1.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)   Return on equity has improved.

B)   Leverage has declined.

C)   Liquidity has improved.

D)   Gross profit margin has improved.

2.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)   12 days.

B)   25 days.

C)   16 days.

D)   20 days.

3.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 one-third of G Company's.

B)   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.

C)   lower than G Company's because its interest coverage ratio is more than G Company's but less than three times G Company's.

D)   lower than G Company's because its interest coverage ratio is at least three times G Company's.

答案和详解如下：

1.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)   Return on equity has improved.

B)   Leverage has declined.

C)   Liquidity has improved.

D)   Gross profit margin has improved.

The correct answer was A)

Leverage increased as measured by the debt-to-equity ratio from 2.25 in 2005 to 3.68 in 2007. Liquidity worsened as measured by the quick ratio from 0.6 in 2005 to 0.3 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)].

2.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)   12 days.

B)   25 days.

C)   16 days.

D)   20 days.

The correct answer was B)

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.

3.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 one-third of G Company's.

B)   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.

C)   lower than G Company's because its interest coverage ratio is more than G Company's but less than three times G Company's.

D)   lower than G Company's because its interest coverage ratio is at least three times G Company's.

The correct answer was A)

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.

ABD