FM-W2&3

High current and quick ratios always indicate that the firm is managing its liquidity position well

• True

• False

Profitability ratios show the combined effects of liquidity, asset management, and debt management on a firm's operating results.

• True

• False

Cash is obtained through short-term bank loans. What is the effect on Net Income?

• Increase

• Decrease

• No Effect

10-year notes are issued to pay off accounts payable. What is the effect on current ratio?

• Increase

• Decrease

• No Effect

Which of the following would indicate an improvement in a company’s financial position, holding other things constant?

• The total debt to total capital ratio increase

• The profit margin declines.

• The times-interest-earned ratio declines.

• The current and quick ratios both increase.

To determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds.

• True

• False

Last year Godinho Corp. had $450 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity?

• $601.9

• $596.3

• $556.9

• $562.5

Clayton Industries is planning its operations for next year. Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year's sales = S₀ $350

Last yr's accounts payable $40

Sales growth rate = g 30%

 Last yr's notes payable $50

Last year's total assets = A₀^* $570

Last yr's accruals $30

Last year's prof margin = PM 5%

 Target payout ratio 60%

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• $140.9

• $145.1

• $126.8

• $167.7

Profit Margin = 4.3%; Asset turnover = 2.10; Debt ratio = 30%, Payout ratio = 15%. How much is the internal growth rate?

• 9%

• 12.90%

• 8.31%

• 12.31%

Profit Margin = 4.3%; Asset turnover = 2.10; Debt ratio = 30%, Payout ratio = 15%. How much is the sustainable growth rate?

• 9%

• 8.31%

• 12.31%

• 12.9%