Question 1

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's asset turnover ratio for 2017 is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)

Accepted Answer

AT = 11eaaae8_8b4c_011d_a4b8_03a29b01a07e_TB6474_11 = 1.69

Question 2

A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.

Accepted Answer

ROE = 0.6(0.7)(0.06)(4)(1.5) = 0.1512

Question 3

A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has:
I. Lower ATO than the industry average
II. Lower ROA than the industry average
III. Lower ROE than the industry average

Accepted Answer

Lower inventory turnover indicates that the firm is holding onto inventory longer than the average, which can lead to higher carrying costs and potentially lower profitability. A longer ACP (accounts payable period) means the firm is taking longer to pay its suppliers, which may indicate that the firm is having difficulty obtaining credit or managing its cash flow. A lower fixed-asset turnover suggests that the firm may be using its assets less efficiently than the industry average. All of these factors combined suggest that the firm is likely to have lower ATO, ROA, and ROE than the industry average.

Question 4

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's times-interest-earned ratio for 2017 is ________.

Accepted Answer

TIE = 300,000/50,000 = 6

Question 5

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017.

What is the net increase or decrease in cash for Haven Hardware for 2017?

Accepted Answer

11eaaae8_8b4d_39b1_a4b8_c96b3beddc71_TB6474_00

Question 6

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's P/E ratio for 2017 is ________.

Accepted Answer

P/E = 27/(150,000/20,000) = 3.6

Question 7

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's fixed-asset turnover ratio for 2017 is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)

Accepted Answer

FAT = 11eaaae8_8b4b_b2fa_a4b8_b3cf2e26cf30_TB6474_11 = 0.280

Question 8

A high price-to-book ratio may indicate which one of the following?

Accepted Answer

A high price-to-book ratio indicates that investors are willing to pay a premium over the book value of the company's assets because they believe the company has the potential for higher future earnings. This implies that investors believe the company has opportunities for earning a rate of return in excess of the market capitalization rate. Options A and B are incorrect as they do not necessarily relate to a high price-to-book ratio.

Question 9

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-equity ratio for 2017 is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)

Accepted Answer

ROS = 11eaaae8_8b4c_4f43_a4b8_29c57fe1568d_TB6474_11 = 0.0462

Question 10

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017.

What is the net cash provided by or used in investing activities of Haven Hardware?

Accepted Answer

11eaaae8_8b4d_129d_a4b8_cfd603f0feb8_TB6474_00

Question 11

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

Accepted Answer

QR = (Cash + AR)/CL = ($90,000 + 810,000)/$600,000 = 1.5

Question 12

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017.

What is the net cash provided by or used in financing activities of Haven Hardware?

Accepted Answer

11eaaae8_8b4d_129f_a4b8_cd94e42a0cda_TB6474_00

Question 13

A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.

Accepted Answer

If the firm's ROE is equal to the industry average, but its price-to-book ratio is below the industry average, this indicates that investors are willing to pay less for each unit of equity in the firm. This could be because the firm's earnings yield is higher than the industry average, meaning that investors are willing to accept a lower price-to-book ratio in exchange for a higher return on their investment. Therefore, choice A is the best answer. The other choices do not necessarily follow from the information given.

Question 14

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-sales ratio for 2017 is ________.

Accepted Answer

ROS = 11eaaae8_8b4c_2830_a4b8_d395e5d9a408_TB6474_11 = 0.0429

Question 15

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

Accepted Answer

Leverage ratio = Assets/Equity = $4,300,000/($500,000 + 2,800,000) = 1.3

Question 16

The financial statements of Burnaby Mountain Trading Company are shown below.

Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm's market-to-book value for 2017 is ________.

Accepted Answer

11eaaae8_8b4c_9d68_a4b8_ed410ca48722_TB6474_11 = 11eaaae8_8b4c_9d69_a4b8_cb2806170fbe_TB6474_11 = 0.1636

Question 17

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

Accepted Answer

ROE = (1 - 0.30) [0.19 + 1.8 (0.19 - 0.07)] = 0.2842

Question 18

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to ________ income, and the level of interest expense reported tends to ________ income.

Accepted Answer

During periods of low inflation, the reported depreciation tends to overstate the true economic depreciation as the actual replacement cost of the assets may be lower than the historical cost of the assets. On the other hand, the reported interest expense tends to understate the true economic interest expense as the nominal interest rate may be lower than the real interest rate, which accounts for inflation. Therefore, both factors tend to distort the level of real income reported by a firm, with depreciation understating it and interest expense overstating it.

Question 19

If a firm's ratio of stockholders' equity/total assets is lower than the industry average and its ratio of long-term debt/stockholders' equity is also lower than the industry average, this would suggest that the firm ________.

Accepted Answer

A lower stockholders' equity/total assets ratio suggests that the firm has a higher proportion of liabilities (both current and long-term) relative to its assets compared to the industry average. Since its long-term debt/stockholders' equity ratio is also lower, it implies the firm does not rely heavily on long-term debt, making it likely that the firm has more current liabilities relative to its equity than the industry average.

Question 20

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017.

What is the net cash provided by operating activities of Haven Hardware?

Accepted Answer

11eaaae8_8b4c_eb8b_a4b8_152870f74ee5_TB6474_00

Quiz 14: Financial Statement Analysis

A firm has a net profit/pretax profit ratio of 0.6, a leverage ratio of 1.5, a pretax profit/EBIT of 0.7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales ratio of 6%. Its ROE is ________.

A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has: I. Lower ATO than the industry average II. Lower ROA than the industry average III. Lower ROE than the industry average

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's times-interest-earned ratio for 2017 is ________.

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the net increase or decrease in cash for Haven Hardware for 2017?

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's P/E ratio for 2017 is ________.

A high price-to-book ratio may indicate which one of the following?

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the net cash provided by or used in investing activities of Haven Hardware?

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's quick ratio for 2017 is ________.

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the net cash provided by or used in financing activities of Haven Hardware?

A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's return-on-sales ratio for 2017 is ________.

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's leverage ratio for 2017 is ________.

The financial statements of Burnaby Mountain Trading Company are shown below. Note: The common shares are trading in the stock market for $27 each. Refer to the financial statements of Burnaby Mountain Trading Company. The firm's market-to-book value for 2017 is ________.

A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is ________.

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of low inflation, the level of reported depreciation tends to income, and the level of interest expense reported tends to income.

If a firm's ratio of stockholders' equity/total assets is lower than the industry average and its ratio of long-term debt/stockholders' equity is also lower than the industry average, this would suggest that the firm ________.

Use the following cash flow data of Haven Hardware for the year ended December 31, 2017. What is the net cash provided by operating activities of Haven Hardware?