The debt-equity ratio is measured as:

C) total debt divided by total equity.

A) total equity divided by long-term debt.

B) total equity divided by total debt.

D) long-term debt divided by total equity.

E) total assets minus total debt, divided by total equity.

The equity multiplier is measured as total:

E) assets divided by total equity.

A) equity divided by total assets.

C) assets minus total equity, divided by total assets.

D) assets plus total equity, divided by total debt.

The inventory turnover ratio is measured as:

C) cost of goods sold divided by inventory.

B) inventory times total sales.

D) inventory divided by cost of goods sold.

Days' sales in inventory is measured as:

E) 365 days divided by the inventory turnover.

A) inventory turnover plus 365 days.

B) inventory turnover times 365 days.

C) inventory divided by cost of goods sold, times 365 days.

D) 365 days divided by the inventory.

The receivables turnover ratio is measured as:

B) sales divided by accounts receivable.

A) sales plus accounts receivable.

C) sales minus accounts receivable, divided by sales.

D) accounts receivable times sales.

E) accounts receivable divided by sales.

The total asset turnover ratio measures the amount of:

B) sales generated by every $1 in total assets.

A) total assets needed for every $1 of sales.

C) fixed assets required for every $1 of sales.

D) net income generated by every $1 in total assets.

E) net income that can be generated by every $1 of fixed assets.

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

E) earnings before interest and taxes.

The measure of net income returned from every dollar invested in total assets is the:

E) earnings before interest and taxes.

The financial ratio that measures the accounting profit per dollar of book equity is referred to as the:

E) market profit-to-book ratio.

The market-to-book ratio is measured as the:

E) market value per share divided by the book value per share

A) market price per share divided by the par value per share.

B) net income per share divided by the market price per share.

C) market price per share divided by the net income per share.

D) market price per share divided by the dividends per share.

Which one of the following statements is correct concerning ratio analysis?

A) A single ratio is often computed differently by different individuals.

B) No ratio can address the problem of size differences among firms.

C) Only a very limited number of ratios can be used for analytical purposes.

D) Every ratio is an income statement entry divided by a balance sheet item.

E) Ratios cannot be used for comparison purposes over periods of time.

The higher the inventory turnover, the:

A) less time inventory items remain on the shelf.

B) higher the inventory as a percentage of total assets.

C) longer it takes a firm to sell its inventory.

D) greater the amount of inventory held by a firm.

E) greater the selection of goods available for sale.

Which one of the following statements is correct if a firm has a receivables turnover of 10?

D) The firm collects its credit sales in an average of 36.5 days.

A) It takes the firm 10 days to collect payment from its customers.

B) It takes the firm 36.5 days to sell its inventory and collect the payment from the sale.

C) It takes the firm an average of 36.5 days to sell its items.

E) The firm has ten times more in accounts receivable than it does in cash.

A capital intensity ratio of 1.03 means a firm has $1.03 in:

D) total assets for every $1 in sales.

A) total debt for every $1 in equity.

B) equity for every $1 in total debt.

C) sales for every $1 in total assets.

E) long-term assets for every $1 in short-term assets.

If a firm produces a return on assets of 15 percent and also a return on equity of 15 percent, then the firm:

B) is using its assets as efficiently as possible.

C) pays all its earnings out in dividends.

D) also has a current ratio of 15.

E) has an equity multiplier of 2

Assume BGL Enterprises increases its operating efficiency by lowering its costs while holding its sales constant. As a result, given all else constant, the:

A) return on equity will increase.

B) return on assets will decrease.

D) total debt ratio will decrease.

E) price-earnings ratio will increase.

Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. If Joe's and Moe's have the same sales, costs, tax rate, and enterprise value, then:

D) Moe's and Joe's will have the same EV multiple.

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.

E) Moe's will have a lower EV multiple.

Last year, Alfred's Automotive had a price-earnings ratio of 15 and earnings per share of $1.20. This year, the price-earnings ratio is 18 and the earnings per share is $1.20. Based on this information, it can be stated with certainty that:

E) the investors' outlook for the firm has improved.

A) the price per share decreased.

B) the earnings per share decreased.

C) investors are paying a lower price per share this year as compared to last year.

D) investors are receiving a higher rate of return this year.

Turner's Inc. has a price-earnings ratio of 16. Alfred's Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfred's:

B) has a higher market price per dollar of earnings than does one share of Turner's.

A) has a higher market price than one share of stock in Turner's.

C) sells at a lower price per share than one share of Turner's.

D) represents a larger percentage of firm ownership than does one share of Turner's stock.

E) earns a greater profit per share than does one share of Turner's stock.

Which one of the following is most apt to cause a profitable, stable firm to have a higher price-earnings ratio?

E) Low investor opinion of firm

Vinnie's Motors has a market-to-book ratio of 3.4. The book value per share is $34 and earnings per share are $1.36. Holding the market-to-book ratio and earnings per share constant, a $1 increase in the book value per share will:

D) increase the price-earnings ratio.

A) decrease the price-earnings ratio.

C) decrease the market price per share.

E) increase the return on equity.

Which one of the following sets of ratios would generally be of the most interest to stockholders?

D) Return on equity and price-earnings ratio

A) Return on assets and profit margin

B) Quick ratio and times interest earned

C) Price-earnings ratio and debt-equity ratio

E) Cash coverage ratio and equity multiplier

If a firm decreases its operating costs, all else constant, then the:

E) price-earnings ratio will decrease.

A) profit margin will decrease.

B) return on assets will decrease.

C) total asset turnover rate will increase.

D) cash coverage ratio will decrease.

A public firm's market capitalization is equal to the:

C) price per share multiplied by number of shares outstanding.

A) total book value of assets less the book value of debt.

D) stock price per share multiplied by the number of shares authorized.

E) maximum value an acquirer would pay for the firm in an acquisition.

Enterprise value is based on the:

A) market value of interest-bearing debt plus the market value of equity minus cash.

B) book values of debt and assets, other than cash.

C) market value of equity plus the book value of total debt minus cash.

D) book value of debt plus the market value of equity.

E) book values of debt and equity less cash.

Which one of these values best represents the funds needed to acquire a firm and payoff all of that firm's debt?

A) Market value of total assets

A firm with a high level of growth opportunities is most apt to have a:

A) high PE ratio and a high EV multiple.

B) high cash ratio and a low EV multiple.

C) high PE ratio and a low EV multiple.

D) low PE ratio and a high EV multiple.

E) low cash ratio and a low PE ratio

The return on equity can be calculated as:

C) Profit margin × ROA × Total asset turnover.

D) ROA × Net income/Total assets.

The DuPont identity can be computed as:

B) Profit margin × 1/Capital intensity ratio × (1 + Debt-equity ratio).

A) Net income × Profit margin × (1 + Debt-equity ratio).

C) Net income × Total asset turnover × Equity multiplier.

D) Profit margin × Total asset turnover × Debt-equity ratio.

E) Return on equity × Profit margin × Total asset turnover.

It is easier to evaluate a firm using its financial statements when the firm:

C) uses the same accounting procedures as other firms in its industry.

D) has a different fiscal year than other firms in its industry.

E) tends to have one-time events such as asset sales and property acquisitions.

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E) market value

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CF Chap 3

102 questions

Which statement expresses all relative account values as a percentage of total assets?

You would like to compare your firm's cost structure to that of your competitors. However, your competitors are much larger in size than your firm. Which one of these would best enable you to compare costs across your industry?

Which one of these terms is most synonymous with the term "income from operations"?

Ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as:

The current ratio is measured as:

The quick ratio is measured as:

Ratios that measure a firm's financial leverage are known as ________ ratios.

The debt-equity ratio is measured as:

The equity multiplier is measured as total:

Ratios that measure how efficiently a firm uses its assets to generate sales are known as ________ ratios.

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