Finance 300 FIN300 - FIN CHAPTER 3.100 Q&A.

FIN 300 - FIN CHAPTER 3 97. Which one of the following is a measure of liquidity? A) Debt-equity ratio B) Return on assets C) Inventory turnover D) Interval measure E) Times interest earned ratio ...

FIN 300 - FIN CHAPTER 3 97. Which one of the following is a measure of liquidity? A) Debt-equity ratio B) Return on assets C) Inventory turnover D) Interval measure E) Times interest earned ratio Financial Ratios Type: Concepts 98. Which of the following is (are) a measure of long-term solvency? I Total debt ratio II Cash coverage ratio III Price-earnings ratio IV Market-to-book ratio A) I only B) I and II only C) II and IV only D) III and IV only E) I, II, and IV only Financial Ratios Type: Concepts 99. The current ratio: A) Analyzes long-term financial viability. B) Will normally have a lower value than the quick ratio. C) Is a measure of short-term liquidity. D) Considers all debt obligations of a firm. E) Indicates the turnover rate of a firm's accounts receivable. Current Ratio Type: Concepts 100. The quick ratio: A) Indicates the ability of a firm to meet its current obligations without disposing of any inventory. B) Depicts the ability of a firm to pay off its long-term debts in a timely manner. C) Compares the current cash holdings of a firm to the current liabilities. D) Measures a firm's ability to generate cash from its operations. E) Indicates how quickly a firm can liquidate its inventory. Quick Ratio Type: Concepts 101. Which one of the following measures indicates how long a firm can continue operating without any additional cash inflows? A) Current ratio B) Cash ratio C) Quick ratio D) Interval measure E) Total debt ratio Interval Measure Type: Concepts 102. Last year a firm had a total debt ratio of .31. This year the total debt ratio is .33. Which one of the following statements can be made with certainty based on this information? A) The firm is bankrupt. B) The firm increased its equity financing. C) The firm had to have sold some long-term assets. D) The firm had to have borrowed more money. E) The firm changed its capital structure. Level: Challenge Subject: Total Debt Ratio Type: Concepts 103. An equity multiplier of 1.64 means that for every $1 the firm raises in new equity, the firm can: A) Acquire an additional $1.64 in new assets. B) Acquire an additional $1.64 in new debt. C) Earn $1.64 in additional profits. D) Earn $1.64 in additional profits per share. E) Pay $1.64 in additional dividends per share. Equity Multiplier Type: Concepts 104. If a firm acquires more long-term debt while also issuing additional shares of stock, then the: A) Debt-equity ratio will increase. B) Debt-equity ratio will decrease. C) Debt equity ratio will remain constant. D) Change in the debt-equity ratio cannot be determined from the information provided. E) Net Income will increase. Debt-Equity Ratio Type: Concepts 105. Creditors are most likely interested in the: A) Fixed asset turnover. B) Times interest earned ratio. C) Earnings per share ratio. D) Price earnings ratio. E) Return on assets ratio. Times Interest Earned Ratio Type: Concepts 106. If the level of inventory rises, all else constant, then: A) The days sales in inventory will also rise. B) The NWC ratio will also rise. C) Inventory turnover will also rise. D) Fixed asset turnover will decline. E) Current ratio will decline. Days Sales In Inventory Type: Concepts 107. An increase in the receivables turnover means that: A) The majority of customers are paying slower. B) The prices of items purchased are rising. C) The days sales in receivables is rising. D) Profit margins are rising. E) Customers are paying their bills faster. Receivables Turnover Type: Concepts 108. A fixed asset turnover ratio of .72 means that: A) For every $1 in total assets, a firm can generate $0.72 in net income. B) For every $1 in net fixed assets, a firm can generate $0.72 in net income. C) For every $1 in total assets, a firm can generate $0.72 in sales. D) For every $1 in net fixed assets, a firm can generate $0.72 in sales. E) For every $1 in net fixed assets, a firm can obtain $0.72 in debt. Fixed Asset Turnover Type: Concepts 109. Which one of the following measures the efficiency with which a firm uses it resources to generate sales? A) Price earnings ratio B) Return on equity C) Total asset turnover D) Current ratio E) Return on assets Total Asset Turnover Type: Concepts 110. A reduction in interest expense, all else constant, will cause a(n): A) Decrease in the times interest earned ratio. B) Increase in the cash coverage ratio. C) Decrease in the long-term debt ratio. D) Decrease in the return on equity. E) Increase in the price earnings ratio. Level: Challenge Subject: Profit Margin Type: Concepts 111. Last year a firm had a profit margin of 7%. This year the profit margin is 6%. Sales remained constant. Which one of the following statements is correct based on this information? A) The return on assets declined. B) The return on equity increased. C) The net income increased. D) The price earnings ratio decreased. E) The interval measure decreased. Level: Challenge Subject: Return On Assets Type: Concepts 112. Stockholders are most interested in the: A) Times interest earned ratio. B) Current ratio. C) Return on equity ratio. D) Total asset turnover rate. E) Return on assets ratio. Return On Equity Type: Concepts 113. ABC, Inc. expects sales and net income to remain constant next year. If ABC wishes to increase its earnings per share figures, then ABC could: A) Increase the amount of dividend paid per share. B) Decrease the amount of dividend paid per share. C) Purchase more assets. D) Issue additional shares of common stock. E) Repurchase outstanding shares of common stock. Earnings Per Share Type: Concepts 114. A price earnings ratio of 14 means that: A) Stockholders are currently paying a price equal to 14 times earnings per share when they buy one share of stock. B) The market value of each share of outstanding common stock is currently valued at $14 per share. C) The market-to-book ratio must be equal to 4. D) The current selling price of a product is equal to 14 times the net income generated from the sale of that product. E) The market value of the common stock is currently equal to 14 times the book value per share. Price Earnings Ratio Type: Concepts 115. Which one of the following is true concerning the market-to-book ratio? A) Extending the depreciation life of a firm's assets will increase the market-to-book ratio. B) A decrease in the price of the stock on the stock exchange will increase the market-to-book ratio. C) An increase in the market value of the common stock will increase the market-to-book ratio. D) The market-to-book ratio is of most interest to the creditors of a firm. E) The market-to-book ratio provides the selling price of a firm's inventory. Market-To-Book Ratio Type: Concepts 116. Which one of the following will increase the return on equity as computed using the Du Pont identity given that all else is held constant? A) A decrease in total equity B) A decrease in sales C) A decrease in net income D) An increase in total assets E) An increase in costs Du Pont Identity Type: Concepts 117. Financial statement analysis provides useful information to which of the following parties? I. Creditors II. Investors III. Internal division managers IV. Senior corporate officers A) I and II only B) II and IV only C) III and IV only D) II, III, and IV only E) I, II, III, and IV Financial Statement Analysis Type: Concepts 118. Computronics, Inc. has a current ratio of 1.5. This implies that if the firm liquidates its current assets in order to pay off its current liabilities, it can sell the current assets for as little as: A) 15% of book value. B) 25% of book value. C) 33% of book value. D) 67% of book value. E) 150% of book value. Current Ratio Type: Problems 119. Assume a firm's current ratio equals 3.5. Which of the following actions would increase it? A) Discarding and writing off spoiled inventory. B) Receiving a full cash payment on an account receivable. C) Paying off a short-term bank loan with the proceeds from new long-term debt. D) Purchasing new fixed assets using the proceeds from a new stock issue. E) Buying inventory on credit, thereby increasing accounts payable. Current Ratio Type: Problems 120. A firm has current liabilities of $250, a current ratio of 1.2, and a quick ratio of 0.80. Calculate the level of inventory for this firm. A) $45 B) $50 C) $100 D) $120 E) $200 Current & Quick Ratios Type: Problems 121. Danny D. Inc. had cost of goods sold of $5,200, net working capital of $120, total current assets of $600, and a quick ratio of 0.8. What is Danny D's days' sales in inventory? A) 12.7 days B) 15.2 days C) 17.1 days D) 19.8 days E) 22.7 days Days' Sales In Inventory Type: Problems 122. Calculate the value of cost of goods sold for Peterson Brewing given the following information: Current liabilities = $340,000; Quick ratio = 1.8; Inventory turnover = 4.0; Current ratio = 3.3. A) $2,040,000 B) $3,060,000 C) $3,999,999 D) $4,180,222 E) $5,888,100 Cost Of Goods Sold Type: Problems 123. CatchaTan Co. had net sales of $800,000 over the past year. During that time, average receivables were $200,000. What was the average collection period? A) 4 days B) 5 days C) 36 days D) 48 days E) 91 days Average Collection Period Type: Problems 124. Martin's Method Acting School has a current ratio of 2, a quick ratio of 1.8, net income of $180,000, a profit margin of 10%, and an accounts receivable balance of $150,000. What is the firm's average collection period? A) 50 days B) 43 days C) 30 days D) 24 days E) 16 days Average Collection Period Type: Problems 125. Atlasta Limo Corp. has an average collection period of 36.5 days. Sales are $300,000. What is the average investment in receivables? A) $4,441 B) $8,219 C) $10,000 D) $30,000 E) $36,500 Receivables Ratios Type: Problems 126. If a firm has a total debt ratio of 1.5, what is its equity multiplier? A) –2.00 times B) 0.50 times C) 0.67 times D) 1.50 times E) 3.00 times Debt Ratio & Equity Multiplier Type: Problems 127. Tron, Inc. has a times interest earned ratio of 4.0. Based on this ratio, a creditor knows that Tron's EBIT must decline by more than __________ before Tron will be unable to cover its interest expense. A) 33% B) 40% C) 67% D) 75% E) 80% Times Interest Earned Type: Problems 128. The BeenThereDoneThat Company has net income of $200, interest expenses of $50, and depreciation of $50. The corporate tax rate is 50%. What is the cash coverage ratio? A) 1.2 times B) 1.8 times C) 3.0 times D) 9.0 times E) 10.0 times Cash Coverage Ratio Type: Problems 129. A firm has an ROA of 8%, sales of $100, and total assets of $75. What is its profit margin? A) 1.3% B) 4.3% C) 6.0% D) 10.7% E) 16.7% Return On Assets Type: Problems 130. You have the following data for the Fosberg Winery. What is Fosberg's return on assets (ROA) ? Return on equity = 15%; Earnings before taxes = $30,000; Total asset turnover = 0.80; Profit margin = 4.5%; Tax rate = 35%. A) 3.6% B) 3.9% C) 5.7% D) 6.4% E) 9.3% Return On Assets Type: Problems 131. A firm has a total book value of equity of $2 million, a market to book ratio of 2, and a book value per share of $5.00. What is the total market value of the firm's equity? A) $10 B) $500,000 C) $2 million D) $4 million E) $20 million Market To Book Ratios Type: Problems 132. Jorge Corp. has 100,000 shares outstanding. EBIT is $1 million and interest paid is $200,000. If the corporate tax rate is 34%, what is Jorge's earnings per share? A) $2.72 B) $3.40 C) $5.28 D) $6.60 E) $10.00 Earnings Per Share Type: Problems 133. Etling Eccentricities has 400,000 shares of common stock outstanding, net income after tax of $1.2 million, retained earnings of $17 million, and total equity of $35 million. What is EE's earnings per share? A) $3.00 B) $4.00 C) $4.25 D) $8.75 E) $13.50 Earnings Per Share Type: Problems 134. A firm with net income of $500,000 pays 48% of net income out in dividends. If the firm has 150,000 shares of common stock outstanding, what is the dividend paid per share of stock? A) $0.30 B) $1.44 C) $1.60 D) $1.73 E) $3.33 Dividends Per Share Type: Problems 135. Given a profit margin = 10%, ROE = 20%, D/E = 1.5, and assets = $200, calculate sales. A) $10 B) $160 C) $250 D) $640 E) $1,000 Du Pont Identity Type: Problems 136. A firm has sales of $500, total assets of $300, and a debt/equity ratio of 2. If its return on equity is 15%, what is its net income? A) $7.50 B) $15.00 C) $22.50 D) $32.50 E) $50.00 Du Pont Identity Type: Problems Use the following to answer questions 137-148: Young, Inc. 2003 Income Statement ($ in millions) Net sales $1,384 Less: Cost of goods sold 605 Less: Depreciation 180 Earnings before interest and taxes 599 Less: Interest paid 80 Taxable income 519 Less: Taxes 156 Net income $363 Addition to retained earnings $254 Dividends paid 109 Young, Inc. 2002 and 2003 Balance Sheet ($ in millions) 2002 2003 2002 2003 Cash $100 $121 Accounts payable $400 $350 Accounts rec. 350 425 Notes payable 390 370 Inventory 440 410 Total $790 $720 Total $890 $956 Long-term debt 500 550 Net fixed assets 1,556 1,704 Common stock 600 580 Retained earnings 556 810 Total assets $2,446 $2,660 Total liabilities $2,446 $2,660 137. What is the current ratio for Young in 2003? A) 1.13 B) 1.21 C) 1.23 D) 1.33 E) 1.47 Current Ratio Type: Problems 138. What is the quick ratio for Young for 2002? A) 0.57 B) 0.63 C) 0.76 D) 1.13 E) 1.33 Quick Ratio Type: Problems 139. What is the total debt ratio for Young for 2003? A) 0.27 B) 0.48 C) 0.53 D) 0.70 E) 0.82 Total Debt Ratio Type: Problems 140. What is the debt-equity ratio for 2002? A) 0.48 B) 0.91 C) 1.12 D) 2.15 E) 2.32 Debt-Equity Ratio Type: Problems 141. What is the times interest earned ratio for 2003? A) 1.5 times B) 3.5 times C) 4.5 times D) 6.5 times E) 7.5 times Times Interest Earned Type: Problems 142. What is the cash coverage ratio for 2003? A) 5.2 B) 6.8 C) 8.7 D) 9.7 E) 9.2 Cash Coverage Ratio Type: Problems 143. What was inventory turnover for 2003? A) 1.38 B) 1.42 C) 1.48 D) 3.15 E) 3.38 Inventory Turnover Type: Problems 144. What was the average collection period for 2003? A) 92 days B) 112 days C) 151 days D) 211 days E) 256 days Average Collection Period Type: Problems 145. What was the total asset turnover in 2003? A) 0.23 B) 0.25 C) 0.52 D) 0.57 E) 1.92 Total Assets Type: Problems 146. What was the profit margin in 2003? A) 7.9% B) 18.4% C) 22.7% D) 26.2% E) 60.0% Profit Margin Type: Problems 147. What was the return on equity for 2003? A) 18.3% B) 26.1% C) 31.4% D) 44.8% E) 62.6% Return on Equity Type: Problems 148. If Young stock sells for $40 and there are 100 million shares outstanding, what is the P/E ratio? A) 5.68 B) 10.26 C) 11.02 D) 25.64 E) 32.49 Price To Earnings Ratio Type: Problems Use the following to answer questions 149-158: Bo Knows Profit Corporation Income Statement for Year Ending 2003 Sales $ 8,800 Less: Costs 5,600 Depreciation 900 EBIT 2,300 Less: Interest 350 EBT 1,950 Less: Taxes 550 Net Income $1,400 Dividends $900 Addition to ret. earnings $500   Bo Knows Profit Corp. Balance Sheet for End of Year 2002, 2003 2002 2003 2002 2003 Cash $ 170 $ 110 Accounts payable $ 135 $ 120 Accounts rec. 500 700 Notes payable 1,200 1,400 Inventory 1,240 1,000 Current liabilities 1,335 1,520 Current assets 1,910 1,810 Long-term debt 2,005 2,620 Fixed assets 2,000 3,500 Common stock 100 200 (50 shares) Retained earnings 470 970 Total assets $3,910 $5,310 Total liab. & equity $3,910 $5,310 149. What was the greatest source of funds for Bo Knows Profit Corp.? A) Sale of inventory B) Increase in long-term debt C) Acquisition of more fixed assets D) Increase in notes payable E) Increase in common stock Sources Of Cash Type: Problems 150. What was the greatest use of funds for Bo Knows Profit Corp.? A) Increase in accounts receivable B) Decrease in accounts payable C) Acquisition of more fixed assets D) Dividends E) Sale of inventory Uses Of Cash Type: Problems 151. If you prepare a statement of cash flows, what is the positive flow to cash from operating activities? (Consider only inflows) A) $1,270 B) $1,588 C) $2,150 D) $2,300 E) $2,540 Operating Activities Type: Problems 152. If you were to prepare a statement of cash flows, what is the negative flow from cash due to operating activities? (Consider only outflows) A) –$105 B) –$175 C) –$215 D) –$351 E) –$457 Operating Activities Type: Problems 153. If you were to prepare a statement of cash flows, what is the cash flow from investment activities? A) –$1,500 B) –$2,400 C) –$3,400 D) $4,500 E) $4,600 Investment Activities Type: Problems 154. If you were to prepare a statement of cash flows, what is the net cash flow from financing activities? A) –$ 678 B) –$ 108 C) $ 15 D) $1,325 E) $3,003 Financing Activities Type: Problems 155. What was the quick ratio for Bo Knows Profit Corp. for 2003? A) 0.21 B) 0.47 C) 0.50 D) 0.53 E) 1.40 Quick Ratio Type: Problems 156. If cash inflows for the company cease, the firm will be able to stay in business for about: A) 111 days. B) 118 days. C) 146 days. D) 1,872 days. E) 2,139 days. Interval Measure Type: Problems 157. If the firm is currently carrying a price/earnings ratio of 2, what is the firm's approximate market price per share? A) $8 B) $11 C) $56 D) $78 E) $129 Level: Challenge Subject: Price-Earnings Ratio Type: Problems 158. Which of the following contains the components of the Du Pont identity for the company? Use year-end 2003 values where appropriate. A) 0.159; 1.77; 4.26 B) 0.169; 1.56; 4.54 C) 0.159; 1.66; 4.54 D) 0.132; 1.66; 5.46 E) 0.427; 1.40; 2.00 Level: Challenge Subject: Du Pont Identity Type: Problems Use the following to answer questions 159-165: Marble Comics Group Balance Sheets Years ended 2002 and 2003 ($ in millions) 2002 2003 2002 2003 Cash $75 $135 Accounts payable $89 $110 Accounts rec. 230 214 Notes payable 227 442 Inventory 240 188 Current liabilities 316 552 Current assets 545 537 Long-term debt 615 440 Fixed assets 788 890 Common stock 55 55 Retained earnings 347 380 Total assets $1,333 $1,427 Total liab. & equity $1,333 $1,427 Marble Comics Group 2003 Income Statement ($ in millions) Net sales $905 Less: Cost of goods sold 522 Less: General & adm. expenses 93 Less: Depreciation 110 EBIT 180 Less: Interest paid 61 Earnings before taxes 119 Less: Taxes 30 Net income $89 159. How did Marble Comics' net working capital to total assets ratio change from 2002 to 2003? A) Decreased from 0.66 to 0.43 B) Increased from 0.54 to 0.60 C) Decreased from 0.17 to -0.01 D) Increased from 0.21 to 0.67 E) Increased from 0.17 to 0.89 Net Working Capital Type: Problems 160. Which of Marble Comics' liquidity measures increased from 2002 to 2003? A) Current ratio B) Quick ratio C) Cash ratio D) NWC to total assets E) Net working capital Liquidity Type: Problems 161. What was Marble Comics' total debt ratio in 2003? A) 0.46 B) 0.70 C) 0.74 D) 0.89 E) 2.32 Total Debt Ratio Type: Problems 162. Marble Comics' times interest earned ratio is: A) 0.34 B) 1.46 C) 1.95 D) 2.95 E) 4.80 Times Interest Earned Type: Problems 163. Assume Marble Comics' days' sales in inventory ratio was 120 days in 2002. By how much did it change in 2003? A) Increased by 11 days B) Increased by 32 days C) Increased by 48 days D) Decreased by 22 days E) Decreased by 44 days Days' Sales In Inventory Type: Problems 164. The profit margin of Marble Comics Group is: A) 3.6% B) 9.8% C) 13.1% D) 19.9% E) 22.3% Profit Margin Type: Problems 165. Calculate Marble Comics' ROE for 2003. A) 20.5% B) 22.1% C) 23.4% D) 25.6% E) 161.8% ROE & ROA Type: Problems 166. Sales are $75,000, cost of goods sold is $35,000 and inventory is $5,000. What is the number of days sales in inventory? A) 7 B) 15 C) 24 D) 52 E) 59 Days Sales In Inventory Type: Problems 167. Cash is $500, inventory is $4,800, accounts receivable is $3,200 and accounts payable is $2,400. What is the quick ratio? A) 0.77 B) 1.54 C) 1.67 D) 3.33 E) 3.54 Quick Ratio Type: Problems 168. Earnings before interest and taxes is $74,300. Interest is $8,300 and depreciation is $9,700. What is the cash coverage ratio? A) 7.78 B) 8.52 C) 8.95 D) 9.95 E) 10.12 Cash Coverage Ratio Type: Problems 169. Current assets are $94,700. Accounts payable is $36,200, net income is $12,400 and sales are $110,800. What is the net working capital turnover rate? A) 0.21 B) 0.85 C) 1.17 D) 1.68 E) 1.89 Net Working Capital Turnover Type: Problems 170. A firm has a profit margin of 9% on sales of $400,000. There are 10,000 shares of common stock outstanding. What is the earnings per share? A) $1.80 B) $3.60 C) $4.00 D) $36.00 E) $40.00 Earnings Per Share Type: Problems 171. A firm has a net income of $32,000 which provides a 12% return on assets. The firm has a debt-equity ratio of .40. What is the return on equity? A) 7.20% B) 8.57% C) 11.67% D) 12.00% E) 16.80% Level: Challenge Subject: Return On Equity Type: Problems 172. Little's Inc. provides a 10% return on equity. Sales are $100,000 on total assets of $140,000 and total equity of $85,000. What is the profit margin? A) 6.07% B) 8.50% C) 10.00% D) 11.77% E) 14.00% Dupont Identity Type: Problems Use the following to answer questions 173-180: Smith Co. 2003 Income Statement Net sales $8,324 Cost of goods sold $4,988 Depreciation $1,190 Earnings Before interest and taxes $2,146 Interest paid $320 Taxable income $1,826 Taxes $621 Net income $1,205 Dividends paid $400 Addition to retained earnings $805 Smith Co. Balance Sheets as of December 31, 2002 and 2003 2002 2003 2002 2003 Cash $5,415 $3,341 Accounts payable $1,110 $1,650 Accounts rec. $2,460 $979 Notes payable $2,500 $1,900 Inventory $2,405 $2,885 Total $3,610 $3,550 Total $10,280 $7,205 Long-term debt $4,800 $4,600 Net fixed assets $12,300 $16,720 Common stock $5,100 $5,900 Retained earnings $9,070 $9,875 Total assets $22,580 $23,925 Total liabilities $22,580 $23,925 and Owner's equity 173. What is the current ratio for 2003? A) 1.49 B) 2.03 C) 2.18 D) 2.85 E) 4.37 Current Ratio Type: Problems 174. What is the equity multiplier for 2003? A) 0.29 B) 0.66 C) 1.17 D) 1.52 E) 2.42 Equity Multiplier Type: Problems 175. What is the days sales in receivables for 2003? A) 34 B) 43 C) 48 D) 53 E) 59 Days Sales In Receivables Type: Problems 176. What is the change in net working capital? A) -$3,655 B) -$3,015 C) $3,655 D) $6,670 E) $10,755 Change In Net Working Capital Type: Problems 177. What is the net working capital turnover rate for 2003? A) 1.16 B) 1.25 C) 2.28 D) 2.34 E) 2.87 NWC Turnover Type: Problems 178. What is the cash coverage ratio? A) 2.99 B) 3.77 C) 6.71 D) 10.43 E) 13.77 Cash Coverage Ratio Type: Problems 179. What is the market-to-book ratio if the Smith Co. has 2,603 shares of common stock outstanding with a current market price of $22 per share? A) 2.67 B) 3.33 C) 3.63 D) 4.37 E) 6.06 Market-To-Book Ratio Type: Problems 180. On a common size income statement for 2003, earnings before interest and taxes would be assigned a common value of: A) 9% B) 15% C) 20% D) 22% E) 26% Common Size Income Statement Type: Problems Use the following to answer questions 181-185: RTF, Inc. Income Statement for Year Ending 2003 Sales $10,850 Costs of goods sold $8,410 Depreciation $190 EBIT $2,250 Interest $165 EBT $2,085 Taxes $710 Net Income $1,375 Dividends paid $300 Addition to retained earnings $1,075 RTF, Inc. Balance Sheets as of December 31, 2002 and 2003 2002 2003 2002 2003 Cash $980 $960 Accounts payable $950 $730 Accounts rec. $950 $880 Notes payable $40 $150 Inventory $2,120 $1,750 Total $990 $880 Total $4,050 $3,590 Long-term debt $2,225 $100 Fixed assets $1,700 $2,540 Common stock $2,030 $3,570 Retained earnings $505 $1,580 Total assets $5,750 $6,130 Total liabilities $5,750 $6,130 and Owner's equity 181. The industry in which RTF, Inc. operates has an industry average of 21% for earnings before taxes. Is RTF outperforming or underperforming the industry and why? A) Outperforming because RTF has an EBT of 19% B) Outperforming because RTF has an EBT of 21% C) Underperforming because RTF has an EBT of 19% D) Underperforming because RTF has an EBT of 20% E) Performing in line with the industry at 21%. Earnings Before Taxes Type: Problems 182. The component values used in the Du Pont analysis for 2003 are: A) 12.7%, 0.37, and 1.19. B) 12.7%, 1.77, and 1.19. C) 19.2%, 1.77, and 1.19. D) 19.2%, 0.37, and 2.11. E) 12.7%, 1.77, and 2.11. Du Pont Analysis Type: Problems 183. During 2003, the quick ratio: A) increased. B) decreased. C) remained constant. D) changed, but the direction of the change can not be determined. Current And Quick Ratios Type: Problems 184. What was the change in the debt-equity ratio from 2002 to 2003? A) The debt-equity ratio declined from 1.27 in 2002 to .19 in 2003. B) The debt-equity ratio increased from .19 in 2002 to 1.27 in 2003. C) The debt-equity ratio declined from .05 in 2002 to .02 in 2003. D) The debt-equity ratio declined from .22 in 2002 to .17 in 2003. E) The debt-equity ratio increased from .17 in 2002 to .22 in 2003. Debt-Equity Ratio Type: Problems 185. How many days does it take for inventory to sell? A) 4 B) 6 C) 59 D) 76 E) 99 Days' In Inventory Type: Problems 186. How many additional assets can RTF, Inc. acquire if the company issues an additional $1,000 in common stock? A) $1,000 B) $1,190 C) $1,500 D) $1,780 E) Can not be determined from the information given. Equity Multiplier Type: Problems Use the following to answer questions 187-190: RTF, Inc. Income Statement for Year Ending 2003 Sales $10,850 Costs of goods sold $8,410 Depreciation $190 EBIT $2,250 Interest $165 EBT $2,085 Taxes $710 Net Income $1,375 Dividends paid $300 Addition to retained earnings $1,075 RTF, Inc. Balance Sheets as of December 31, 2002 and 2003 2002 2003 2002 2003 Cash $980 $960 Accounts payable $950 $730 Accounts rec. $950 $880 Notes payable $40 $150 Inventory $2,120 $1,750 Total $990 $880 Total $4,050 $3,590 Long-term debt $2,225 $100 Fixed assets $1,700 $2,540 Common stock $2,030 $3,570 Retained earnings $505 $1,580 Total assets $5,750 $6,130 Total liabilities and Owner's equity $5,750 $6,130 187. The sources of cash include: A) $220 from accounts payable and $840 from fixed assets. B) $840 from fixed assets and $70 from accounts receivable. C) $70 from accounts receivable and $1,540 from common stock. D) $1,540 from common stock and $220 from accounts payable. E) $2,125 from long term debt and $1,540 from common stock. Sources Of Cash Type: Problems 188. The uses of cash include: A) $110 from notes payable. B) $1,075 from retained earnings. C) $840 from fixed assets. D) $370 from inventory E) $70 from accounts receivable. Uses Of Cash Type: Problems 189. The net cash from financing activity for 2003 is: A) -$975 B) -$775 C) -$475 D) $475 E) $775 Financing Activity Type: Problems 190. The net cash from investment activity for 2003 is: A) -$1,030 B) -$840 C) -$650 D) $840 E) $1,030 Investment Activity Type: Problems Essay 191. Dun & Bradstreet Canada publishes peer group financial information for a host of industries, yet the numbers typically only appear in common-size form. Why not report average dollar amounts instead? Level: Challenge Subject: Common Size Statements Type: Essays 192. Prepare common-size balance sheets for Marble Comics using the data below. Comment on the firm's liquidity. Marble Comics Group Balance Sheets Years ended 2002 and 2003 ($ in millions) Assets Liab. and Equity 2002 2003 2002 2003 Current Assets Current Liabilities Cash $ 105 $ 110 Accounts Payable $ 64 $ 66 Accounts Receivable 106 137 Notes Payable 50 35 Inventory 140 122 Total 114 101 Total 351 369 Long-Term Debt 87 86 Fixed Assets 89 78 Common Stock 55 55 Retained Earnings 184 205 Total Assets $ 440 $ 447 Total Liab. and OE $ 440 $ 447 Marble Comics Group Common-Size Balance Sheets Years ended 2002 and 2003 Assets Liab. and Equity 2002 2003 2002 2003 Current Assets Current Liabilities Cash 23.9% 24.6% Accounts Payable 14.5% 14.8% Accounts Receivable 24.1 30.6 Notes Payable 11.4 7.8 Inventory 31.8 27.3 Total 25.9 22.6 Total 79.8% 82.5 Long-Term Debt 19.8 19.2 Fixed Assets 20.2 17.5 Common Stock 12.5 12.3 Retained Earnings 41.8 45.9 Total Assets 100.0% 100.0% Total Liab. and OE 100.0% 100.0% Common-Size Statements Type: Essays 193. List and interpret three liquidity ratios. 194. A firm has days' sales in inventory of 105 days, an average collection period of 35 days, and takes 42 days, on average, to pay its accounts payable. Taken together, what do these three figures imply about the firm's operations and its cash flows? 195. Which is a more meaningful measure of profitability for a firm, return on assets or return on equity? Why? 196. Suppose you calculated the following ratio for a firm: The sum of the compensation paid to owners, directors, and managers, divided by total sales. Which class of financial ratios should this be included in and why? Who might be interested in such a ratio? 197. It is often said that anyone with a pencil can calculate financial ratios, but it takes a brain to interpret them. What kinds of things should the analyst keep in mind when evaluating the financial statements of a given firm? 198. The Vice President of Finance of Alpha, Inc. wants to improve the current ratio on the company's next financial statement. Explain what he/she can legitimately do now to help accomplish this goal. Provide specific examples in your answer. 199. The financial manager of ABC, Inc. would like to somehow do a comparison of financial statements to determine how ABC, Inc. is performing both historically and competitively. Develop and explain a plan for performing these comparisons.