Hi Sky Enterprises has total assets of $3 million, a debt ratio of 30%, and an after-tax profit margin of 11.04%

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

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 1995. In addition, the firm's total assets were $2,500,000,

Corbin, Inc. had net income of $150,000 on sales of $5,000,000 during 1995. In addition, the firm's total assets were $2,500,000, and its capital structure is comprised of 40% debt and 60% equity. What was Corbin's return on equity in 1995?

A) 15%

B) 2.5%

C) 10%

D) Return on equity cannot be determined with the information provided.

Which of the following ratios would be the most useful in evaluating the ability of a firm to meet its short-term obligations?

A) The quick ratio (acid test)

B) Return on equity

C) Total asset turnover

D) Operating profit margin

If Challenge Corporation has sales of $2 million per year (all credit) and an average collection period of 35 days, what is its average amount of accounts receivable?

A) $191,781

B) $57,143

C) $5,556

D) $97,222

Which of the following financial ratios is the best measure of how effectively a firm's management is serving its stockholders?

A) Current ratio

B) Debt ratio

C) ACP

D) Return on equity

Colton Corp. has current assets of $4.5 million. The current ratio is 1.25 and the quick ratio is 0.75. What is the amount of Colton's current liabilities (in millions)?

A) $4.5

B) $1.8

C) $2.4

D) $2.9

E) $3.6

Consolidated Industries has total interest charges of $20,000 per year. Sales of $2 million generated an operating income of $220,000 and an after-tax profit of 6% of sales. The firm has a marginal tax rate of 40%. What is the firm's times-interest-earned ratio?

A) 10

B) 11

C) 12

D) 13

A firm has a return on equity of 20% and a total asset turnover of 4. Assuming a debt ratio of 50% and sales of $1,000,000

A firm has a return on equity of 20% and a total asset turnover of 4. Assuming a debt ratio of 50% and sales of $1,000,000, calculate net income.

A) $25,000

B) $50,000

C) $75,000

D) $100,000  

An increase in the current ratio would indicate an increase in

A) leverage.

B) liquidity.

C) return on investment.

D) operating income.

Which of the following is NOT a component of return on assets (ROA)?

A) Total assets

B) Cost of goods sold

C) Sales

D) Leverage

________ indicates management's effectiveness in managing the firm's income statement.

A) Gross profit margin

B) Operating profit margin

C) Net profit margin

D) Return on assets

Holding all other variables constant, which of the following could cause a firm's current ratio to decrease from 3.0 to 2.5? An increase in

A) inventory.

B) long-term debt.

C) accounts receivable.

D) accounts payable.

Which of the following will increase return on equity?

A) An increase in sales with a proportionate increase in costs and expenses

B) An increase in sales relative to the asset base

C) A decrease in leverage

D) Both A and C

Which of the following is NOT a driving force of the operating profit margin?

A) The average selling price for each product

B) The ability to control all of the firm's expenses

C) The ability to control general and administrative expenses

D) The number of units of product sold

Use the following information to answer the following question(s).Key Ratios for ABC, Inc. and Its Industry

 Use the following information to answer the following question(s).

                                                              Key Ratios for ABC, Inc. and Its Industry

                                                ABC, Inc. 2013 Ratios        Industry Average Ratios in 2013

Current ratio                                          1.2                                              1.4

Acid test ratio                                     0.89                                            0.94

Average collection period        30 days                                     25 days

Inventory turnover                            18.1                                            20.3

Fixed assets turnover                          4.1                                              4.8

Total asset turnover                          2.78                                              2.8

Debt ratio                                             50%                                           60%

Times-interest-earned                     5.5%                                          4.5%

Net profit margin                           1.15%                                          1.5%

Return on equity                            5.21%                                        7.32%

                  ABC, Inc. Income Statement (in thousands)

                                        December 31, 2014

Sales (all credit)                                                                $200,000

Cost of goods sold                                                             140,000

Gross profit on sales                                                            60,000

Operating expenses                                                             56,000

Operating income                                                                   4,000

Interest expense                                                                       1,000

Earnings before tax                                                                 3,000

Income tax                                                                                 1,050

Net income available to common stockholders          $1,950

                     ABC, Inc. Balance Sheet (in thousands)

                                        December 31, 2014

Assets

Cash                                                                                         $2,000

Accounts receivable                                                             17,800

Inventories                                                                                8,700

Total current assets                                                              28,500

Gross fixed assets                                                                 70,000

Accumulated depreciation                                                26,500

Net fixed assets                                                                     43,500

Total assets                                                                          $72,000

Liabilities and Equity

Accounts payable                                                              $18,000

Accruals                                                                                  13,350

Total current liabilities                                                       31,350

Long-term debt                                                                        8,250

Total liabilities                                                                      39,600

Common stock (par value and paid in capital)            2,000

Retained earnings                                                                30,400

Total stockholders' equity                                                  32,400

Total liabilities and equity                                              $72,000

In 1995, ABC's average collection period is

A) 30 days.

B) 32.5 days.

C) 25 days.

D) 35 days.

In 2014, ABC's inventory turnover is

A) 23.9.

B) 20.3.

C) 15.5.

D) 16.1.

In 2014, ABC's fixed asset turnover is

A) 2.78.

B) 5.0.

C) 4.6.

D) 4.8.

Since 2013, ABC's efficiency at using its assets has

A) improved.

B) deteriorated.

C) remained the same.

D) been variable across components of the efficiency measures.

In 2014, the improvement in ABC's return on equity occurred because

A) ABC used more debt than in 1994.

B) ABC lowered its expenses in 1995 and was, therefore, more profitable.

C) ABC utilized its total assets more efficiently in 1995.

D) None of the above explain the improvement in ABC's return on equity.

Since 2013, ABC's liquidity has

A) improved.

B) deteriorated.

C) remained the same.

D) been variable across components of the liquidity measures.

Since 2013, ABC's inventory management has

A) improved.

B) deteriorated.

C) remained the same.

D) changed but in an indeterminate manner.

A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

A) Liquidity

B) Leverage

C) Efficiency

D) Profitability

In the times-interest-earned ratio, dividend payments are included in

A) the numerator.

B) the denominator.

C) both the numerator and the denominator.

D) neither the numerator nor the denominator.

Assume that a particular firm has a total asset turnover ratio lower than the industry norm. In addition, this firm's current ratio and fixed asset turnover ratio also meet industry standards. Based on this information, we can conclude that this firm must have excessive

A) accounts receivable.

B) fixed assets.

C) debt.

D) inventory.

Assume that a particular firm has a total asset turnover ratio lower than the industry norm. In addition, this firm's current ratio and acid test ratio also meet industry standards. Based on this information, we can conclude that this firm must have excessive

A) accounts receivable.

B) fixed assets.

C) debt.

D) inventory.

A firm is conducting an analysis of trends over time and discovers that its inventory turnover has declined. This may be due to

A) an increase in sales.

B) an increase in cost of goods sold.

C) an increase in inventory purchases.

D) a decrease in inventory purchases.

If the total asset turnover decreases, then the return on equity will

A) decrease.

B) increase.

C) not change.

D) change, but in an indeterminate way.

Kannan Carpets, Inc. has asked you to calculate the company's current ratio for 2001

Kannan Carpets, Inc. has asked you to calculate the company's current ratio for 2001. All you have is a partial balance sheet and some assumptions. Using the information provided, calculate Kannan's current ratio for 2001.

Gross profit margin = 50%

Inventory turnover (COGS/Inv) = 5

2001 sales = $3,000

Assets                                                                     Liabilities & Equity

Cash                                      ?                              Accounts payable             $50

AR                                          $40                         Accruals                               ?

Inventory                             ?                              Long-term debt                  $400

Net fixed assets                  $500                      Equity                                   250

Total assets                         $900                       Total liab. & equity           ?

A) 0.3

B) 0.8

C) 1.6

D) 2.2

Kannan Carpets, Inc. has asked you to calculate the company's quick ratio for 2001. All you have is a partial balance sheet and some assumptions. Using the information provided, calculate Kannan's quick ratio for 2001.

Gross profit margin = 50%

Inventory turnover (COGS/Inv) = 5

2001 sales = $3,000

Assets                                                                     Liabilities & Equity

Cash                                      ?                              Accounts payable             $50

AR                                          $40                         Accruals                               ?

Inventory                             ?                              Long-term debt                  $400

Net fixed assets                  $500                      Equity                                   250

Total assets                         $900                       Total liab. & equity           ?

A) 0.2

B) 0.4

C) 0.6

D) 0.8

Dew Point Dynamite, Inc. generated a 1.23 total asset turnover in its latest fiscal year on assets of $2,112,077. The firm has total liabilities of $950,997. The firm's net profit margin was 10.3%. What is Dew Point's return on equity? Round to the nearest 0.1%.

A) 23.1%

B) 12.6%

C) 5.5%

D) 18.2%

An example of a liquidity ratio is the

A) quick ratio.

B) debt ratio.

C) times-interest-earned.

D) return on assets.

Storm King Associates has a total asset turnover ratio of 1.90 and a return on total assets of 7.20%.

Storm King Associates has a total asset turnover ratio of 1.90 and a return on total assets of 7.20%. What is Storm King's net profit margin?

A) 3.79

B) 13.68

C) 9.10

D) None of the above

A decrease in ________ will increase gross profit margin.

A) cost of goods sold

B) depreciation expense

C) interest expense

D) both A and B

Other things held constant, an increase in ________ will decrease the current ratio. Assume an initial current ratio greater than 1.0.

A) accruals

B) common stock

C) average collection period

D) cash

GAAP, Inc. has total assets of $2,575,000, sales of $5,950,000, total liabilities of $1,855,062, and a net profit margin of 2.9%. What is GAAP's return on equity? Round to the nearest 0.1%.

A) 8.6%

B) 24.0%

C) 16.4%

D) 4.4%

Wireless Communications has a total asset turnover of 2.66, total liabilities of $1,004,162, and sales revenues of $7,025,000. What is Wireless's debt ratio?

A) 38.0%

B) 14.3%

C) 26.7%

D) 81.1%

Which of the following will help an analyst determine how well a firm is able to meet its debt obligations?

A) Total liability turnover

B) Times-interest-earned

C) Return on debt

D) Asset ratio

Heavy Load, Inc. has sales of $3,450,000, total assets of $1,240,000, and total liabilities of $275,000, which consist strictly of notes payable. The firm's operating profit margin is 16.1%, and it pays a 10% rate of interest on its notes payable. How much is the firm's times-interest-earned?

A) 15.6

B) 45.3

C) 20.2

D) 3.0

An increase in ________ will decrease the times-interest-earned ratio.

A) the tax rate

B) gross profit

C) interest expense

D) common stock