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Exam 3: Financial Analysis

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Question 1

Multiple Choice

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If a company has a return on investment of 17%,and its equity multiplier is 1.75,its ROE would be _______?

A) 64.75%
B) 29.75%
C) 18.25%
D) 16.50%

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Question 2

Multiple Choice

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If a firm has both interest expense and lease payments:

A) times interest earned will be smaller than fixed charge coverage.
B) times interest earned will be greater than fixed charge coverage.
C) times interest earned will be the same as fixed charge coverage.
D) fixed charge coverage cannot be computed.

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B

Question 3

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The current ratio is a more severe test of a firm's liquidity than the quick ratio.

In analyzing ratios,the age of the firm's assets need not be considered.

A non-Canadian company experiencing rapid price increases for its product would take the most conservative approach by using:

According the DuPont system,which of the following is not a factor in achieving a satisfactory return on assets?

A quick ratio much smaller than the current ratio reflects:

Which of the following is not a debt utilization ratio?

Industries most sensitive to inflation-induced profits are those with cyclical products such as lumber,copper,etc.

Complete the following balance sheet for the Range Company using the following information: Debt to Assets = 60% Quick Ratio = 1.1 Asset Turnover = 5x Capital Asset Turnover = 12.037x Current Ratio = 2 Average Collection Period = 17.0708 days

For a given level of profitability as measured by profit margin,the firm's return on equity will:

A current ratio of 2 to 1 is always acceptable,for a company in any industry.

A firm has a debt to equity ratio of 50%,debt of $300,000,and net income of $90,000.The return on equity is:

$\begin{array}{l}\text { LIABILITIES AND SHAREHOLDERS' EQUITY }\\\begin{array} { l r } \text { Accounts payable } & \$ 60,000 \\\text { Accrued expenses } & 40,000 \\\text { Long-term debt } & 130,000 \\\text { Common stock } & 80,000 \\\text { Retained earnings } & \underline { 100,000 } \\\text { Total Liabilities and Shareholders' Equity } & \underline { \$ 410,000 }\end{array}\end{array}$ -Times interest earned for Megaframe Computer is:

FIFO will cause inflated profits during deflation.

If the company's accounts receivable turnover is decreasing,the average collection period:

Satisfactory return on assets may be achieved through high profit margins or rapid turnover of assets,but not a combination of both.

Disinflation may cause:

Asset utilization ratios can be used to measure the effectiveness of a firm's managers.

$\begin{array}{l}\text { LIABILITIES AND SHAREHOLDERS' EQUITY }\\\begin{array} { l r } \text { Accounts payable } & \$ 60,000 \\\text { Accrued expenses } & 40,000 \\\text { Long-term debt } & 130,000 \\\text { Common stock } & 80,000 \\\text { Retained earnings } & \underline { 100,000 } \\\text { Total Liabilities and Shareholders' Equity } & \underline { \$ 410,000 }\end{array}\end{array}$ -Megaframe's current ratio is: