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Exam 3: Working With Financial Statements

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Question 31

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New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation?

A) Price-sales ratio
B) Market-to-book ratio
C) Profit margin
D) ROE
E) ROA

F) A) and E)
G) A) and B)

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Question 32

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A firm has sales of $428,000 for the year. The profit margin is 3.4 percent and the retention ratio is 60 percent. What is the common-size percentage for the dividends paid?

A) 0.99 percent
B) 1.18 percent
C) 1.21 percent
D) 1.36 percent
E) 1.42 percent

F) D) and E)
G) A) and C)

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Question 33

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Webster & Jones has net income of $49,200, sales of $936,800, a capital intensity ratio of 0.74, and an equity multiplier of 1.5. What is the return on equity?

A firm has net income of $5,890 and interest expense of $2,130. The tax rate is 34 percent. What is the firm's times interest earned ratio?

High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form of annual dividends. Given this, the percent shown on a common-size income statement for the dividend account will:

All else constant, which one of the following will decrease if a firm increases its net income?

Baxter & Baxter has total assets of $710,000. There are 45,000 shares of stock outstanding with a market value of $28 a share. The firm has a profit margin of 7.1 percent and a total asset turnover of 1.29. What is the price-earnings ratio?

The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions?

Healthy Foods has total assets of $129,800, net fixed assets of $71,500, long-term debt of $52,000, and total debt of $78,700. If inventory is $31,800, what is the current ratio?

Foreign Travel Services has net income of $48,400, total assets of $219,000, total equity of $154,800, and total sales of $311,700. What is the common-size percentage for the net income?

Mercier United has net income of $128,470. There are currently 32.67 days' sales in receivables. Total assets are $1,419,415, total receivables are $122,306, and the debt-equity ratio is 0.40. What is the return on equity?

The Global Network has sales of $418,700, cost of goods sold of $264,900, and inventory of $61,900. What is the inventory turnover rate?

A firm has adopted a policy whereby it will not seek any additional external financing. Given this, what is the maximum growth rate for the firm if it has net income of $12,100, total equity of $94,000, total assets of $156,000, and a 40 percent dividend payout ratio?

Which one of the following statements is correct? A. Peer group analysis is easier when a firm is a conglomerate versus when it only has a single B. line of business. C. Peer group analysis is easier when seasonal firms have different fiscal years. D. Peer group analysis is simplified when firms use varying methods of depreciation. E. Comparing results across geographic locations is easier since all countries now use a common F. set of accounting standards. G. Adjustments have to be made when comparing the income statements of firms which use different methods of accounting for inventory.

Freedom Health Centers has total equity of $861,300, sales of $1.48 million, and a profit margin of 5.2 percent. What is the return on equity?

A firm has net income of $114,000, a return on assets of 12.6 percent, and a debt-equity ratio of 0.60. What is the return on equity?

The Tourist Stop takes an average of 63 days to sell its inventory and an average of 1.5 days to collect payment on its sales. What is the inventory turnover rate?

A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no external financing sources. What must the total asset turnover be?

You are trying to compare the financial performance of your firm to that of similar firms. What are some of the key problems you might encounter in doing this comparison?

The T-shirt Hut successfully managed to reduce its general and administrative costs this year. This cost improvement will increase which of the following ratios? I. Profit margin II) Return on assets III) Total asset turnover IV) Return on equity