratios

8.5 points

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