Question 1

A firm has ROE of 15% and a net profit margin of 4.5%.If the firm has 6.5 dollars in assets per dollar of equity,what is the firm's asset turnover ratio?
A)0.5
B)2
C)1
D)1.5
E)2.5

Accepted Answer

The answer of A firm has ROE of 15% and...

Question 2

A firm has total sales of $53 million.It has gross profit of $12 million,operating income of $8.5 million,and net income of $4 million.What is the firm's net profit margin?
A)7.5%
B)16%
C)22.6%
D)33.3%
E)47%

Accepted Answer

The net profit margin is calculated as (Net Income / Total Sales) * 100. So, ($4 million / $53 million) * 100 = 7.5%.

Question 3

A firm has EBIT of $24 million and has a corporate tax rate of 25%.The firm has total debt of $40 million,and excess cash of $8 million.If the firm's book value of equity is $72 million,what is the firm's return on invested capital (ROIC)?
A)6%
B)17%
C)16%
D)15%
E)23%

Accepted Answer

The answer of A firm has EBIT of $24 million...

Question 4

A firm has ROE of 5.5% and an asset turnover ratio of 1.2.If the firm has 10 dollars in assets per dollar of equity,what is the firm's net profit margin?
A)1.2%
B)0.66%
C)5.5%
D)6.6%
E)0.46%

Accepted Answer

The answer of A firm has ROE of 5.5% and...

Question 5

A firm has $6 million in cash,$1.5 million in accounts receivable,and inventory of $4.2 million.The firm's accounts payable is $7.4 million and the firm has no short-term debt.What is the firm's quick ratio?
A)0.81
B)1.58
C)1.01
D)0.45
E)0.77

Accepted Answer

The answer of A firm has $6 million in cash,$1.5...

Question 6

A firm's net profit margin increased from 3.2% to 3.8% from 2014 to 2015.If total sales increased from $312 million in 2014 to $345 million in 2015,what was the increase in net income?
A)$19 million
B)$21 million
C)$3 million
D)$2 million
E)$13 million

Accepted Answer

The increase in net income can be calculated by finding the net income for each year and then subtracting the two. For 2014, the net income is 3.2% of $312 million, which is $9.984 million. For 2015, the net income is 3.8% of $345 million, which is $13.11 million. The increase in net income from 2014 to 2015 is $13.11 million - $9.984 million = $3.126 million, which rounds to $3 million.

Question 7

A firm has EBIT of $15 million,interest expense of $1 million,and pays taxes of $4 million.The firm has a market-to-book ratio of 5.75.If the firm has 30 million shares outstanding at a current price of $12 per share,what is its ROE?
A)24%
B)2.8%
C)16%
D)4.2%
E)18%

Accepted Answer

First, we need to calculate the net income:

EBIT = $15 million
Interest expense = $1 million
EBT = EBIT - Interest = $14 million
Taxes = $4 million
Net income = EBT - Taxes = $10 million

Next, we need to calculate the book value of equity:

Market-to-book ratio = 5.75
Book value per share = Current price per share / Market-to-book ratio = $12 / 5.75 = $2.09
Book value of equity = Book value per share * Number of shares outstanding = $2.09 * 30 million = $62.7 million

Finally, we can calculate the ROE:

ROE = Net Income / Book Value of Equity = $10 million / $62.7 million = 0.160 or 16%

Question 8

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?
A)a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals
B)a low-end retailer that has a low mark-up on all items it sells
C)a brokerage firm that has high levels of leverage
D)a grocery store chain that has very high turnover,selling many multiples of its assets per year
E)a mining firm that is mostly engaged in exploration for new deposits

Accepted Answer

A high ROE indicates that a company is generating a high return on its equity investment, which is a function of both profitability and efficient use of capital. The medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals likely has high profit margins due to the niche market and specialized product offering, which would lead to a high ROE.

Question 9

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?
A)a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals
B)a high-end fashion retailer that has a very high mark-up on all items it sells
C)a brokerage firm that has high levels of leverage
D)a grocery store chain that has very high turnover,selling many multiples of its assets per year
E)a mining firm that is mostly engaged in exploration for new deposits

Accepted Answer

The grocery store chain with high turnover is expected to have a high ROE based on its operating efficiency, as this indicates that it is generating a high level of sales relative to its assets. This suggests that the company is utilizing its resources effectively and generating profits for its shareholders. The other choices do not necessarily indicate high operating efficiency and may not necessarily lead to a high ROE.

Question 10

Use the tables for the question(s)below.
Balance Sheet
  
-The balance sheet and income statement of a particular firm are shown above.What does the accounts receivable days ratio tell you about this company?
A)It takes on average about 4 weeks to collect payment from its customers.
B)It takes on average about 6 weeks to collect payment from its customers.
C)It takes on average about 7 weeks to collect payment from its customers.
D)It takes on average about 8 weeks to collect payment from its customers.
E)It takes on average about 11 weeks to collect payment from its customers.

Accepted Answer

The accounts receivable days ratio indicates the average number of days it takes for a company to collect payment from its customers after a sale has been made. A result of about 4 weeks suggests a relatively quick collection period.

Question 11

Manufacturer A has a profit margin of 2.0%,an asset turnover of 1.7,and an equity multiplier of 4.9. Manufacturer B has a profit margin of 2.3%,an asset turnover of 1.1,and an equity multiplier of 4.7.
How much asset turnover should manufacturer B have to match manufacturer A's ROE?
A)1.54
B)3.00
C)3.09
D)4.77
E)1.10

Accepted Answer

To match Manufacturer A's Return on Equity (ROE), we first calculate A's ROE using the DuPont formula: ROE = Profit Margin * Asset Turnover * Equity Multiplier. For Manufacturer A, ROE = 2.0% * 1.7 * 4.9. To find the asset turnover Manufacturer B needs to match this ROE with its own profit margin (2.3%) and equity multiplier (4.7), we set up the equation 2.3% * Asset Turnover * 4.7 = Manufacturer A's ROE, and solve for the Asset Turnover.

Question 12

A firm's current assets increase from 1.4 million in 2014 to 1.7 million in 2015.If the firm's current liabilities are unchanged at $1.1 million,and inventory remains unchanged,what is the change in the firm's quick ratio?
A)increase of 0.28
B)no change
C)increase of 0.30
D)cannot be determined
E)increase of 1.27

Accepted Answer

The quick ratio is calculated as (Current Assets - Inventory) / Current Liabilities. Since inventory and current liabilities remain unchanged, the increase in current assets directly increases the numerator of the quick ratio. The change in the quick ratio is the difference in the ratios from 2014 to 2015, which results in an increase of 0.28.

Question 13

A firm has $10 million in cash,$4.5 million in accounts receivable,and inventory of $8 million.The firm's accounts payable is $6.2 million and the firm has no short-term debt.What is the firm's current ratio?
A)3.63
B)1.05
C)5.38
D)2.90
E)2.34

Accepted Answer

Current ratio = (Current assets) / (Current liabilities)
Current assets = Cash + Accounts receivable + Inventory = $10m + $4.5m + $8m = $22.5m
Current liabilities = Accounts payable = $6.2m
Current ratio = $22.5m / $6.2m = 3.63

Question 14

A firm has ROE of 18.5%,net profit margin of 3.2% and an asset turnover ratio of 0.7.What is the firm's equity multiplier?
A)4.0
B)8.3
C)13.0
D)4.6
E)5.8

Accepted Answer

The equity multiplier is calculated by dividing the firm's return on equity (ROE) by its net profit margin and asset turnover ratio. 
Equity Multiplier = ROE / (Asset Turnover * Net Profit Margin)
Equity Multiplier = 18.5% / (0.7 * 3.2%) = 8.3
Therefore, the answer is B, which is 8.3.

Question 15

Above are portions of the balance sheet and income statement for two companies in 2015.Based upon this information,which of the following statements is most likely to be TRUE?
A)Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B.
B)Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets they employ than firm B.
C)Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B.
D)Fixed asset turnover ratios indicate that firm A generating more sales for the assets they employ than firm B.
E)Asset turnover ratios indicate that firm A is generating less revenue per dollar of assets than firm B.

Accepted Answer

The answer of  Above are portions of the balance...

Question 16

In 2015,an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops.If sales in 2014 and 2015 were steady at $25 million,but the gross margin increased from 2.3% to 3.4% between those years,by what amount was the cost of sales reduced?
A)$275,000
B)$325,000
C)$425,000
D)$575,000
E)$850,000

Accepted Answer

The gross margin increase from 2.3% to 3.4% represents a 1.1% increase on $25 million in sales, which equals $275,000.

Question 17

The above data is for five regional trucking firms.Based on price-earnings ratios,which firm's stock is the best value?
A)Firm A
B)Firm B
C)Firm C
D)Firm D
E)Firm E

Accepted Answer

To determine the best value based on price-earnings ratios, we want to choose the firm with the lowest ratio. As we can see from the given data, Firm B has the lowest P/E ratio of 10.5, which means it is undervalued relative to its earnings. Therefore, Firm B is the best value option.

Question 18

Use the tables for the question(s)below.
Balance Sheet
  
-The balance sheet and income statement of a particular firm are shown above.What does the accounts payable days ratio tell you about this company?
A)It takes on average about 4 weeks to pay its suppliers.
B)It takes on average about 6 weeks to pay its suppliers.
C)It takes on average about 7 weeks to pay its suppliers.
D)It takes on average about 8 weeks to pay its suppliers.
E)It takes on average about 10 weeks to pay its suppliers.

Accepted Answer

The answer of Use the tables for the question(s)below.
Balance Sheet
...

Question 19

A firm's net profit margin increased from 8.1% to 8.3% from 2014 to 2015.If net income increased from $4.5 million to $5.6 million,what was the change in the firm's sales?
A)$55 million
B)$21 million
C)$0.1 million
D)$11.9 million
E)$1.1 million

Accepted Answer

We can use the formula:

Net Profit Margin = (Net Income / Sales) x 100

Using the information provided, we can create two equations:

8.1 = (4.5 / Sales) x 100

8.3 = (5.6 / Sales) x 100

Simplifying these equations, we get:

Sales = 4.5 / 0.081 = 55.6 
Sales = 5.6 / 0.083 = 67.5

The change in sales is:

67.5 - 55.6 = 11.9

Therefore, the answer is D) $11.9 million.

Question 20

A firm has an asset turnover ratio of 1.6 and a net profit margin of 1.3%.If the firm has 5 dollars in assets per dollar of equity,what is the firm's ROE?
A)4.1%
B)6.5%
C)6.2%
D)10.4%
E)1.3%

Accepted Answer

ROE = Net Profit Margin x Asset Turnover x Equity Multiplier

ROE = 0.013 x 1.6 x 5

ROE = 0.104 or 10.4%

Therefore, the correct answer is D) 10.4%.

Quiz 2: Introduction to Financial Statement Analysis

A firm has ROE of 15% and a net profit margin of 4.5%.If the firm has 6.5 dollars in assets per dollar of equity,what is the firm's asset turnover ratio?

A firm has total sales of $53 million.It has gross profit of $12 million,operating income of $8.5 million,and net income of $4 million.What is the firm's net profit margin?

A firm has EBIT of $24 million and has a corporate tax rate of 25%.The firm has total debt of $40 million,and excess cash of $8 million.If the firm's book value of equity is $72 million,what is the firm's return on invested capital (ROIC) ?

A firm has ROE of 5.5% and an asset turnover ratio of 1.2.If the firm has 10 dollars in assets per dollar of equity,what is the firm's net profit margin?

A firm has $6 million in cash,$1.5 million in accounts receivable,and inventory of $4.2 million.The firm's accounts payable is $7.4 million and the firm has no short-term debt.What is the firm's quick ratio?

A firm's net profit margin increased from 3.2% to 3.8% from 2014 to 2015.If total sales increased from $312 million in 2014 to $345 million in 2015,what was the increase in net income?

A firm has EBIT of $15 million,interest expense of $1 million,and pays taxes of $4 million.The firm has a market-to-book ratio of 5.75.If the firm has 30 million shares outstanding at a current price of $12 per share,what is its ROE?

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?

Use the tables for the question(s) below. Balance Sheet -The balance sheet and income statement of a particular firm are shown above.What does the accounts receivable days ratio tell you about this company?

Manufacturer A has a profit margin of 2.0%,an asset turnover of 1.7,and an equity multiplier of 4.9. Manufacturer B has a profit margin of 2.3%,an asset turnover of 1.1,and an equity multiplier of 4.7. How much asset turnover should manufacturer B have to match manufacturer A's ROE?

A firm's current assets increase from 1.4 million in 2014 to 1.7 million in 2015.If the firm's current liabilities are unchanged at $1.1 million,and inventory remains unchanged,what is the change in the firm's quick ratio?

A firm has $10 million in cash,$4.5 million in accounts receivable,and inventory of $8 million.The firm's accounts payable is $6.2 million and the firm has no short-term debt.What is the firm's current ratio?

A firm has ROE of 18.5%,net profit margin of 3.2% and an asset turnover ratio of 0.7.What is the firm's equity multiplier?

Above are portions of the balance sheet and income statement for two companies in 2015.Based upon this information,which of the following statements is most likely to be TRUE?

In 2015,an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops.If sales in 2014 and 2015 were steady at $25 million,but the gross margin increased from 2.3% to 3.4% between those years,by what amount was the cost of sales reduced?

The above data is for five regional trucking firms.Based on price-earnings ratios,which firm's stock is the best value?

Use the tables for the question(s) below. Balance Sheet -The balance sheet and income statement of a particular firm are shown above.What does the accounts payable days ratio tell you about this company?

A firm's net profit margin increased from 8.1% to 8.3% from 2014 to 2015.If net income increased from $4.5 million to $5.6 million,what was the change in the firm's sales?

A firm has an asset turnover ratio of 1.6 and a net profit margin of 1.3%.If the firm has 5 dollars in assets per dollar of equity,what is the firm's ROE?