Question 1

All of the following measures focus on long-term solvency except:
A)inventory turnover ratio.
B)times interest earned.
C)debt to assets.
D)debt to equity.
E)None of the answer choices is correct.

Accepted Answer

Inventory turnover ratio measures the efficiency of a company's inventory management and does not directly focus on the long-term solvency of the company. The other measures listed directly relate to the company's ability to meet its long-term obligations.

Question 2

The following condensed income statement is for Boston Inc.
  
Prepare a common-size analysis of the income statements for 2012 and 2013.(Round percent computations to one decimal place. )

Accepted Answer

The answer of The following condensed income statement is for...

Question 3

All of the following measures focus on short-term liquidity except:
A)current ratio.
B)debt to assets ratio.
C)quick ratio.
D)receivables turnover ratio.
E)None of the answer choices is correct.

Accepted Answer

The debt to assets ratio measures a company's overall solvency. The other measures listed focus specifically on a company's short-term liquidity.

Question 4

All of the following account balances would typically be used to calculate a current ratio except:
A)sales.
B)accounts receivable.
C)accounts payable.
D)cash.
E)None of the answer choices is correct.

Accepted Answer

Sales is not a balance sheet account and therefore cannot be used to calculate the current ratio, which is a liquidity ratio based on balance sheet accounts. The current ratio is calculated by dividing current assets by current liabilities, and includes accounts receivable, accounts payable and cash.

Question 5

The following debt to equity ratio is for two companies in the same industry.

Which of the following statements is always true?
A)Company A is more profitable than Company B.
B)Company B is more profitable than Company A.
C)Company A is more highly leveraged than Company B.
D)Company B is more highly leveraged than Company A.
E)None of the answer choices is correct.

Accepted Answer

The debt to equity ratio measures the amount of debt a company has compared to its equity. A higher ratio indicates that a company has more debt relative to its equity, which means it is more highly leveraged. Therefore, Company B has a higher debt to equity ratio, which means it is more highly leveraged than Company A. The profitability of the companies cannot be determined from this information.

Question 6

Which of the following types of measures focuses primarily on income statement information?
A)long-term solvency measures.
B)short-term liquidity measures.
C)market valuation measures.
D)profitability measures.
E)None of the answer choices is correct.

Accepted Answer

Profitability measures, such as return on assets (ROA) and return on equity (ROE), focus on income statement information such as revenues, expenses, and net income. Long-term solvency measures and short-term liquidity measures, such as debt-to-equity ratio and current ratio, focus on balance sheet information. Market valuation measures, such as price-to-earnings ratio (P/E) and market-to-book ratio, focus on stock market information.

Question 7

Which of the following is the best explanation of a company's inventory turnover of 12.0 for the year 2013?
A)the company averages about 12 months' sales in inventory.
B)The company averages about 12 days' sales in inventory.
C)The company averages about one month's sales in inventory.
D)The company averages about 12 days from the time an item is sold until the cash is collected.
E)None of the answer choices is correct.

Accepted Answer

Inventory turnover is calculated by dividing the cost of goods sold by the average inventory during a specified period. In this case, the inventory turnover of 12.0 means that the company sold its entire inventory an average of 12 times during the year. Therefore, the company holds about one month's worth of inventory on hand (12 months divided by 12 inventory turns per year). So, option C is the best explanation.

Question 8

Which of the following types of companies would have the highest inventory turnover ratios?
A)A company that sells grand pianos.
B)An automobile dealer.
C)A custom home builder.
D)A grocery store.
E)None of the answer choices is correct.

Accepted Answer

The answer of Which of the following types of companies...

Question 9

All of the following are nonfinancial measures that might be used by transportation companies such as FedEx except:
A)percentage of damage-free goods.
B)percentage of on-time deliveries.
C)average collection period.
D)hours of employee training.
E)None of the answer choices is correct.

Accepted Answer

The average collection period is a financial measure, as it relates to the company's accounts receivable and cash flow. The other options are nonfinancial measures that a transportation company like FedEx may use to evaluate performance.

Question 10

Assume that Crimson Company's market price per share remains at $20 over a two-year period.Over the same two-year period,Crimson sells an additional 100,000 shares of stock to investors.Net income was the same for both years.The issuance of additional shares will have the following effect for the company over the two-year period:
A)Market capitalization will decrease.
B)Market capitalization will increase.
C)Market capitalization will stay the same.
D)Earnings per share will increase.
E)None of the answer choices is correct.

Accepted Answer

Market capitalization is calculated as the market price per share multiplied by the total number of outstanding shares. By issuing an additional 100,000 shares, Crimson Company increases its total number of outstanding shares, thus increasing its market capitalization, assuming the market price per share remains constant at $20.

Question 11

All of the following are measures used in the balanced scorecard except:
A)external business process.
B)customer.
C)learning and growth.
D)internal business process.
E)None of the answer choices is correct.

Accepted Answer

The answer of All of the following are measures used...

Question 12

During 2013,Victory Inc.had beginning accounts receivable of $42,000 and ending accounts receivable of $48,000.Its net sales of $450,000 are composed of 20% cash sales and 80% credit sales.Based on this information,what is Victory's receivables turnover ratio?
A)7.5 times
B)8.0 times
C)10.0 times
D)2.0 times
E)None of the answer choices is correct.

Accepted Answer

The answer of During 2013,Victory Inc.had beginning accounts receivable of...

Question 13

If net sales is growing at a greater rate than cost of goods sold,which of the following will always be true?
A)The gross margin ratio will decrease.
B)The gross margin ratio will increase.
C)Net income will increase.
D)Net income will decrease.
E)None of the answer choices is correct.

Accepted Answer

If net sales are growing at a greater rate than cost of goods sold, it means that the company is generating more revenue than it is spending to produce its goods. This will result in a higher gross profit margin, which is calculated as gross profit divided by net sales. Therefore, choice B is correct - the gross margin ratio will increase. Choices A, C, D, and E are incorrect.

Question 14

Dresden Inc.has net sales of $1,200,000,cost of goods sold of $900,000,operating expenses of $200,000,interest expense of $30,000,and income tax expense of $10,000.The company's gross margin ratio is (round to the nearest tenth of a percent):
A)8.3%
B)5.0%
C)10.0%
D)25.0%
E)None of the answer choices is correct.

Accepted Answer

The gross margin ratio is calculated as (Net Sales - Cost of Goods Sold) / Net Sales. For Dresden Inc., this is ($1,200,000 - $900,000) / $1,200,000 = $300,000 / $1,200,000 = 0.25 or 25%.

Question 15

All of the following measures evaluate profitability except:
A)profit margin ratio.
B)return on assets.
C)market capitalization.
D)gross margin ratio.
E)None of the answer choices is correct.

Accepted Answer

Market capitalization is a measure of the total value of a company's outstanding shares of stock, which is not directly tied to profitability. The other options (profit margin ratio, return on assets, gross margin ratio) are all profitability measures.

Question 16

The following condensed income statement is for Boston Inc.
  
Prepare a trend analysis of the income statements from 2012 to 2013.(Round percent computations to one decimal place. )

Accepted Answer

The answer of The following condensed income statement is for...

Question 17

Albany Company has net income before taxes of $90,000,interest expense of $36,000 and an income tax rate of 20%.Based on this information,the company's times interest earned ratio is:
A)12.5 times
B)2.5 times
C)3.5 times
D)4.0 times
E)None of the answer choices is correct.

Accepted Answer

The answer of Albany Company has net income before taxes...

Question 18

All of the following accounts would typically be used to calculate the quick ratio except:
A)cash.
B)equipment.
C)accounts payable.
D)accounts receivable.
E)None of the answer choices is correct.

Accepted Answer

The quick ratio excludes inventory and other current assets because they may not be easily turned into cash in the short-term. Equipment is a long-term asset and would not be included in the quick ratio calculation.

Question 19

The following condensed income statement is for Mason Inc.

Compute the following ratios for 2013,and provide a brief explanation after each ratio (round percentage computations to one decimal place and earnings per share to two decimal places):
(1)Gross margin ratio
(2)Profit margin ratio
(3)Return on assets
(4)Return on common shareholders' equity
(5)Earnings per share (assume weighted average shares outstanding totaled 2,900,000 shares)
(6)Market capitalization (assume 3,000,000 shares were issued and outstanding at December 31,2013,and the market price was $9.00 per share)
(7)Price-earnings ratio

Accepted Answer

The answer of The following condensed income statement is for...

Question 20

During 2013,Columbia Inc.had beginning accounts receivable of $680,000 and ending accounts receivable of $760,000.Its net sales of $4,500,000 are composed of 20% cash sales and 80% credit sales.Based on this information,what is Columbia's average collection period?
A)58.4 days
B)292.0 days
C)73.0 days
D)5.0 days
E)None of the answer choices is correct.

Accepted Answer

First, we need to calculate the credit sales for Columbia Inc.
Credit sales = Net sales x % of credit sales
Credit sales = $4,500,000 x 80% = $3,600,000

Next, we need to calculate the average accounts receivable for Columbia Inc.
Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
Average accounts receivable = ($680,000 + $760,000) / 2 = $720,000

Finally, we can calculate the average collection period using the following formula:
Average collection period = (Average accounts receivable / Credit sales) x Number of days in the period
We'll assume a 365-day period for this calculation.
Average collection period = ($720,000 / $3,600,000) x 365
Average collection period = 73.0 days

Therefore, the best choice is C) 73.0 days.

Quiz 13: How Do Managers Use Financial and Nonfinancial Performance Measures

All of the following measures focus on long-term solvency except:

The following condensed income statement is for Boston Inc. Prepare a common-size analysis of the income statements for 2012 and 2013.(Round percent computations to one decimal place. )

All of the following measures focus on short-term liquidity except:

All of the following account balances would typically be used to calculate a current ratio except:

The following debt to equity ratio is for two companies in the same industry. Which of the following statements is always true?

Which of the following types of measures focuses primarily on income statement information?

Which of the following is the best explanation of a company's inventory turnover of 12.0 for the year 2013?

Which of the following types of companies would have the highest inventory turnover ratios?

All of the following are nonfinancial measures that might be used by transportation companies such as FedEx except:

All of the following are measures used in the balanced scorecard except:

During 2013,Victory Inc.had beginning accounts receivable of $42,000 and ending accounts receivable of $48,000.Its net sales of $450,000 are composed of 20% cash sales and 80% credit sales.Based on this information,what is Victory's receivables turnover ratio?

If net sales is growing at a greater rate than cost of goods sold,which of the following will always be true?

Dresden Inc.has net sales of $1,200,000,cost of goods sold of $900,000,operating expenses of $200,000,interest expense of $30,000,and income tax expense of $10,000.The company's gross margin ratio is (round to the nearest tenth of a percent) :

All of the following measures evaluate profitability except:

The following condensed income statement is for Boston Inc. Prepare a trend analysis of the income statements from 2012 to 2013.(Round percent computations to one decimal place. )

Albany Company has net income before taxes of $90,000,interest expense of $36,000 and an income tax rate of 20%.Based on this information,the company's times interest earned ratio is:

All of the following accounts would typically be used to calculate the quick ratio except:

During 2013,Columbia Inc.had beginning accounts receivable of $680,000 and ending accounts receivable of $760,000.Its net sales of $4,500,000 are composed of 20% cash sales and 80% credit sales.Based on this information,what is Columbia's average collection period?