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Exam 3: Financial Analysis

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Question 41

Multiple Choice

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Which of the following is not considered to be a profitability ratio?

A) profit margin
B) times interest earned
C) return on equity
D) return on assets (investment)

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Question 42

Multiple Choice

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If government bonds pay 8.5% interest and CDIC insured savings accounts pay 5.5% interest, shareholders in a moderately risky firm would expect return-on-equity values of

A) 5.5%.
B) 8.5%.
C) 12%.
D) above 8.5%, but the exact amount is uncertain.

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Question 43

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To compute the quick ratio, accounts receivable are not included in current assets.

A short-term creditor would be most interested in

Intangible assets are becoming an important part of the assets in company financial statements because accountants are recognizing the growing impact of brand names.

What are the 3 main uses of financial ratios?

A firm with heavy long-term debt can benefit during inflationary times, as debt can be repaid with "cheaper" dollars.

The term "inventory profits" refers to profits made in the process of selling finished goods at prices higher than their cost of goods sold.

Analysts agree that extraordinary gains/losses should be excluded from ratio analysis because they are one time events, and do not measure annual operating performance.

A firm has operating profit of $200,000 after deducting lease payments of $40,000. Interest expense is $60,000. What is the firm's fixed charge coverage?

Which of the following is a potential problem of utilizing ratio analysis?

A large extraordinary loss has what effect on cost of goods sold?

XYZ's receivables turnover is 10x. The accounts receivable at year-end are $600,000. What was the sales figure for the year?

Which of the following is not a profitability ratio?

As defined by the text, list each of the 2 liquidity ratios and explain the information they provide about a firm.

As defined by the text, list each of the 3 profitability ratios and explain the information they provide about a firm.

Replacement cost accounting (current cost method) will usually

The DuPont system of profitability analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover.

During inflation, replacement cost accounting will

LIFO inventory valuation is responsible for much of the inventory profits caused by inflation.