Reading 35: Financial Analysis Techniques LOS d习题精选 activity, valuation, interpret

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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) Current ratio.

C) Total asset turnover.

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

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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 interest coverage ratio and the net profit margin?

Interest Coverage Ratio

Net Profit Margin

A) 2.63 0.30

B) 0.57 0.56

C) 7.67 0.30

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Interest coverage ratio = (EBIT / interest expense) = (115 / 15) = 7.67

Net profit margin = (net income / net sales) = (60 / 200) = 0.30

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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 Unchanged

B) Higher Higher

C) Lower Higher

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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.

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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.

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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.

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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   $500

B) 0.78   $250

C) 1.22  $500

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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

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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%.

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

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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) 1 time.

B) 3 times.

C) 4 times.

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ICR = operating profit ÷ I = EBIT ÷ I
= 100,000 ÷ 25000 = 4

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If the inventory turnover ratio is 7, what is the average number of days the inventory is in stock?

A) 70 days.

B) 52 days.

C) 25 days.

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Average Inventory Processing Period = 365 / inventory turnover = 365 / 7 = 52 days.

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The main difference between the current ratio and the quick ratio is that the quick ratio excludes:

A) cost of goods sold.

B) inventory.

C) assets.

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

Quick ratio = [cash + marketable securities + receivables] / current liabilities

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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

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

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