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LOS c: Calculate, critique, and interpret the key financial ratios used by credit analysts.
Q1. Furniture Factory, Inc., is a world-wide industry leader in the office furniture manufacturing industry. Use the following ratio table to answer the next three questions.
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FFI 2003 |
FFI 2004 |
FFI 2005 |
FFI 2006 |
Industry 2006 |
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Current Asset |
1.5 |
1.4 |
1.1 |
1.0 |
2.1 |
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Quick |
1.2 |
1.2 |
0.9 |
0.9 |
0.9 |
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Inventory Turnover |
12.9 |
17.8 |
22.3 |
33.1 |
6.2 |
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Times Interest Earned (TIE) |
9.5 |
16.3 |
27.3 |
30.7 |
5.6 |
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Debt to Equity (D/E) |
1.3 |
1.6 |
2.4 |
2.6 |
1.5 |
Which of the following interpretations of ratio analysis is most accurate?
A) The liquidity position of Furniture Factory, Inc., has been steadily improving.
B) Furniture Factory, Inc., has a higher credit risk than the average company in the industry based on the D/E ratio.
C) Furniture Factory, Inc., has a higher credit risk than the average company in the industry based on the times interest earned ratio.
Q2. Which of the following statements describes the most likely interpretation of the liquidity position of Furniture Factory, Inc? Furniture Factory, Inc., has:
A) difficulty meeting short-term obligations.
B) a serious liquidity problem compared to the industry.
C) managed their inventory more efficiently than the industry.
Q3. Based on the ratio analysis table for Furniture Factory, Inc., complete the following statement. Creditors would most likely:
A) downgrade the credit quality of Furniture Factory, Inc., and increase the amount of interest charged to cover the increasing default risk.
B) require additional information to explain the apparent contradictions in the liquidity and leverage ratios.
C) not consider lending more money to Furniture Factory, Inc., due to the significant problems that are apparent with both liquidity and leverage.
Q4. The office furniture industry is highly cyclical. Which of the following is least likely a limitation of ratio analysis for the office furniture industry?
A) A recession could significantly change the financial condition of the company.
B) Cyclical companies do not have accurate industry comparisons due to the more volatile changes in ratios.
C) Ratio analysis relies on historical information.
Q5. Traditional financial ratios are useful in providing information regarding the firm’s:
A) competitive position.
B) future earning prospects.
C) financial position at a given point in time.
Q6. Which of the following statements regarding the use of traditional ratios to analyze a firm’s financial condition is FALSE?
A) Many of the financial ratios can be used to assess the future financial position of the company.
B) Financial ratios are based on the historical accounting data of the firm.
C) Financial ratios do not reveal any information regarding the future capital requirements of the firm.
Q7. Which of the following statements regarding the use of traditional ratio analysis is TRUE?
A) Analysts tend to rely exclusively on traditional ratio analysis to determine the financial condition of the company.
B) Highly cyclical companies have different ratio analysis standards than stable companies.
C) Traditional ratio analysis considers factors that may impact future cash flows of the firm.
Q8. Which of the following accounting practices is least likely to have a significant impact on the balance sheet ratios of a firm?
A) Leasing accounting.
B) Inventory cost flow decisions.
C) Diluted versus basic EPS.
[此贴子已经被作者于2009-3-13 17:44:18编辑过] | 
发表于 2009-3-13 17:42
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