Hi Sky Enterprises has total assets of $3 million, a debt ratio of 30%, and an after-tax profit margin of 11.04% and sales of $2.5 million. What is Hi Sky's return on equity?
A) 15%
B) 35%
C) 27%
D) 13%
Paper Clip Office Supply had $24,000,000 in sales last year. Its total asset turnover was 3.0. Interest expense was $100,000 (5% on its $2,000,000 of debt). The company is financed entirely with debt and common equity. What is Paper Clip's debt ratio?
A) 20%
B) 30%
C) 25%
D) 60%
E) 16%
Kiosk Corp. has current assets of $4.5 million and current liabilities of $3.6 million. The current ratio is 1.25, and the quick ratio is 0.75. How much does Kiosk have invested in inventory (in millions)?
A) $0.8
B) $1.8
C) $2.4
D) $2.9
E) $3.6
Champion Company has sales of $20 million, total debt of $1.5 million, and a debt ratio of 40%. What is Champion's total asset turnover?
A) 13.33
B) 9.11
C) 6.55
D) 5.33
The focus of DuPont Analysis is to provide management information as to how the firm is using its resources to maximize returns on owners' investments.
Answer: TRUE
The current ratio and the acid test ratio are both measures of financial leverage.
Answer: FALSE
Ratios that examine profit relative to investment are useful in evaluating the overall effectiveness of the firm's management.
Answer: TRUE
Financial ratios that are higher than industry averages may indicate problems which are as detrimental to the firm as ratios that are too low.
Answer: TRUE
According to the DuPont Analysis, an increase in net profit margin will decrease return on assets.
Answer: FALSE
Financial ratios comprise the principal tool of financial analysis since they can be used to answer a variety of questions regarding a firm's financial condition.
Answer: TRUE
Financial ratios can highlight a firm's financial performance with regard to liquidity, solvency, and profitability.
Answer: TRUE
Ratios are used to standardize financial information.
Answer: TRUE
There is no such thing as a liquidity ratio being too high.
Answer: FALSE
A retailer that accepts credit cards will have a higher accounts receivable turnover ratio than a retailer with its own credit department.
Answer: TRUE
One weakness of the times-interest-earned ratio is that it includes only the annual interest expense as a finance expense that must be paid.
Answer: TRUE
