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Reading 35: Financial Analysis TechniquesLOS d习题精选

LOS d: Calculate, classify, and interpret activity, liquidity, solvency, profitability, and valuation ratios.

Which ratio is used to measure a company's internal liquidity?

A)
Interest coverage.
B)
Total asset turnover.
C)
Current ratio.



Total asset turnover measures operating efficiency and interest coverage measures a company’s financial risk.

 

Which ratio is used to measure a company's internal liquidity?

A)
Interest coverage.
B)
Total asset turnover.
C)
Current ratio.



Total asset turnover measures operating efficiency and interest coverage measures a company’s financial risk.

TOP

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 margin

Fixed asset turnover

A)

Higher

Higher
B)

Higher

Unchanged
C)

Lower

Higher



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.

TOP

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)

shortens.

B)

lengthens.

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.

TOP

Adams Co.'s common sized balance sheet shows that:

  • Current Liabilities = 20%
  • Equity = 45%
  • Current Assets = 45%
  • Total Assets = $2,000

What are Adams' long-term debt to equity ratio and working capital?

        Debt to Equity    Working 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

TOP

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)
9.6%.
B)
18.0%.
C)
5.0%.



Net income after taxes = 300 × 0.18 = 54
Equity = 1400 × 0.40 = 560
ROE = Net Income / Equity = 54 / 560 = 0.0964 = 9.6%

TOP

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

TOP

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

TOP

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

TOP

Given the following income statement:

Net Sales 200
Cost of Goods Sold 55
Gross Profit 145
Operating Expenses 30
Operating Profit (EBIT) 115
Interest 15
Earnings Before Taxes (EBT) 100
Taxes 40
Earnings After Taxes (EAT) 60

What are the gross profit margin and operating profit margin?

Gross Profit Margin Operating Profit Margin

A)
2.630 1.226
B)
0.379 0.725
C)
0.725 0.575



Gross profit margin = gross profit / net sales = 145 / 200 = 0.725

Operating profit margin = EBIT / net sales = 115 / 200 = 0.575

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