Question 1

Which of the following is a cash outflow?

Accepted Answer

Acquiring inventory requires a company to spend cash to purchase goods for sale, making it a cash outflow.

Question 2

Operating income is not affected by

Accepted Answer

Operating income is calculated before interest and taxes, so it is not affected by interest earned. Interest earned is considered a non-operating income, which is accounted for after operating income.

Question 3

Which of the following has no impact on cash flow?

Accepted Answer

The firm's equity does not directly impact cash flow. Equity changes through transactions like issuing shares or distributing dividends, but it itself is not a cash flow item. Depreciation expense, taxes paid, and net income all impact cash flow indirectly or directly.

Question 4

Which of the following is a cash inflow?

Accepted Answer

Collecting an account receivable is a cash inflow because it represents the collection of cash from customers to whom the company has previously extended credit.

Question 5

Coverage ratios measure a firm's

Accepted Answer

Coverage ratios are financial metrics used to evaluate a company's ability to meet its debt obligations, including fixed payments like interest. These ratios are crucial for lenders and investors to assess the financial health and risk level of a company.

Question 6

Construct a balance sheet from the following information.

Accepted Answer

The answer of Construct a balance sheet from the following...

Question 7

A firm's stock sells for $100 a share. What will be the price after a 
a. two-for-one split 
b. four-for-one split 
c. one-for-two reverse split?

Accepted Answer

The answer of A firm's stock sells for $100 a...

Question 8

As the debt ratio increases,
1. fewer assets are debt financed
2. more assets are debt financed
3. the ratio of debt to equity increases
4. the ratio of debt to equity decreases

Accepted Answer

An increase in the debt ratio means a higher proportion of assets are financed through debt, and consequently, the ratio of debt to equity also increases.

Question 9

A firm's balance sheet has the following entries: 
  
What will be each of these balance sheet entries after a 
a. $2 a share cash dividend 
b. four-for-one split 
c. 5 percent stock dividend (current price of the stock is $20)?

Accepted Answer

The answer of A firm's balance sheet has the following...

Question 10

The return on equity

Accepted Answer

The return on equity (ROE) measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested, which is calculated as the ratio of net income to shareholder's equity.

Question 11

Days sales outstanding (average collection period or receivables turnover)measures

Accepted Answer

Days sales outstanding measures how quickly a company collects its accounts receivable, indicating the efficiency of the company's credit policies and collection efforts.

Question 12

Which of the following does not appear on the statement of cash flows?

Accepted Answer

Inventory balance does not appear on the statement of cash flows. The statement of cash flows includes cash activities related to operating, investing, and financing activities, but it does not directly report changes in inventory balances, which are part of the balance sheet.

Question 13

The debt ratio is a measure
1. of financial leverage
2. of the use of debt financing
3. of asset utilization

Accepted Answer

The debt ratio measures both financial leverage and the use of debt financing by comparing total liabilities to total assets, indicating how much of the company's assets are financed through debt.

Question 14

As times-interest-earned increases,

Accepted Answer

As times-interest-earned increases, it indicates that a company is generating more earnings relative to its interest expenses, making it more capable of covering those expenses. This assures bondholders of the company's ability to make interest payments.

Question 15

Given the following information, construct the statement of cash flows. What happened to the firm's liquidity position during the year?

Accepted Answer

The answer of Given the following information, construct the statement...

Question 16

Inventory turnover may increase if

Accepted Answer

Lowering prices can lead to increased sales, which can result in faster inventory turnover as goods are sold more quickly.

Question 17

Activity ratios measure

Accepted Answer

Activity ratios are financial metrics used to measure how efficiently a company uses its assets to generate sales or revenue, indicating how rapidly assets flow through the firm.

Question 18

Owners of bonds would prefer
1. a debt ratio of 60 percent to a debt ratio of 40 percent
2. a debt ratio of 40 percent to a debt ratio of 60 percent
3. a times-interest-earned of 5.1 to a times-interest-earned of 3.9
4. a times-interest-earned of 3.9 to a times-interest-earned of 5.1

Accepted Answer

Owners of bonds would prefer a lower debt ratio because it indicates a lower level of debt relative to the company's assets, suggesting a lower risk of default. They would also prefer a higher times-interest-earned ratio as it indicates the company is more capable of meeting its interest obligations from its earnings, which again suggests lower risk.

Question 19

Creditors would prefer
1. a quick ratio of 1.2 to a quick ratio of 0.8
2. a quick ratio of 0.8 to a quick ratio of 1.2
3. days sales outstanding of 46 to a days sales outstanding of 35
4. days sales outstanding of 35 to a days sales outstanding of 46

Accepted Answer

Creditors prefer a higher quick ratio because it indicates a company's ability to meet short-term obligations with its most liquid assets, making 1.2 more favorable than 0.8. They also prefer a lower days sales outstanding (DSO) because it means the company collects its receivables more quickly, making 35 days more favorable than 46 days.

Question 20

Determine a firm's earnings per share from the following information.

Accepted Answer

The answer of Determine a firm's earnings per share from...

Quiz 8: Stock

Which of the following is a cash outflow?

Operating income is not affected by

Which of the following has no impact on cash flow?

Which of the following is a cash inflow?

Coverage ratios measure a firm's

Construct a balance sheet from the following information.

A firm's stock sells for $100 a share. What will be the price after a a. two-for-one split b. four-for-one split c. one-for-two reverse split?

As the debt ratio increases, 1. fewer assets are debt financed 2. more assets are debt financed 3. the ratio of debt to equity increases 4. the ratio of debt to equity decreases

A firm's balance sheet has the following entries: What will be each of these balance sheet entries after a a. $2 a share cash dividend b. four-for-one split c. 5 percent stock dividend (current price of the stock is $20)?

The return on equity

Days sales outstanding (average collection period or receivables turnover) measures

Which of the following does not appear on the statement of cash flows?

The debt ratio is a measure 1. of financial leverage 2. of the use of debt financing 3. of asset utilization

As times-interest-earned increases,

Given the following information, construct the statement of cash flows. What happened to the firm's liquidity position during the year?

Inventory turnover may increase if

Activity ratios measure

Owners of bonds would prefer 1. a debt ratio of 60 percent to a debt ratio of 40 percent 2. a debt ratio of 40 percent to a debt ratio of 60 percent 3. a times-interest-earned of 5.1 to a times-interest-earned of 3.9 4. a times-interest-earned of 3.9 to a times-interest-earned of 5.1

Creditors would prefer 1. a quick ratio of 1.2 to a quick ratio of 0.8 2. a quick ratio of 0.8 to a quick ratio of 1.2 3. days sales outstanding of 46 to a days sales outstanding of 35 4. days sales outstanding of 35 to a days sales outstanding of 46

Determine a firm's earnings per share from the following information.