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标题: Financial Reporting and Analysis 【Reading 28】Sample [打印本页]
作者: LiquidAssets10    时间: 2012-3-26 16:07     标题: [2012 L1] Financial Reporting and Analysis 【Session 8 - Reading 28】Sample

Which of the following reasons is least likely a valid limitation of ratio analysis?
A)
It is difficult to find comparable industry ratios.
B)
Calculation of ratios involves a large degree of subjectivity.
C)
Determining the target or comparison value for a ratio is difficult.


There is not a great deal of subjectivity involved in calculating ratios. The mechanical formulas for the calculations are fairly standard and objective for the activity, liquidity, solvency, and profitability ratios, for instance. On the other hand, determining the target or comparison value for a ratio is difficult as it requires some range of acceptable values and that introduces an element of subjectivity. Conclusions cannot be made from viewing one set of ratios as all ratios must be viewed relative to one another in order to make meaningful conclusions. It can be difficult to find comparable industry ratios, especially when analyzing companies that operate in multiple industries.
作者: LiquidAssets10    时间: 2012-3-26 16:07

Ratio analysis is most useful for comparing companies:
A)
in different industries that use the same accounting standards.
B)
that operate in multiple lines of business.
C)
of different size in the same industry.


Ratio analysis is a useful way of comparing companies that are similar in operations but different in size. Ratios of companies that operate in different industries are often not directly comparable. For companies that operate in several industries, ratio analysis is limited by the difficulty of determining appropriate industry benchmarks.
作者: LiquidAssets10    时间: 2012-3-26 16:08

Comparing a company’s ratios with those of its competitors is best described as:
A)
longitudinal analysis.
B)
cross-sectional analysis.
C)
common-size analysis.


Comparing a company’s ratios with those of its competitors is known as cross-sectional analysis.
作者: LiquidAssets10    时间: 2012-3-26 16:08

To study trends in a company’s cost of goods sold (COGS), an analyst should standardize COGS by dividing it by:
A)
net income.
B)
sales.
C)
prior year COGS.


In a common-size income statement, each income statement account is divided by sales. COGS is then production costs as a percentage of the sales price.
作者: LiquidAssets10    时间: 2012-3-26 16:09

Common size income statements express all income statement items as a percentage of:
A)
net income.
B)
assets.
C)
sales.


Common size income statements express all income statement items as a percentage of sales. Note that common size balance sheets express all balance sheet accounts as a percentage of total assets.
作者: LiquidAssets10    时间: 2012-3-26 16:11

Which of the following statements best describes vertical common-size analysis and horizontal common-size analysis?
Statement #1 – Each line item is expressed as a percentage of its base-year amount.
Statement #2 – Each line item of the income statement is expressed as a percentage of revenue and each line item of the balance sheet is expressed as a percentage of ending total assets.
Statement #3 – Each line item is expressed as a percentage of the prior year’s amount.
Vertical analysis Horizontal analysis
A)
Statement #1 Statement #2
B)
Statement #2 Statement #1
C)
Statement #2 Statement #3


Horizontal common-size analysis involves expressing each line item as a percentage of the base-year figure. Vertical common-size analysis involves expressing each line item of the income statement as a percentage of revenue and each line item of the balance sheet as a percentage of ending total assets.
作者: LiquidAssets10    时间: 2012-3-26 16:12

Are the following statements about common-size financial statements correct or incorrect?
Statement #1 – Expressing financial information in a common-size format enables the analyst to make better comparisons between two firms of similar size that operate in different industries.
Statement #2 – Common-size financial statements can be used to highlight the structural changes in the firm’s operating results and financial condition that have occurred over time.
With respect to these statements:
A)
both are correct.
B)
only one is correct:
C)
both are incorrect.


Vertical common-size statements enable the analyst to make better comparisons of two firms of different sizes that operate in the same industry. Horizontal common-size financial statements express each line as a percentage of the base year figure; thus, horizontal common-size statements can be used to identify structural changes in a firm’s operating results and financial condition over time.
作者: Mechanic    时间: 2012-3-26 16:13

Given the following income statement and balance sheet for a company:

Balance Sheet

AssetsYear 2003Year 2004
Cash500450
Accounts Receivable600660
Inventory500550
Total CA13001660
Plant, prop. equip10001250
Total Assets26002910
Liabilities
Accounts Payable500550
Long term debt7001102
Total liabilities12001652
Equity
Common Stock400538
Retained Earnings1000720
Total Liabilities & Equity26002910

Income Statement

Sales3000
Cost of Goods Sold(1000)
Gross Profit2000
SG&A500
Interest Expense151
EBT1349
Taxes (30%)405
Net Income944

What is the quick ratio for 2004?
A)
2.018.
B)
3.018.
C)
0.331.


Quick ratio = (cash + marketable securities + receivables) / CL = (450 + 0 + 660) / 550 = 2.018
作者: Mechanic    时间: 2012-3-26 16:14

Which of the following is least likely a routinely used operating profitability ratio?
A)
Net income/net sales.
B)
Sales/Total Assets
C)
Gross profit/net sales.


Sales/Total Assets, or Total Asset Turnover is a measure of operating efficiency, not operating profitability.
作者: Mechanic    时间: 2012-3-26 16:15

As of December 31, 2007, Manhattan Corporation had a quick ratio of 2.0, current assets of $15 million, trade payables of $2.5 million, and receivables of $3 million, and inventory of $6 million. How much were Manhattan’s current liabilities?
A)
$4.5 million.
B)
$12.0 million.
C)
$7.5 million.


Manhattan’s quick assets were equal to $9 million ($15 million current assets – $6 million inventory). Given a quick ratio of 2.0, quick assets were twice the current liabilities. Thus, the current liabilities must have been $4.5 million ($9 million quick assets / 2.0 quick ratio).
作者: Mechanic    时间: 2012-3-26 16:16

Which of the following ratios would least likely measure liquidity?
A)
Quick ratio.
B)
Return on assets (ROA).
C)
Current ratio.


ROA = (EBIT / average total assets) which measures management's ability and efficiency in using the firm's assets to generate operating profits. Other ratios that measure liquidity (if a company can pay its current bills) besides the quick, cash, and current ratios are the: receivables turnover, inventory turnover, and payables turnover ratios.
作者: Mechanic    时间: 2012-3-26 16:16

Are the following ratios best classified as profitability ratios?Ratio #1 – Cash plus short-term marketable investments plus receivables divided by average daily cash expenditures.

Ratio #2 – Earnings before interest and taxes divided by average total assets.
A)
Both of the ratios are profitability ratios.
B)
Only one of the ratios is a profitability ratio.
C)
Neither of the ratios is a profitability ratio.


(Cash + short-term marketable investments + receivables) divided by average daily cash expenditures is known as the defensive interval ratio. The defensive interval ratio is a liquidity ratio that measures the firm’s ability to pay cash expenditures in the absence of external cash flows, but does not directly measure profitability. EBIT / average total assets is one variation of the return on assets ratio. Return on assets is a profitability ratio that measures the efficiency of managing assets and generating profits.
作者: Mechanic    时间: 2012-3-26 16:16

Given the following income statement and balance sheet for a company:

Balance Sheet

AssetsYear 2003Year 2004
Cash500450
Accounts Receivable600660
Inventory500550
Total CA13001660
Plant, prop. equip10001250
Total Assets26002910
Liabilities
Accounts Payable500550
Long term debt7001102
Total liabilities12001652
Equity
Common Stock400538
Retained Earnings1000720
Total Liabilities & Equity26002,910

Income Statement

Sales3000
Cost of Goods Sold(1000)
Gross Profit2000
SG&A500
Interest Expense151
EBT1349
Taxes (30%)405
Net Income944

What is the gross profit margin?
A)
0.666.
B)
0.333.
C)
0.472.


Gross profit margin = (gross profit / net sales) = (2,000 / 3,000) = 0.666
作者: Mechanic    时间: 2012-3-26 16:17

Given the following information about a firm:
What are the gross and operating profit margins?
Gross Operating MarginOperating Profit Margin
A)
40%20%
B)
40%10%
C)
20%15%


Gross profit margin = ($1,000 net sales − $600 COGS) / $1,000 net sales = 400 / 1,000 = 0.4
Operating profit margin = ($1,000 net sales − $600 COGS − $200 operating expenses) / $1,000 net sales = $200 / $1000 = 0.2
作者: Mechanic    时间: 2012-3-26 16:17

An analyst gathered the following data about a company:
If the company would like a current ratio of 2, they could:
A)
increase current assets by 100 or decrease current liabilities by 50.
B)
decrease current assets by 100 or increase current liabilities by 50.
C)
increase current assets by 100 or increase current liabilities by 50.


For the current ratio to equal 2.0, current assets would need to move to $600 (or up by $100) or current liabilities would need to decrease to $250 (or down by $50). Remember that CA − CL = working capital (500 − 300 = 200).
作者: Mechanic    时间: 2012-3-26 16:17

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Stock1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

What is the current ratio?
A)
4.65.
B)
2.67.
C)
0.22.


Current ratio = [100(cash) + 750(AR) + 300(marketable securities) + 850(inventory)] / [300(AP) + 130(short-term debt)] = (2,000 / 430) = 4.65
作者: Mechanic    时间: 2012-3-26 16:18

Wells Incorporated reported the following common size data for the year ended December 31, 20X7:
Income Statement%
Sales100.0
Cost of goods sold58.2
Operating expenses30.2
Interest expense0.7
Income tax5.7
Net income5.2
Balance sheet%%
Cash4.8Accounts payable15.0
Accounts receivable14.9Accrued liabilities13.8
Inventory49.4Long-term debt23.2
Net fixed assets30.9Common equity48.0
Total assets100.00Total liabilities & equity100.0

For 20X6, Wells reported sales of $183,100,000 and for 20X7, sales of $215,600,000. At the end of 20X6, Wells’ total assets were $75,900,000 and common equity was $37,800,000. At the end of 20X7, total assets were $95,300,000. Calculate Wells’ current ratio and return on equity ratio for 20X7.
Current ratio Return on equity
A)
2.4 26.4%
B)
4.6 25.2%
C)
2.4 26.8%

The current ratio is equal to 2.4 [(4.8% cash + 14.9% accounts receivable + 49.4% inventory) / (15.0% accounts payable + 13.8% accrued liabilities)]. This ratio can be calculated from the common size balance sheet because the percentages are all on the same base amount (total).
Return on equity is equal to net income divided by average total equity. Since this ratio mixes an income statement item and a balance sheet item, it is necessary to convert the common-size inputs to dollars. Net income is $11,211,200 ($215,600,000 × 5.2%) and average equity is $41,772,000 [($95,300,000 × 48.0%) + $37,800,000] / 2. Thus, 2007 ROE is 26.8% ($11,211,200 net income / $41,772,000 average equity).
作者: Mechanic    时间: 2012-3-26 16:29

To calculate the cash ratio, the total of cash and marketable securities is divided by:
A)
total liabilities.
B)
current liabilities.
C)
total assets.


Current liabilities are used in the denominator for the: current, quick, and cash ratios.
作者: Mechanic    时间: 2012-3-26 16:29

Earnings before interest and taxes (EBIT) is also known as:
A)
gross profit.
B)
operating profit.
C)
earnings before income taxes.


Operating profit = earnings before interest and taxes (EBIT)
Gross profit = net sales – COGS
Net income = earnings after taxes = EAT
作者: Mechanic    时间: 2012-3-26 16:30

A company has a receivables turnover of 10, an inventory turnover of 5, and a payables turnover of 12. The company’s cash conversion cycle is closest to:
A)
79 days.
B)
30 days.
C)
37 days.


Cash conversion cycle = receivables days + inventory processing days – payables payment period.
Receivables days = 365 / receivables turnover = 365 / 10 = 36.5 days.
Inventory processing days = 365 / inventory turnover = 365 / 5 = 73.0 days.
Payables payment period = 365 / payables turnover = 365 / 12 = 30.4 days.
Cash collection cycle = 36.5 + 73.0 – 30.4 = 79.1 days.
作者: Mechanic    时间: 2012-3-26 16:30

An analyst has gathered the following information about a firm:
What is this firm’s operating profit margin?
A)
30%.
B)
18%.
C)
50%.


Operating profit margin = (EBIT / net sales) = ($150,000 / $500,000) = 30%
作者: Mechanic    时间: 2012-3-26 16:31

Use the following data from Delta's common size financial statement to answer the question:
Earnings after taxes= 18%
Equity= 40%
Current assets= 60%
Current liabilities= 30%
Sales= $300
Total assets= $1,400

What is Delta's after-tax return on equity?
A)
18.0%.
B)
5.0%.
C)
9.6%.


Net income after taxes = 300 × 0.18 = 54
Equity = 1400 × 0.40 = 560
ROE = Net Income / Equity = 54 / 560 = 0.0964 = 9.6%
作者: Mechanic    时间: 2012-3-26 16:32

A firm has a cash conversion cycle of 80 days. The firm's payables turnover goes from 11 to 12, what happens to the firm's cash conversion cycle? It:
A)
lengthens.
B)
shortens.
C)
may shorten or lengthen.


CCC = collection period + Inv Period – Payment period.
Payment period = (365 / payables turnover) = (365 / 11) = 33; (365 / 12) = 30. This means the CCC actually increased to 83.
作者: Mechanic    时间: 2012-3-26 16:33

Paragon Company's operating profits are $100,000, interest expense is $25,000, and earnings before taxes are $75,000. What is Paragon's interest coverage ratio?
A)
4 times.
B)
1 time.
C)
3 times.


ICR = operating profit ÷ I = EBIT ÷ I
= 100,000 ÷ 25000 = 4
作者: Mechanic    时间: 2012-3-26 16:33

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)
0.671.
C)
0.573.


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.
作者: Mechanic    时间: 2012-3-26 16:34

Given the following income statement and balance sheet for a company:

Balance Sheet

AssetsYear 2003Year 2004
Cash500450
Accounts Receivable600660
Inventory500550
Total CA13001660
Plant, prop. equip10001250
Total Assets26002910
Liabilities
Accounts Payable500550
Long term debt700700
Total liabilities12001652
Equity
Common Stock400400
Retained Earnings12601260
Total Liabilities & Equity26002910

Income Statement

Sales3000
Cost of Goods Sold(1000)
Gross Profit2000
SG&A500
Interest Expense151
EBT1349
Taxes (30%)405
Net Income944

What is the operating profit margin?
A)
0.45.
B)
0.50.
C)
0.67.


Operating profit margin = (EBIT / sales) = (1,500 / 3,000) = 0.5
作者: Mechanic    时间: 2012-3-26 16:34

An analyst has collected the following data about a firm:
What is the cash conversion cycle?
A)
26 days.
B)
Not enough information is given.
C)
56 days.


Cash conversion cycle = receivables collection period + inventory processing period – payables payment period.
Receivables collection period = (365 / 20) = 18
Inventory processing period = (365 / 16) = 23
Payables payment period = (365 / 24) = 15
Cash conversion cycle = 18 + 23 – 15 = 26
作者: Mechanic    时间: 2012-3-26 16:34

Which of the following items is NOT in the numerator of the quick ratio?
A)
Inventory.
B)
Cash.
C)
Receivables.


Quick ratio = (cash + marketable securities + receivables) / current liabilities
Current ratio = (cash + marketable securities + receivables + inventory) / current liabilities
作者: Mechanic    时间: 2012-3-26 16:35

If the inventory turnover ratio is 7, what is the average number of days the inventory is in stock?
A)
52 days.
B)
70 days.
C)
25 days.


Average Inventory Processing Period = 365 / inventory turnover = 365 / 7 = 52 days.
作者: Mechanic    时间: 2012-3-26 16:35

Using a 365-day year, if a firm has net annual sales of $250,000 and average receivables of $150,000, what is its average collection period?
A)
1.7 days.
B)
46.5 days.
C)
219.0 days.


Receivables turnover = $250,000 / $150,000 = 1.66667
Collection period = 365 / 1.66667 = 219 days
作者: Mechanic    时间: 2012-3-26 16:36

Goldstar Manufacturing has an accounts receivable turnover of 10.5 times, an inventory turnover of 4 times, and payables turnover of 8 times. What is Goldstar’s cash conversion cycle?
A)
6.50 days.
B)
80.38 days.
C)
171.64 days.


The cash conversion cycle = average receivables collection period + average inventory processing period – payables payment period. The average receivables collection period = 365 / average receivables turnover or 365 / 10.5 = 34.76. The average inventory processing period = 365 / inventory turnover or 365 / 4 = 91.25. The payables payment period = 365 / payables turnover ratio = 365 / 8 = 45.63. Putting it all together: cash conversion cycle = 34.76 + 91.25 – 45.63 = 80.38.
作者: Mechanic    时间: 2012-3-26 16:38

Given the following income statement:
Net Sales200
Cost of Goods Sold55
Gross Profit145
Operating Expenses30
Operating Profit (EBIT)115
Interest15
Earnings Before Taxes (EBT)100
Taxes40
Earnings After Taxes (EAT)60

What are the gross profit margin and operating profit margin?
Gross Profit MarginOperating Profit Margin
A)
0.7250.575
B)
2.6301.226
C)
0.3790.725


Gross profit margin = gross profit / net sales = 145 / 200 = 0.725Operating profit margin = EBIT / net sales = 115 / 200 = 0.575
作者: Mechanic    时间: 2012-3-26 16:38

Adams Co.'s common sized balance sheet shows that:
What are Adams' long-term debt to equity ratio and working capital?
Debt to EquityWorking Capital
A)
0.78$250
B)
1.22$500
C)
0.78$500


If equity equals 45% of assets, and current liabilities equals 20%,  then long-term debt must be 35%.
Long-Term Debt / Equity = 0.35 / 0.45 = 0.78
Working capital = CA − CL = 45% - 20% = 25% of assets
WC = 2,000(0.25) = $500
作者: Mechanic    时间: 2012-3-26 16:39

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


Cash conversion cycle = (average receivables collection period) + (average inventory processing period) − (payables payment period)
作者: Mechanic    时间: 2012-3-26 16:39

Given the following income statement:
Net Sales200
Cost of Goods Sold55
Gross Profit145
Operating Expenses30
Operating Profit (EBIT)115
Interest15
Earnings Before Taxes (EBT)100
Taxes40
Earnings After Taxes (EAT)60

What are the interest coverage ratio and the net profit margin?
Interest Coverage RatioNet Profit Margin
A)
2.630.30
B)
7.670.30
C)
0.570.56


Interest coverage ratio = (EBIT / interest expense) = (115 / 15) = 7.67
Net profit margin = (net income / net sales) = (60 / 200) = 0.30
作者: Mechanic    时间: 2012-3-26 16:40

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Stock1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

What is the receivables collection period?
A)
243.
B)
365.
C)
183.


Receivables turnover = 1,500(sales) / 750(receivables) = 2.0
Average receivables collection period = 365 / 2 = 182.5 or 183
作者: Mechanic    时间: 2012-3-26 16:41

Which of the following is a measure of a firm's liquidity?
A)
Equity Turnover.
B)
Cash Ratio.
C)
Net Profit Margin.


Equity turnover and net profit margin are each measures of a company's operating performance.
作者: Mechanic    时间: 2012-3-26 16:41

Which ratio is used to measure a company's internal liquidity?
A)
Current ratio.
B)
Interest coverage.
C)
Total asset turnover.


Total asset turnover measures operating efficiency and interest coverage measures a company’s financial risk.
作者: Mechanic    时间: 2012-3-26 16:42

The main difference between the current ratio and the quick ratio is that the quick ratio excludes:
A)
cost of goods sold.
B)
assets.
C)
inventory.


Current ratio = (current assets / current liabilities) = [cash + marketable securities + receivables + inventory] / current liabilities
Quick ratio = [cash + marketable securities + receivables] / current liabilities
作者: Mechanic    时间: 2012-3-26 16:42

An analyst has gathered the following data about a company:
What is their cash conversion cycle?
A)
113 days.
B)
45 days.
C)
53 days.


Cash conversion cycle = average receivables collection period + average inventory processing period – payables payment period = 37 + 46 – 30 = 53 days.
作者: Mechanic    时间: 2012-3-26 16:42

The following data applies to the XTC Company:
What is the average collection period, the average inventory processing period, and the payables payment period for XTC Company?
Average
Collection Period		Average Inventory
Processing Period		Payables
Payments Period
A)
95 days183 days274 days
B)
55 days195 days231 days
C)
45 days45 days132 days


Receivables turnover = $1,000,000 / $260,000 = 3.840
Average collection period = 365 / 3.840 = 95.05 or 95 days
Inventory turnover = $800,000 / $400,000 = 2
Average inventory processing period = 365 / 2 = 183 days
Payables turnover ratio = $800,000 / $600,000 = 1.333
Payables payment period = 365 / 1.333 = 273.82 or 274 days
作者: Mechanic    时间: 2012-3-26 16:42

Are the quick ratio and the debt-to-capital ratio used primarily to assess a company’s ability to meet short-term obligations?
Quick ratioDebt-to-capital ratio
A)
Yes Yes
B)
Yes No
C)
No Yes


The quick ratio is a liquidity ratio. Liquidity ratios are used to measure a firm’s ability to meet its short-term obligations. The debt-to-capital ratio is a solvency ratio. Solvency ratios are used to measure a firm’s ability to meet its longer-term obligations.
作者: Mechanic    时间: 2012-3-26 16:43

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Stock1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

What is the inventory turnover ratio?
A)
1.59.
B)
0.77.
C)
1.29.


Inventory turnover = 1,100(COGS) / 850(inventory) = 1.29
作者: Mechanic    时间: 2012-3-26 16:43

Which of the following ratios would NOT be used to evaluate how efficiently management is utilizing the firm’s assets?
A)
Fixed asset turnover.
B)
Payables turnover.
C)
Gross profit margin.


The gross profit margin is used to measure a firm's operating profitability, not operating efficiency.
作者: Mechanic    时间: 2012-3-26 16:44

>An analyst has gathered the following data about a company:
What is their cash conversion cycle?
A)
-4 days.
B)
186 days.
C)
4 days.


Cash conversion cycle = average receivables collection period + average inventory processing period – payables payment period
= 95 + 183 – 274 = 4 days
作者: Mechanic    时间: 2012-3-26 16:44

What type of ratio is revenue divided by average working capital and what type of ratio is average total assets divided by average total equity?
Revenue / Average
working capital		Average total assets / Average total equity
A)
Activity ratio Liquidity ratio
B)
Activity ratio Solvency ratio
C)
Profitability ratio Solvency ratio


Revenue divided by average working capital, also known as the working capital turnover ratio, is an activity ratio. Average total assets divided by average total equity, also known as the financial leverage ratio, is a solvency ratio.
作者: spartan1    时间: 2012-3-26 16:45

An analyst has collected the following data about a firm:
What is the average receivables collection period, the average inventory processing period, and the average payables payment period? (assume 360 days in a year)
Receivables
Collection Period		Inventory
Processing Period		Payables
Payment Period
A)
36 days45 days30 days
B)
30 days30 days60 days
C)
45 days36 days30 days


Receivables collection period = 360 / 10 = 36 days
Inventory processing period = 360 / 8 = 45 days
Payables payment period = 360 / 12 = 30 days
作者: spartan1    时间: 2012-3-26 16:46

The following footnote appeared in Crabtree Company’s 20X7 annual report:
“On December 31, 20X7, Crabtree recognized a restructuring charge of $20 million, of which $5 million was for severance pay for employees who will be terminated in 20X8 and $15 million was for land that became permanently impaired in 20X7.”
Based only on these changes, Crabtree’s net profit margin and fixed asset turnover ratio in 20X8 as compared to 20X7 will be?
Net profit marginFixed asset turnover
A)
HigherUnchanged
B)
HigherHigher
C)
LowerHigher


The restructuring charge and asset write-down are non-recurring transactions; thus, net income will be higher in 20X8, all else equal. In 20X8, fixed asset turnover will be the same as 20X7, all else equal. The asset impairment charge is a one-time charge, so fixed assets will not be reduced further in 20X8.
作者: spartan1    时间: 2012-3-26 16:46

During 2007, Brownfield Incorporated purchased $140 million of inventory. For the year just ended, Brownfield reported cost of goods sold of $130 million. Inventory at year-end was $45 million. Calculate inventory turnover for the year.
A)
3.71.
B)
3.25.
C)
2.89.


First, calculate beginning inventory given COGS, purchases, and ending inventory. Beginning inventory was $35 million [$130 million COGS + $45 million ending inventory – $140 million purchases]. Next, calculate average inventory of $40 million [($35 million beginning inventory + $45 million ending inventory) / 2]. Finally, calculate inventory turnover of 3.25 [$130 million COGS / $40 million average inventory].
作者: spartan1    时间: 2012-3-26 16:47

An analyst has gathered the following information about a company:
What is the value of this firm’s average inventory processing period using a 365-day year?
A)
0.7 days.
B)
252.7 days.
C)
1.4 days.


COGS = (0.65)($1,000,000) = $650,000
Inventory turnover = CGS / Inventory = $650,000 / $450,000 = 1.4444
Average Inventory Processing Period = 365 / 1.4444 = 252.7 days
作者: spartan1    时间: 2012-3-26 16:47

Given the following information about a company:
What are the average receivables collection period, the average payables payment period, and the average inventory processing period respectively?
Average Receivables
Collection Period		Average Payables
Payment Period		Average Inventory
Processing Period
A)
373052
B)
374546
C)
373046


Average receivables collection period = (365 / 10) = 36.5 or 37
Average payables payment period = (365 / 12) = 30.4 or 30
Average inventory processing period = (365 / 8) = 45.6 or 46
作者: spartan1    时间: 2012-3-26 16:48

Given the following income statement and balance sheet for a company:

Balance Sheet

AssetsYear 2003Year 2004
Cash500450
Accounts Receivable600660
Inventory500550
Total CA13001660
Plant, prop. equip10001250
Total Assets26002,910
Liabilities
Accounts Payable500550
Long term debt7001102
Total liabilities12001652
Equity
Common Stock400538
Retained Earnings1000720
Total Liabilities & Equity26002,910

Income Statement

Sales3000
Cost of Goods Sold(1000)
Gross Profit2000
SG&A500
Interest Expense151
EBT1349
Taxes (30%)405
Net Income944

What is the average receivables collection period?
A)
76.7 days.
B)
80.3 days.
C)
60.6 days.


Average collection period = 365 / receivables turnover
Receivables turnover = sales / average receivables = 3,000 / 630 = 4.76
Average receivables collection period = 365 / 4.76 = 76.65
作者: spartan1    时间: 2012-3-26 16:48

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Stock1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

What is the receivables turnover ratio?
A)
2.0.
B)
0.5.
C)
1.0.


Receivables turnover = 1,500(sales) / 750(receivables) = 2.0
作者: spartan1    时间: 2012-3-26 16:49

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Stock1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

Determine the current ratio and the cash ratio.
Current RatioCash Ratio
A)
1.981.86
B)
4.650.93
C)
2.671.07


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
作者: spartan1    时间: 2012-3-26 16:49

Eagle Manufacturing Company reported the following selected financial information for 2007:

Accounts payable turnover

5.0


Cost of goods sold

$30 million


Average inventory

$3 million


Average receivables

$8 million


Total liabilities

$35 million


Interest expense

$2 million


Cash conversion cycle

13.5 days


Assuming 365 days in the calendar year, calculate Eagle's sales for the year.
A)
$52.3 million.
B)
$58.4 million.
C)
$57.8 million.


Set up the cash conversion cycle formula and solve for the missing variable, sales. Days in payables is equal to 73 [365 / 5 accounts payable turnover]. Days in inventory is equal to 36.5 [365 / ($30 million COGS / $3 million average inventory)]. Given the cash conversion cycle, days in inventory, and days in payables, calculate days in receivables of 50 [13.5 days cash conversion cycle + 73 days in payables – 36.5 days in inventory]. Given days in receivables of 50 and average receivables of $8 million, sales are $58.4 million [($8 million average receivables / 50 days) × 365].
作者: spartan1    时间: 2012-3-26 16:50

An analyst has gathered the following information about a firm:
What is their receivables balance?
A)
5 million.
B)
2 million.
C)
3 million.


Cash ratio = (cash + marketable securities) / current liabilities
0.20 = ($10,000,000 + $2,000,000) / current liabilities
current liabilities = $12,000,000 / 0.2 = $60,000,000
Quick ratio = [cash + marketable securities + receivables] / $60,000,000
0.25 = [$10,000,000 + $2,000,000 + receivables] / $60,000,000
($60,000,000)(0.25) = $12,000,000 + receivables
$15,000,000 = $12,000,000 + receivables
$15,000,000 − $12,000,000 = receivables
$3,000,000 = receivables
作者: spartan1    时间: 2012-3-26 16:55

How would the collection of accounts receivable most likely affect the current and cash ratios?
Current ratio Cash ratio
A)
IncreaseIncrease
B)
No effectNo effect
C)
No effectIncrease


Collecting receivables increases cash and decreases accounts receivable. Thus, current assets do not change and the current ratio is unaffected. Because the numerator of the cash ratio only includes cash and marketable securities, collecting accounts receivable increases the cash ratio.
作者: spartan1    时间: 2012-3-26 17:07

What would be the impact on a firm’s return on assets ratio (ROA) of the following independent transactions, assuming ROA is less than one?
Transaction #1 – A firm owned investment securities that were classified as available-for-sale and there was a recent decrease in the fair value of these securities.
Transaction #2 – A firm owned investment securities that were classified as trading securities and there was recent increase in the fair value of the securities.
Transaction #1 Transaction #2
A)
Higher Lower
B)
Higher Higher
C)
Lower Higher


Available-for-sale securities are reported on the balance sheet at fair value and any unrealized gains and losses bypass the income statement and are reported as an adjustment to equity. Thus, a decrease in fair value will result in a higher ROA ratio (lower assets). Trading securities are also reported on the balance sheet at fair value; however, the unrealized gains and losses are recognized in the income statement. Therefore, an increase in fair value will result in higher ROA. In this case, both the numerator and denominator are higher; however, since the ratio is less than one, the percentage change of the numerator is greater than the percentage change of the denominator, so the ratio will increase.
作者: spartan1    时间: 2012-3-26 17:08

Given the following income statement and balance sheet for a company:

Balance Sheet

AssetsYear 2006Year 2007
Cash200450
Accounts Receivable600660
Inventory500550
Total CA13001660
Plant, prop. equip10001580
Total Assets26003240
Liabilities
Accounts Payable500550
Long term debt7001052
Total liabilities12001602
Equity
Common Stock400538
Retained Earnings10001100
Total Liabilities & Equity26003240

Income Statement

Sales3000
Cost of Goods Sold(1000)
Gross Profit2000
SG&A500
Interest Expense151
EBT1349
Taxes (30%)405
Net Income944

Which of the following is closest to the company's return on equity (ROE)?
A)
0.62.
B)
0.29.
C)
1.83.


There are several ways to approach this question but the easiest way is to recognize that ROE = NI / average equity thus ROE = 944 / 1,519 = 0.622.
If using the traditional DuPont, ROE = (NI / Sales) × (Sales / Assets) × (Assets / Equity):
ROE = (944 / 3,000) × (3,000 / 2,920) × (2,920 / 1,519) = 0.622
The 5-part Dupont formula gives the same result:
ROE = (net income / EBT)(EBT / EBIT)(EBIT / revenue)(revenue / total assets)(total assets / total equity)
Where EBIT = EBT + interest = 1,349 + 151 = 1,500
ROE 2007 = (944 / 1,349)(1,349 / 1,500)(1,500 / 3,000)(3,000 / 2,920)(2,920 / 1,519) = 0.622
作者: spartan1    时间: 2012-3-26 17:08

Income Statements for Royal, Inc. for the years ended December 31, 20X0 and December 31, 20X1 were as follows (in $ millions):

20X0

20X1

Sales

78

82

Cost of Goods Sold

(47)

(48)

  Gross Profit

31

34

Sales and Administration     

(13)

(14)

  Operating Profit (EBIT)

18

20

Interest Expense

(6)

(10)

  Earnings Before Taxes

12

10

Income Taxes

(5)

(4)

  Earnings after Taxes

  7

  6

Analysis of these statements for trends in operating profitability reveals that, with respect to Royal’s gross profit margin and net profit margin:
A)
gross profit margin decreased but net profit margin increased in 20X1.
B)
gross profit margin increased in 20X1 but net profit margin decreased.
C)
both gross profit margin and net profit margin increased in 20X1.


Royal’s gross profit margin (gross profit / sales) was higher in 20X1 (34 / 82 = 41.5%) than in 20X0 (31 / 78 = 39.7%), but net profit margin (earnings after taxes / sales) declined from 7 / 78 = 9.0% in 20X0 to 6 / 82 = 7.3% in 20X1.
作者: spartan1    时间: 2012-3-26 17:09

Kellen Harris is a credit analyst with the First National Bank. Harris has been asked to evaluate Longhorn Supply Company’s cash needs. Harris began by calculating Longhorn’s turnover ratios for 2007. After a discussion with Longhorn’s management, Harris decides to adjust the turnover ratios for 2008 as follows:

2007 Actual

Turnover

Expected

Increase / (Decrease)


Accounts receivable

5.0

10%


Fixed asset

3.0

7%


Accounts payable

6.0

(20%)


Inventory

4.0

(5%)


Equity

5.5

—


Total asset

2.3

8%

Longhorn’s expected cash conversion cycle for 2008, based on the expected changes in turnover and assuming a 365 day year, is closest to:
A)
82 days.
B)
46 days.
C)
86 days.


2008 expected days of sales outstanding is 66 [365 / (5.0 × 1.1)], 2008 days of inventory on hand is 96 [365 / (4.0 × 0.95)], and 2008 days of payables is 76 [365 / (6.0 × 0.8)]. Expected cash conversion cycle is 86 days [66 days of sales outstanding + 96 days of inventory on hand – 76 days of payables].
作者: spartan1    时间: 2012-3-26 17:10

Selected financial information gathered from the Matador Corporation follows:

2007

2006

2005


Average debt

$792,000

$800,000

$820,000


Average equity

$215,000

$294,000

$364,000


Return on assets

5.9%

6.6%

7.2%


Quick ratio

0.3

0.5

0.6


Sales

$1,650,000

$1,452,000

$1,304,000


Cost of goods sold

$1,345,000

$1,176,000

$1,043,000


Using only the data presented, which of the following statements is most correct?
A)
Leverage has declined.
B)
Gross profit margin has improved.
C)
Return on equity has improved.


Leverage increased as measured by the debt-to-equity ratio from 2.25 in 2005 to 3.68 in 2007. Gross profit margin declined from 20.0% in 2005 to 18.5% in 2007. Return on equity has improved since 2005. One measure of ROE is ROA × financial leverage. Financial leverage (assets / equity) can be derived by adding 1 to the debt-to-equity ratio. In 2005, ROE was 23.4% [7.2% ROA × (1 + 2.25 debt-to-equity)]. In 2007, ROE was 27.6% [5.9% ROA × (1 + 3.68 debt-to-equity)].
作者: spartan1    时间: 2012-3-26 17:10

Assume that Q-Tell Incorporated is in the communications industry, which has an average receivables turnover ratio of 16 times. If the Q-Tell’s receivables turnover is less than that of the industry, Q-Tell’s average receivables collection period is most likely:
A)
20 days.
B)
25 days.
C)
12 days.


Average receivables collection period = 365 / receivables turnover, which is 22.81 days for the industry (= 365 / 16). If Q-Tell’s receivables turnover is less than 16, its average days collection period must be greater that 22.81 days.
作者: spartan1    时间: 2012-3-26 17:11

Comparative income statements for E Company and G Company for the year ended December 31 show the following (in $ millions):

E Company

G Company

Sales

70

90

Cost of Goods Sold

(30)

(40)

  Gross Profit

40

50

Sales and Administration

(5)

(15)

Depreciation

(5)

(10)

  Operating Profit

30

25

Interest Expense

(20)

(5)

  Earnings Before Taxes

10

20

Income Taxes

(4)

(8)

  Earnings after Taxes

6

12


The financial risk of E Company, as measured by the interest coverage ratio, is:
A)
higher than G Company's because its interest coverage ratio is less than G Company's, but at least one-third of G Company's.
B)
higher than G Company's because its interest coverage ratio is less than one-third of G Company's.
C)
lower than G Company's because its interest coverage ratio is at least three times G Company's.


E Company’s interest coverage ratio (EBIT / interest expense) is (30 / 20) = 1.5.
G Company’s interest coverage ratio is (25 / 5) = 5.0. Higher interest coverage means greater ability to cover required interest and lease payments. Note that 1.5 / 5.0 = 0.30, which means the interest coverage for E Company is less than 1/3 that of G Company.
作者: spartan1    时间: 2012-3-26 17:12

An analyst has gathered the following information about a company:

Balance Sheet

Assets
Cash100
Accounts Receivable750
Marketable Securities300
Inventory850
Property, Plant & Equip900
Accumulated Depreciation(150)
Total Assets2750
Liabilities and Equity
Accounts Payable300
Short-Term Debt130
Long-Term Debt700
Common Equity1000
Retained Earnings620
Total Liab. and Stockholder's equity2750

Income Statement

Sales1500
COGS1100
Gross Profit400
SG&A150
Operating Profit250
Interest Expense25
Taxes75
Net Income150

What is the ROE?
A)
10.7%.
B)
9.9%.
C)
9.3%.


ROE = 150(NI) / [1000(common) + 620(RE)] = 150 / 1620 = 0.0926 or 9.3%
作者: spartan1    时间: 2012-3-26 17:13

What is the net income of a firm that has a return on equity of 12%, a leverage ratio of 1.5, an asset turnover of 2, and revenue of $1 million?
A)
$360,000.
B)
$36,000.
C)
$40,000.


The traditional DuPont system is given as:
ROE = (net profit margin)(asset turnover)(leverage ratio)
Solving for the net profit margin yields:
0.12 = (net profit margin) × (2) × (1.5)
0.04 = (net profit margin)
Recognizing that the net profit margin is equal to net income / revenue we can substitute that relationship into the above equation and solve for net income:0.04 = net income / revenue = net income / $1,000,000  
$40,000 = net income.
作者: spartan1    时间: 2012-3-26 17:17

What is a company’s equity if their return on equity (ROE) is 12%, and their net income is $10 million?
A)
$120,000,000.
B)
$83,333,333.
C)
$1,200,000.


One of the many ways ROE can be expressed is: ROE = net income / equity
0.12 = $10,000,000 / equity
Equity = $10,000,000 / 0.12 = $83,333,333
作者: spartan1    时间: 2012-3-26 17:18

The traditional DuPont equation shows ROE equal to:
A)
net income/sales × sales/assets × assets/equity.
B)
EBIT/sales × sales/assets × assets/equity × (1 – tax rate).
C)
net income/assets × sales/equity × assets/sales.


Profit margin × asset turnover × financial leverage. Although net income/assets × sales/equity × assets/sales also yields ROE, it is not the DuPont equation.
作者: spartan1    时间: 2012-3-26 17:19

An analyst has gathered the following information about a company.

Given this information, the company’s return on equity is:

A)
12%.
B)
9%.
C)
18%.


ROE = profit margin × total asset turnover × financial leverage
ROE = (0.1)(1.2)(1.5) = 0.18 or 18.0%
作者: spartan1    时间: 2012-3-26 17:21

If a firm has a net profit margin of 0.05, an asset turnover of 1.465, and a leverage ratio of 1.66, what is the firm's ROE?
A)
12.16%.
B)
3.18%.
C)
5.87%.


One of the many ways to express ROE = net profit margin × asset turnover × leverage ratio
ROE = (0.05)(1.465)(1.66) = 0.1216
作者: spartan1    时间: 2012-3-26 17:21

Given the following information about a firm what is its return on equity (ROE)?
A)
0.18.
B)
0.09.
C)
0.12.


ROE = (EAT / S)(S / A)(A / EQ)
ROE = (0.1)(1.2)(1.5) = 0.18
作者: spartan1    时间: 2012-3-26 17:23

With other variables remaining constant, if profit margin rises, ROE will:
A)
fall.
B)
increase.
C)
remain the same.


The DuPont equation shows clearly that ROE will increase as profit margin increases, as long as asset turn and leverage do not fall.
作者: spartan1    时间: 2012-3-26 17:23

If a company has a net profit margin of 15%, an asset turnover ratio of 4.5 and a ROE of 18%, what is the equity multiplier?
A)
0.267.
B)
2.667.
C)
0.523.


There are many different ways to illustrate ROE one of which is:
ROE = (net profit margin)(asset turnover)(equity multiplier)
0.18 = (0.15)(4.5)(equity multiplier)
0.18 ÷ [(0.15)(4.5)] = equity multiplier
0.18 ÷ 0.675 = equity multiplier
0.18 ÷ 0.675 = 0.267
作者: spartan1    时间: 2012-3-26 17:23

When the return on equity equation (ROE) is decomposed using the original DuPont system, what three ratios comprise the components of ROE?
A)
Net profit margin, asset turnover, asset multiplier.
B)
Net profit margin, asset turnover, equity multiplier.
C)
Gross profit margin, asset turnover, equity multiplier.


The three ratios can be further decomposed as follows:
Net profit margin = net income/sales
Asset turnover = sales/assets
Equity multiplier = assets/equity
作者: spartan1    时间: 2012-3-26 17:25

Which of the following ratios is NOT part of the original DuPont system?
A)
Asset turnover.
B)
Debt to total capital.
C)
Equity multiplier.


The debt to total capital ratio is not part of the original DuPont system. The firm’s leverage is accounted for through the equity multiplier.
作者: spartan1    时间: 2012-3-26 17:25

Would an increase in net profit margin or in the firm’s dividend payout ratio increase a firm’s sustainable growth rate?
Net profit marginDividend payout ratio
A)
Yes Yes
B)
Yes No
C)
No No


The sustainable growth rate is equal to ROE multiplied by the retention rate. According to the Dupont formula, an increase in net profit margin will result in higher ROE. Thus, an increase in net profit margin will result in a higher growth rate. The retention rate is equal to 1 minus the dividend payout ratio. Thus, an increase in the dividend payout ratio will lower the retention rate and lower the growth rate.
作者: dkishore1    时间: 2012-3-26 17:27

An analysis of the industry reveals that firms have been paying out 45% of their earnings in dividends, asset turnover = 1.2; asset-to-equity (A/E) = 1.1 and profit margins are 8%. What is the industry’s projected growth rate?
A)
5.81%.
B)
4.55%.
C)
4.95%.


ROE = profit margin × asset turnover × A/E = 0.08 × 1.2 × 1.1 = 0.1056
RR = (1 - 0.45) = 0.55
g = ROE × RR = 0.1056 × 0.55 = 0.0581
作者: dkishore1    时间: 2012-3-26 17:31

McQueen Corporation prepared the following common-size income statement for the year ended December 31, 20X7:

Sales

100%


Cost of goods sold

60%


Gross profit

40%


For 20X7, McQueen sold 250 million units at a sales price of $1 each. For 20X8, McQueen has decided to reduce its sales price by 10%. McQueen believes the price cut will double unit sales. The cost of each unit sold is expected to remain the same. Calculate the change in McQueen’s expected gross profit for 20X8 assuming the price cut doubles sales.
A)
$150 million increase.
B)
$80 million increase.
C)
$50 million increase.


20X7 gross profit is equal to $100 million ($1 × 250 million units sold × 40% gross profit margin). The 10% price cut to $0.90 will increase cost of goods sold to 67% of sales [COGS=0.6($1) = $0.60; $0.60 / $0.90 = 67%.]. As a result, gross profit will decrease to 33% of sales. If unit sales double in 20X8, gross profit will equal $150 million ($0.90 × 500 million units × 33% gross profit margin). Therefore, gross profit will increase $50 million ($150 million 20X8 gross profit – $100 million 20X7 gross profit).
作者: dkishore1    时间: 2012-3-26 17:32

Lightfoot Shoe Company reported sales of $100 million for the year ended 20X7. Lightfoot expects sales to increase 10% in 20X8. Cost of goods sold is expected to remain constant at 40% of sales and Lightfoot would like to have an average of 73 days of inventory on hand in 20X8. Forecast Lightfoot’s average inventory for 20X8 assuming a 365 day year.
A)
$8.0 million.
B)
$22.0 million.
C)
$8.8 million.


20X8 sales are expected to be $110 million [$100 million × 1.1] and COGS is expected to be $44 million [$110 million sales × 40%]. With 73 days of inventory on hand, average inventory is $8.8 million [($44 million COGS / 365) × 73 days].
作者: dkishore1    时间: 2012-3-26 17:34

In preparing a forecast of future financial performance, which of the following best describes sensitivity analysis and scenario analysis, respectively?Description #1 – A computer generated analysis based on developing probability distributions of key variables that are used to drive the potential outcomes.
Description #2 – The process of analyzing the impact of future events by considering multiple key variables.Description #3 – A technique whereby key financial variables are changed one at a time and a range of possible outcomes are observed. Also known as “what-if” analysis.
Sensitivity analysisScenario analysis
A)
Description #3Description #2
B)
Description #3Description #1
C)
Description #2Description #3


Sensitivity analysis develops a range of possible outcomes as specific inputs are changed one at a time. Sensitivity analysis is also known as “what-if” analysis. Scenario analysis is based on a specific set of outcomes for multiple variables. Computer generated analysis, based on developing probability distributions of key variables, is known as simulation analysis.
作者: terpsichorefan    时间: 2013-4-7 17:57

thanks for sharing



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