honeycfa

An analyst has gathered the following information about a company:

Balance Sheet
Assets
	Cash	100
	Accounts Receivable	750
	Marketable Securities	300
	Inventory	850
	Property, Plant & Equip	900
	Accumulated Depreciation	(150)
Total Assets		2750
Liabilities and Equity
	Accounts Payable	300
	Short-Term Debt	130
	Long-Term Debt	700
	Common Stock	1000
	Retained Earnings	620
Total Liab. and Stockholder's equity		2750
Income Statement
Sales		1500
COGS		1100
Gross Profit		400
SG&A		150
Operating Profit		250
Interest Expense		25
Taxes		75
Net Income		150

What is the inventory turnover ratio?

A) 1.59.

B) 0.77.

C) 1.29.

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Inventory turnover = 1,100(COGS) / 850(inventory) = 1.29

honeycfa

An analyst has gathered the following information about a firm:

• Quick ratio of 0.25.
• Cash ratio of 0.20.
• $2 million in marketable securities.
• $10 million in cash.

What is their receivables balance?

A) 3 million.

B) 5 million.

C) 2 million.

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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

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	1600	1660
Plant, prop. equip	1000	1250
Total Assets	2600	2910
Liabilities
Accounts Payable	500	550
Long term debt	700	1002
Total liabilities	1200	1552
Equity
Common Stock	400	538
Retained Earnings	1000	820
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 current ratio for 2004?

A) 3.018.

B) 0.331.

C) 2.018.

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Current ratio = (CA / CL) = (1,660 / 550) = 3.018

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	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 quick ratio for 2004?

A) 3.018.

B) 0.331.

C) 2.018.

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Quick ratio = (cash + marketable securities + receivables) / CL = (450 + 0 + 660) / 550 = 2.018

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) Payables turnover.

C) Gross profit margin.

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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) 80.3 days.

B) 60.6 days.

C) 76.7 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) operating profit.

B) gross profit.

C) earnings before income taxes.

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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) current liabilities.

C) total assets.

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

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) 113 days.

B) 53 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