In 1996, Snout and Smith, Inc. had a gross profit of $27,000 on sales of $110,000. S & S's operating expenses for 1996 were $13,000

In 1996, Snout and Smith, Inc. had a gross profit of $27,000 on sales of $110,000. S & S's operating expenses for 1996 were $13,000, and its net profit margin was .0585. Snout and Smith had no interest expense in 1996. Using this information, what was S & S's operating profit margin for 1996?

A) 0.245

B) 0.118

C) 0.127

D) 0.157

Sharky's Loan Co. has an annual interest expense of $30,000. If Sharky's times-interest-earned ratio is 2.9, what is Sharky's Earnings Before Taxes (EBT)?

A) $87,000

B) $57,000

C) $117,000

D) $60,000

Skrit Corporation has a net profit margin of 15% and a total asset turnover of 1.7. What is Skrit's return on total assets?

A) 12.3%

B) 25.5%

C) 8.8%

D) 11.1%

Sputter Motors has sales of $3,450,000, total assets of $1,240,000, cost of goods sold of $2,550,000, and an inventory turnover of 6.38. What is the amount of Sputter's inventory?

A) $421,054

B) $638,112

C) $543,000

D) $399,687

Which of the following is the best indicator of management's effectiveness at managing the firm's balance sheet?

A) Debt ratio

B) Total asset turnover

C) Times-interest-earned

D) Operating profit margin

Which of the following is the best indicator of management's effectiveness at generating profits relative to the firm's assets?

A) Quick ratio

B) Fixed assets turnover

C) Return on assets

D) Accounts receivable turnover

Ortny Industries has an accounts receivable turnover ratio of 4.3. If Ortny has an accounts receivable balance of $90,000

Ortny Industries has an accounts receivable turnover ratio of 4.3. If Ortny has an accounts receivable balance of $90,000, what is Ortny's average daily credit sales?

A) $387,000

B) $1,548

C) $1,060

D) $3,521 

A decrease in the return on equity ratio could be caused by an increase in

A) tax rate.

B) cost of goods sold.

C) total assets.

D) both B and C.

Spinnit, Limited has a debt ratio of .57, current liabilities of $14,000, and total assets of $70,000. What is the level of Spinnit, Limited's total liabilities?

A) $25,900

B) $24,600

C) $39,900

D) $53,900

Snort and Smiley Incorporated has a debt ratio of .42, noncurrent liabilities of $20,000, and total assets of $70,000. What is Snort and Smiley's level of current liabilities?

A) $8,400

B) $9,400

C) $12,340

D) $10,600

Lorna Dome, Inc. has an annual interest expense of $30,000. Lorna Dome's times-interest-earned ratio is 4.2. What is Lorna Dome's operating income?

A) $96,000

B) $57,000

C) $126,000

D) $57,600

Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The total debt ratio for the firm is 50%

Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The total debt ratio for the firm is 50%. Calculate Millers's return on equity.

A) 17.5%

B) 19.5%

C) 21.5%

D) 23.5%

Smart and Smiley Incorporated has an average collection period of 74 days. What is the accounts receivable turnover ratio for Smart and Smiley?

A) 4.93

B) 2.47

C) 2.66

D) 1.68

Billing's Pit Corporation has an accounts receivable turnover ratio of 3.4. What is Billing's Pit Corporation's average collection period?

A) 107 days

B) 102 days

C) 73 days

D) 55 days

Which of the following statements is true?

A) As a general rule, management would want to reduce the firm's average collection period.

B) As a general rule, management would want to reduce the firm's accounts receivable turnover ratio.

C) As a general rule, management would want to increase the firm's average collection period.

D) As a general rule, a firm is not financially affected by the amount of time required to collect its accounts receivable.

Snype, Inc. has an accounts receivable turnover ratio of 7.3. Stork Company has an accounts receivable turnover ratio of 5.0. Which of the following statements is correct?

A) Snype's average collection period is less than Stork's.

B) Stork's average collection period is less than Snype's.

C) Snype has a lower accounts receivable account on average than does Stork Company.

D) Stork Company has (on average) a lower accounts receivable account than does Snype.

Water Works, Inc. has a current ratio of 1.33, current liabilities of $540,000, and inventory of $400,000.

Water Works, Inc. has a current ratio of 1.33, current liabilities of $540,000, and inventory of $400,000. What is Water Works, Inc.'s quick ratio?

A) 1.11

B) 0.86

C) 1.90

D) 0.59

 If a company's average collection period is higher than the industry average, then the company might be

A) enforcing credit conditions upon its customers which are too stringent.

B) allowing its customers too much time to pay their bills.

C) too tough in collecting its accounts.

D) too liquid.

Why is the quick ratio a more refined measure of liquidity than the current ratio?

A) It measures how quickly cash and other liquid assets flow through the company.

B) Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets.

C) It is a quicker calculation to make.

D) Cash is the most liquid current asset.

Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith's quick or acid test ratio?

A) 1.69

B) 0.54

C) 0.74

D) 1.35

Kingsbury Associates has current assets as follows:

       Cash                                       $3,000

       Accounts receivable          $4,500

       Inventories                           $8,000

If Kingsbury has a current ratio of 3.2, what is its quick ratio?

A) 2.07

B) 1.55

C) 0.48

D) 0.96

Which of the following ratios indicates how rapidly the firm's credit accounts are being collected?

A) Debt ratio

B) Gross profit margin

C) Accounts receivable turnover ratio

D) Fixed asset turnover

Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%

Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall's debt ratio.

A) 30%

B) 40%

C) 50%

D) 60%

The DuPont method decomposes return on equity into

A) return on assets and the debt ratio.

B) return on assets and the equity multiplier.

C) operating income and inventory turnover.

D) net profit margin and fixed asset turnover.

A firm's average collection period has decreased significantly from the previous year. Which of the following could possibly explain the results?

A) Customers are paying off their accounts quicker.

B) Customers are taking longer to pay for purchases.

C) The firm has a stricter collection policy.

D) Both A and C.

An increase in ________ will increase common equity.

A) paid in capital

B) retained earnings

C) dividends paid

D) both A and 

Another name for the acid test ratio is the

A) current ratio.

B) quick ratio.

C) inventory turnover ratio.

D) average collection period.

Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

A) Current ratio

B) Gross profit margin

C) Quick ratio

D) Return on investment

Which of the following is included in the denominator of the times-interest-earned ratio?

A) Lease payments

B) Principal payments

C) Interest expense

D) Gross profit

The quick ratio is a better measure of liquidity than the current ratio if the firm has current assets composed primarily of

A) cash.

B) inventory.

C) marketable securities.

D) accruals.

Smith Company Balance Sheet and selected Income Statement data

                                                         Table 1

Smith Company Balance Sheet and selected Income Statement data

Assets:

Cash and marketable securities                                                  $300,000

Accounts receivable                                                                       2,215,000

Inventories                                                                                        1,837,500

Prepaid expenses                                                                                 24,000

Total current assets                                                                      $3,286,500

Fixed assets                                                                                      2,700,000

Less: accumulated depreciation                                                1,087,500

Net fixed assets                                                                             $1,612,500

Total assets                                                                                     $4,899,000

Liabilities:

Accounts payable                                                                            $240,000

Notes payable                                                                                     825,000

Accrued taxes                                                                                        42,500

Total current liabilities                                                               $1,107,000

Long-term debt                                                                                   975,000

Owner's equity                                                                                2,817,000

Total liabilities and owner's equity                                        $4,899,000

Net sales (all credit)                                                                     $6,375,000

Less: Cost of goods sold                                                                4,312,500

Selling and administrative expense                                         1,387,500

Depreciation expense                                                                       135,000

Interest expense                                                                                  127,000

Earnings before taxes                                                                     $412,500

Income taxes                                                                                        225,000

Net income                                                                                        $187,500

Common stock dividends                                                               $97,500

Change in retained earnings                                                          $90,000

Based on the information in Table 1, the current ratio is

A) 2.97.

B) 1.46.

C) 2.11.

D) 2.23.

Based on the information in Table 1, the average collection period is

A) 71 days.

B) 84 days.

C) 64 days.

D) 127 days.

Based on the information in Table 1, the debt ratio is

A) 0.70.

B) 0.20.

C) 0.74.

D) 0.42.

Based on the information in Table 1, the net profit margin is

A) 4.61%.

B) 2.94%.

C) 1.97%.

D) 5.33%.

Based on the information in Table 1, the inventory turnover ratio is

A) 0.29 times.

B) 2.35 times.

C) 0.43 times.

D) 3.47 times.

Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is

Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is

A) 90 days.

B) 45 days.

C) 75 days.

D) 60 days.

If you were given the components of current assets and of current liabilities, what ratio(s) could you compute?

A) Acid test or quick ratio

B) Average collection period

C) Current ratio

D) Both A and C

E) All of the above

The debt ratio is a measure of a firm's

A) leverage.

B) profitability.

C) liquidity.

D) efficiency.

Which of the following statements is true?

A) Current assets consist of cash, accounts receivable, inventory, and net plant, property, and equipment.

B) The quick ratio is a more restrictive measure of a firm's liquidity than the current ratio.

C) For the average firm, inventory is considered to be more "liquid" than accounts receivable.

D) A successful firm's current liabilities should always be greater than its current assets.

Which of the following transactions does NOT affect the quick ratio?

A) Land held for investment is sold for cash.

B) Equipment is purchased and is financed by a long-term debt issue.

C) Inventories are sold for cash.

D) Inventories are sold on a credit basis.

The question "Did the common stockholders receive an adequate return on their investment?" is answered through the use of

A) liquidity ratios.

B) profitability ratios.

C) coverage ratios.

D) leverage ratios.