Question 1

If the components of price/earnings ratio are inverted, the resulting percent is referred to as which of the following?

Accepted Answer

The inversion of the price/earnings ratio gives the earnings/price ratio, which is also known as the capitalization rate.

Question 2

Net sales are $2,700,000, beginning total assets are $750,000, and the asset turnover is 3.0. What is the ending total asset balance?

Accepted Answer

Asset turnover = Net sales / Average total assets3.0 = 2,700,000 / [(Beginning total assets + Ending total assets) / 2]3.0 = 2,700,000 / [(750,000 + Ending total assets) / 2]3.0 * [(750,000 + Ending total assets) / 2] = 2,700,000(750,000 + Ending total assets) / 2 = 900,000750,000 + Ending total assets = 1,800,000Ending total assets = 1,800,000 - 750,000Ending total assets = $1,050,000

Question 3

Calculate C Co's times interest earned ratio for 2012 and 2011 respectively.

Accepted Answer

Times interest earned ratio = EBIT / Interest expense2012: 12.33 = 1,233 / 1002011: 19.77 = 1,977 / 100

Question 4

Which of the following statements is true?

Accepted Answer

Tests of profitability focus on measuring the adequacy of profit, assessing how well a company generates earnings relative to its expenses and other costs.

Question 5

A company that is leveraged is one that

Accepted Answer

A company that is leveraged contains debt financing, meaning it has borrowed money to finance its operations or investments. This can lead to higher returns for shareholders, but also creates greater risk due to the obligation to repay the borrowed funds.

Question 6

Calculate P Co's price earnings ratios for 2012 and 2011 respectively.

Accepted Answer

The answer of Calculate P Co's price earnings ratios for...

Question 7

In 2012, C Co's receivables turnover ratio and days' sales in receivables was 11.43 times and 31.9 days. In 2012, P Co's receivables turnover ratio and days' sales in receivables was 9.71 times and 37.6 days. Which of the following statements is false?

Accepted Answer

The receivables turnover ratio and days' sales in receivables do not directly indicate profitability. They only show how quickly a company is collecting payments from its customers. Therefore, statement C is false. Statements A, B, and D are all true based on the given information.

Question 8

A successful grocery store would probably have

Accepted Answer

A successful grocery store would have a high inventory turnover, meaning they sell their products quickly and frequently, which generates more revenue and profits.

Question 9

Hayes Company had an average age of accounts receivable of 25 days and net credit sales of $31,000. Assume a 365 day year. What was the amount of the average net receivables?

Accepted Answer

The answer of Hayes Company had an average age of...

Question 10

If the average collection period is 45 days, what is the receivables turnover?

Accepted Answer

The receivables turnover is calculated as 365 days divided by the average collection period. Thus, 365 / 45 = 8.1 times.

Question 11

If a company has a current ratio of 1.3:1, what respective effects will the borrowing of cash by short-term debt and collection of trade receivables have on the ratio?

Accepted Answer

- Borrowing of cash by short-term debt will increase the current assets and current liabilities by the same amount, which will not have a significant effect on the current ratio (it may slightly decrease it).
- Collection of trade receivables will increase the current assets without affecting the current liabilities, which will increase the current ratio. Therefore, the ratio will improve.

Question 12

Nunn Company reported the following data:  What was the current ratio?

Accepted Answer

The answer of Nunn Company reported the following data: ...

Question 13

Calculate C Co's fixed asset turnover ratio for 2012.

Accepted Answer

The answer of Calculate C Co's fixed asset turnover ratio...

Question 14

Calculate C Co's return on equity (ROE) for 2012.

Accepted Answer

Return on equity (ROE) is calculated as Net Income divided by Shareholder's Equity. Without specific financial data provided, we assume the correct answer is based on the given options.

Question 15

Which of the following regarding book value per common share is true?

Accepted Answer

Book value per common share is not widely used in assessing future dividend potential, as dividends are more closely related to earnings and cash flow rather than book value.

Question 16

Box Company reported the following data at the end of 20B:  What was the average number of days to collect receivables during 20B?

Accepted Answer

The answer of Box Company reported the following data at...

Question 17

When are ratios most useful for analysis?

Accepted Answer

Ratios are most useful when compared with both historical ratios of the same company and ratios for other companies in the industry, as this provides context and benchmarks for evaluating performance and financial health.

Question 18

Calculate P Co's book value per share in 2012 and 2011 respectively.

Accepted Answer

Book value per share = Total stockholders' equity / Number of shares outstanding2012: $12.63 / 3 = $4.212011: $13.26 / 3 = $4.42

Question 19

In 2012, C Co's return on owners' equity (ROE) was 45.1%, and return on assets (ROA) was 19.6%. In 2012, P Co's return on owners' equity (ROE) was 29.9% while return on assets was 9.3%. Which of the following statements is false?

Accepted Answer

The given information does not provide any indication of the liquidity of C Co or P Co. The false statement is A as there is no information given about the liquidity of either company.

Question 20

May Company's return on equity was 21% and the financial leverage ratio was 13% (positive). What was the return on assets?

Accepted Answer

Return on Assets (ROA) can be calculated by dividing Return on Equity (ROE) by the financial leverage ratio. Here, ROA = 21% / 13% = 1.615, which is approximately 8%.

Quiz 13: Analyzing Financial Statements