honeycfa

An analyst has gathered the following information about a firm:

• Net sales of $500,000.
• Cost of goods sold = $250,000. 
• EBIT of $150,000. 
• EAT of $90,000.

What is this firm’s operating profit margin?

A) 18%.

B) 50%.

C) 30%.

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Operating profit margin = (EBIT / net sales) = ($150,000 / $500,000) = 30%

honeycfa

Which of the following items is NOT in the numerator of the quick ratio?

A) Inventory.

B) Cash.

C) Receivables.

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Quick ratio = (cash + marketable securities + receivables) / current liabilities

Current ratio = (cash + marketable securities + receivables + inventory) / current liabilities

honeycfa

Which of the following is a measure of a firm's liquidity?

A) Cash Ratio.

B) Equity Turnover.

C) Net Profit Margin.

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Equity turnover and net profit margin are each measures of a company's operating performance.

honeycfa

Which of the following is a measure of a firm's liquidity?

A) Cash Ratio.

B) Equity Turnover.

C) Net Profit Margin.

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Equity turnover and net profit margin are each measures of a company's operating performance.

honeycfa

An analyst has gathered the following information about a company:

Balance Sheet
Assets
	Cash	100
	Accounts Receivable	750
	Marketable Securities	300
	Inventory	850
	Property, Plant & Equip	900
	Accumulated Depreciation	(150)
Total Assets		2750
Liabilities and Equity
	Accounts Payable	300
	Short-Term Debt	130
	Long-Term Debt	700
	Common Stock	1000
	Retained Earnings	620
Total Liab. and Stockholder's equity		2750
Income Statement
Sales		1500
COGS		1100
Gross Profit		400
SG&A		150
Operating Profit		250
Interest Expense		25
Taxes		75
Net Income		150

What is the current ratio?

A) 2.67.

B) 0.22.

C) 4.65.

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Current ratio = [100(cash) + 750(AR) + 300(marketable securities) + 850(inventory)] / [300(AP) + 130(short-term debt)] = (2,000 / 430) = 4.65

honeycfa

Assume a firm with a debt to equity ratio of 0.50 and debt equal to $35 million makes a commitment to acquire raw materials with a present value of $12 million over the next 3 years. For purposes of analysis the best estimate of the debt to equity ratio should be:

A) 0.500.

B) 0.573.

C) 0.671.

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The original debt / equity ratio = 35 / 70 = 0.5. Now adjust the numerator but not the denominator. Why? You have commitments (liabilities) but no new equity because (non-current) liabilities and assets are increased by the same amount. D/E = (35 + 12) / 70 = 0.671.

honeycfa

An analyst has gathered the following information about a company:

Balance Sheet
Assets
	Cash	100
	Accounts Receivable	750
	Marketable Securities	300
	Inventory	850
	Property, Plant & Equip	900
	Accumulated Depreciation	(150)
Total Assets		2750
Liabilities and Equity
	Accounts Payable	300
	Short-Term Debt	130
	Long-Term Debt	700
	Common Stock	1000
	Retained Earnings	620
Total Liab. and Stockholder's equity		2750
Income Statement
Sales		1500
COGS		1100
Gross Profit		400
SG&A		150
Operating Profit		250
Interest Expense		25
Taxes		75
Net Income		150

Determine the current ratio and the cash ratio.

Current Ratio

Cash Ratio

A) 1.98 1.86

B) 2.67 1.07

C) 4.65 0.93

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Current ratio = [100(cash) + 750(accounts receivable)+ 300(marketable securities) + 850(inventory)] / [300(AP) + 130(short term debt)] = (2000 / 430) = 4.65

Cash ratio = [100(cash) + 300(marketable securities)] / [300(AP) + 130(short term debt)] = (400 / 430) = 0.93

honeycfa

An analyst has gathered the following information about a company:

Balance Sheet
Assets
	Cash	100
	Accounts Receivable	750
	Marketable Securities	300
	Inventory	850
	Property, Plant & Equip	900
	Accumulated Depreciation	(150)
Total Assets		2750
Liabilities and Equity
	Accounts Payable	300
	Short-Term Debt	130
	Long-Term Debt	700
	Common Stock	1000
	Retained Earnings	620
Total Liab. and Stockholder's equity		2750
Income Statement
Sales		1500
COGS		1100
Gross Profit		400
SG&A		150
Operating Profit		250
Interest Expense		25
Taxes		75
Net Income		150

What is the receivables turnover ratio?

A) 2.0.

B) 0.5.

C) 1.0.

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Receivables turnover = 1,500(sales) / 750(receivables) = 2.0

honeycfa

An analyst has gathered the following information about a company:

Balance Sheet
Assets
	Cash	100
	Accounts Receivable	750
	Marketable Securities	300
	Inventory	850
	Property, Plant & Equip	900
	Accumulated Depreciation	(150)
Total Assets		2750
Liabilities and Equity
	Accounts Payable	300
	Short-Term Debt	130
	Long-Term Debt	700
	Common Stock	1000
	Retained Earnings	620
Total Liab. and Stockholder's equity		2750
Income Statement
Sales		1500
COGS		1100
Gross Profit		400
SG&A		150
Operating Profit		250
Interest Expense		25
Taxes		75
Net Income		150

What is the receivables turnover ratio?

A) 2.0.

B) 0.5.

C) 1.0.

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Receivables turnover = 1,500(sales) / 750(receivables) = 2.0

honeycfa

The cash conversion cycle is the:

A) length of time it takes to sell inventory.

B) sum of the time it takes to sell inventory and collect on accounts receivable, less the time it takes to pay for credit purchases.

C) sum of the time it takes to sell inventory and the time it takes to collect accounts receivable.

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Cash conversion cycle = (average receivables collection period) + (average inventory processing period) ? (payables payment period)