honeycfa

The following data applies to the XTC Company:

• Sales = $1,000,000.
• Receivables = $260,000.
• Payables = $600,000.
• Purchases = $800,000.
• COGS = $800,000.
• Inventory = $400,000.
• Net Income = $50,000.
• Total Assets = $800,000.
• Debt/Equity = 200%.

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) 55 days 195 days 231 days

B) 45 days 45 days 132 days

C) 95 days 183 days 274 days

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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

honeycfa

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 Solvency ratio

B) Activity ratio Liquidity ratio

C) Profitability ratio Solvency ratio

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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.

honeycfa

An analyst has gathered the following data about a company:

• Average receivables collection period of 37 days.
• Average payables payment period of 30 days.
• Average inventory processing period of 46 days.

What is their cash conversion cycle?

A) 53 days.

B) 113 days.

C) 45 days.

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Cash conversion cycle = average receivables collection period + average inventory processing period – payables payment period = 37 + 46 – 30 = 53 days.

honeycfa

Given the following information about a company:

• Receivables turnover = 10 times.
• Payables turnover = 12 times.
• Inventory turnover = 8 times.

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) 37 30 46

B) 37 30 52

C) 37 45 46

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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

honeycfa

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

Balance Sheet
Assets	Year 2003	Year 2004
Cash	500	450
Accounts Receivable	600	660
Inventory	500	550
Total CA	1300	1660
Plant, prop. equip	1000	1250
Total Assets	2600	2910
Liabilities
Accounts Payable	500	550
Long term debt	700	1102
Total liabilities	1200	1652
Equity
Common Stock	400	538
Retained Earnings	1000	720
Total Liabilities & Equity	2600	2,910
Income Statement
Sales		3000
Cost of Goods Sold		(1000)
Gross Profit		2000
SG&A		500
Interest Expense		151
EBT		1349
Taxes (30%)		405
Net Income		944

What is the gross profit margin?

A) 0.333.

B) 0.666.

C) 0.472.

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Gross profit margin = (gross profit / net sales) = (2,000 / 3,000) = 0.666

honeycfa

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

Balance Sheet
Assets	Year 2003	Year 2004
Cash	500	450
Accounts Receivable	600	660
Inventory	500	550
Total CA	1300	1660
Plant, prop. equip	1000	1250
Total Assets	2600	2910
Liabilities
Accounts Payable	500	550
Long term debt	700	700
Total liabilities	1200	1652
Equity
Common Stock	400	400
Retained Earnings	1260	1260
Total Liabilities & Equity	2600	2910
Income Statement
Sales		3000
Cost of Goods Sold		(1000)
Gross Profit		2000
SG&A		500
Interest Expense		151
EBT		1349
Taxes (30%)		405
Net Income		944

What is the operating profit margin?

A) 0.45.

B) 0.67.

C) 0.50.

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Operating profit margin = (EBIT / sales) = (1,500 / 3,000) = 0.5

honeycfa

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) Gross profit margin.

C) Payables turnover.

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The gross profit margin is used to measure a firm's operating profitability, not operating efficiency.

honeycfa

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

Balance Sheet
Assets	Year 2003	Year 2004
Cash	500	450
Accounts Receivable	600	660
Inventory	500	550
Total CA	1300	1660
Plant, prop. equip	1000	1250
Total Assets	2600	2,910
Liabilities
Accounts Payable	500	550
Long term debt	700	1102
Total liabilities	1200	1652
Equity
Common Stock	400	538
Retained Earnings	1000	720
Total Liabilities & Equity	2600	2,910
Income Statement
Sales		3000
Cost of Goods Sold		(1000)
Gross Profit		2000
SG&A		500
Interest Expense		151
EBT		1349
Taxes (30%)		405
Net Income		944

What is the average receivables collection period?

A) 76.7 days.

B) 80.3 days.

C) 60.6 days.

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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

honeycfa

Earnings before interest and taxes (EBIT) is also known as:

A) gross profit.

B) earnings before income taxes.

C) operating profit.

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Operating profit = earnings before interest and taxes (EBIT)

Gross profit = net sales – COGS

Net income = earnings after taxes = EAT

honeycfa

To calculate the cash ratio, the total of cash and marketable securities is divided by:

A) total liabilities.

B) total assets.

C) current liabilities.

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Current liabilities are used in the denominator for the: current, quick, and cash ratios.