Question 1

Ajax Company has a debt-equity ratio of 0.75. Return on assets is 9.5 %. What is the return on equity?

Accepted Answer

A)   12.69%
B)   13.37%
C)   14.48%
D)   15.75%
E)   16.63%F) B) and D)
G) A) and E)

Question 2

The financial statement that summarizes the sources and uses of cash over a specified period of time is the:

Accepted Answer

A)   Statement of comprehensive income.
B)   Statement of financial position.
C)   Tax reconciliation statement.
D)   Statement of cash flows.
E)   Statement of operating position.F) A) and B)
G) A) and C)

Question 3

The financial ratio measured as net income divided by total assets is known as the firm's:

Accepted Answer

A)   Profit margin.
B)   Return on assets.
C)   Return on equity.
D)   Asset turnover.
E)   Earnings before interest and taxes (EBIT) .F) All of the above
G) B) and E)

Question 4

If a firm uses cash to purchase inventory, its quick ratio will increase.

Accepted Answer

A) True 
 B)False

Question 5

The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:

Accepted Answer

A)   Joe's will have a lower profit margin.
B)   Joe's will have a lower return on equity.
C)   Moe's will have a higher net income.
D)   Moe's will have a lower profit margin.
E)   Moe's will have a higher return on assets.F) B) and E)
G) C) and D)

Question 6

Calculate the return on assets given the following information: common shares outstanding = 300,000; earning per share = $4.00; total assets = $5,000,000; total equity = $3,000,000.

Accepted Answer

A)   20%
B)   21%
C)   22%
D)   23%
E)   24%F) None of the above
G) A) and B)

Question 7

Calculate the value of total assets given the following information: total debt ratio = 0.55; total equity = $7,700.

Accepted Answer

A)   $11,000
B)   $17,111
C)   $33,000
D)   $44,000
E)   $55,000F) A) and E)
G) None of the above

Question 8

Which ratio does not focus on financial leverage?

Accepted Answer

A)   Total debt ratio.
B)   Debt/equity ratio.
C)   Equity multiplier.
D)   Times interest earned.
E)   Cash ratio.F) B) and E)
G) B) and D)

Question 9

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?

Accepted Answer

The common-size numbers are inherently m...

Question 10

In words, what does an equity multiplier of 2 mean?

Accepted Answer

A)   Each dollar in assets the firm owns is supported by $2 in equity.
B)   Each dollar in equity the firm has supports $2 in assets.
C)   Each dollar in assets the firm owns is supported by $4 in equity.
D)   Each dollar in equity the firm has supports fifty cents in assets.
E)   Each dollar in assets the firm owns is supported by $2 in debt.F) A) and B)
G) C) and E)

Question 11

Calculate cash coverage ratio given the following information: depreciation expense = $6,000; EBIT = $12,000; times interest earned = 4 times.

Accepted Answer

A)   6.0 times
B)   6.5 times
C)   7.0 times
D)   7.5 times
E)   8.0 timesF) B) and C)
G) B) and D)

Question 12

Using the Du Pont Identity Method, calculate the equity multiplier given the following information. Profit margin 19%; total asset turnover 1.5; return on equity 37.05%.

Accepted Answer

A)   1.2
B)   1.3
C)   1.4
D)   1.5
E)   1.6F) D) and E)
G) All of the above

Question 13

Calculate the value of cost of goods sold for Molson's Brewing Company given the following information: Current liabilities = $340,000; Quick ratio = 1.8; Inventory turnover = 4.0; Current ratio = 3.3.

Accepted Answer

A)   $2,040,000
B)   $3,060,000
C)   $3,999,999
D)   $4,180,222
E)   $5,888,100F) D) and E)
G) B) and D)

Question 14

What was the profit margin in 2018?

Accepted Answer

A)   7.9%
B)   18.4%
C)   22.7%
D)   26.2%
E)   60.0%F) A) and E)
G) D) and E)

Question 15

Which of the following is NOT a component of the Du Pont identity?

Accepted Answer

A)   Operating efficiency
B)   Asset use efficiency
C)   Financial leverage
D)   Profit per dollar of assets
E)   Net working capitalF) A) and E)
G) C) and D)

Question 16

If a firm acquires more long-term debt while also issuing additional shares of stock, then the:

Accepted Answer

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.F) All of the above
G) B) and C)

Question 17

The financial ratio measured as current assets divided by average daily operating costs is the:

Accepted Answer

A)   Cash ratio.
B)   NWC to total assets ratio.
C)   Acid-test ratio.
D)   Interval measure.
E)   Operating measure.F) A) and B)
G) B) and C)

Question 18

The Du Pont identity is defined as the:

Accepted Answer

A)   Profit margin times the total asset turnover times the equity multiplier.
B)   Profit margin times the inventory turnover times the equity multiplier.
C)   Return on equity times the profit margin times the total asset turnover.
D)   Return on equity times the total asset turnover times the equity multiplier.
E)   Return on assets times the total asset turnover times the profit margin.F) None of the above
G) A) and C)

Question 19

Calculate gross profit ratio given the following information: accounts receivable = $40,000; inventory = $80,000; receivable turnover = 25 times; inventory turnover = 6 times.

Accepted Answer

A)   50%
B)   51%
C)   52%
D)   53%
E)   54%F) C) and E)
G) A) and C)

Question 20

The following statement of financial position and statement of comprehensive income should be used.   How will Woodburn's accounts receivable appear on the statement of cash flows for 2018($ in thousands) ?

Accepted Answer

A)   $40 operating activity cash outflow.
B)   $40 investment activity cash outflow.
C)   $40 operating activity cash inflow.
D)   $40 investment activity cash inflow.
E)   $40 financing activity cash inflow.F) A) and C)
G) B) and E)

Exam 3: Working With Financial Statements

The financial ratio measured as net income divided by total assets is known as the firm's:

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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?

Correct AnswerverifiedThe common-size numbers are inherently m...View AnswerShow Answer

If a firm uses cash to purchase inventory, its quick ratio will increase.

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Which of the following is NOT a component of the Du Pont identity?

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If a firm acquires more long-term debt while also issuing additional shares of stock, then the:

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The Du Pont identity is defined as the:

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The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:

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Using the Du Pont Identity Method, calculate the equity multiplier given the following information. Profit margin 19%; total asset turnover 1.5; return on equity 37.05%.

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The financial statement that summarizes the sources and uses of cash over a specified period of time is the:

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The following statement of financial position and statement of comprehensive income should be used. How will Woodburn's accounts receivable appear on the statement of cash flows for 2018($ in thousands) ?

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In words, what does an equity multiplier of 2 mean?

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Which ratio does not focus on financial leverage?

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The financial ratio measured as current assets divided by average daily operating costs is the:

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Calculate the return on assets given the following information: common shares outstanding = 300,000; earning per share = $4.00; total assets = $5,000,000; total equity = $3,000,000.

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Calculate cash coverage ratio given the following information: depreciation expense = $6,000; EBIT = $12,000; times interest earned = 4 times.

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Calculate the value of cost of goods sold for Molson's Brewing Company given the following information: Current liabilities = $340,000; Quick ratio = 1.8; Inventory turnover = 4.0; Current ratio = 3.3.

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Ajax Company has a debt-equity ratio of 0.75. Return on assets is 9.5 %. What is the return on equity?

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Calculate gross profit ratio given the following information: accounts receivable = $40,000; inventory = $80,000; receivable turnover = 25 times; inventory turnover = 6 times.

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What was the profit margin in 2018?

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Calculate the value of total assets given the following information: total debt ratio = 0.55; total equity = $7,700.

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