Finance Questions

Which one of these combinations will provide sufficient information to determine the sustainable growth rate of a firm?A) Profit margin, total asset turnover, and the price-earnings ratioB) Profit margin, dividend payout ratio, debt-equity ratio, and total asset turnoverC) Return on assets and the retention ratioD) Return on assets, capital intensity ratio, and the retention ratioE) Profit margin, total asset turnover, return on assets, and debt-equity ratio

The sustainable rate of growth can be increased byA) decreasing the equity multiplier.B) increasing the profit margin.C) decreasing the debt-equity ratio.D) increasing the dividend payout ratio.E) increasing the capital intensity ratio.

Ratio analysis works best when evaluating the financial statements of two firmsA) in the same industry but located in different countries.B) of differing sizes in the same industry.C) with one being in a single line of business while the other is a conglomerate.D) of the same size in differing industries.E) when both are conglomerates with varying lines of business.

The enterprise value estimates theA) current market value of a firm's entire outstanding shares of common and preferred stock.B) cash required to purchase all of a firm's outstanding stock and pay off the interest-bearing debt.C) current market value of all a firm's outstanding debt.D) relationship between the current market value and the book value of a firm.E) total current market value of a firm's outstanding shares of common stock.

Last year, Bennett's had a PE ratio of 5.4. This year, the PE ratio is 4.9. Based on this information, it can be stated with absolute certainty thatA) the price per share increased.B) the earnings per share decreased.C) either the price per share, the earnings per share, or both, changed.D) investors are receiving a lower rate of return this year.E) investors are paying a lower price for each share of stock purchased.

The return on equity can be calculated asA) Profit margin × 1 / Total asset turnover × Equity multiplierB) Return on assets × Profit marginC) Profit margin × Capital intensity ratio × Debt-equity ratioD) Profit margin × 1 / Equity multiplier × (1 + Debt-equity ratio)E) Return on assets × (1 + Debt-equity ratio)

The amount shareholders are willing to pay for each $1 per share of annual earnings a firm generates is indicated by theA) equity multiplier.B) return on equity.C) price-earnings ratio.D) DuPont identity.E) return on assets.

Which cash coverage ratio would a lender prefer its borrower have?A) −1.5B) −0.5C) 0D) 0.5E) 1.5

If Textile Cloth stockholders want to know how much net profit the firm is making on a percentage basis on their investment in that firm, the shareholders should refer to theA) profit margin.B) return on assets.C) return on equity.D) equity multiplier.E) EV multiple.

A firm has a total debt ratio of 0.47. This means the firm has $0.47 in debt for everyA) $.53 in equity.B) $1.47 in total assets.C) $1.53 in total assets.D) $1 in total equity.E) $1.47 in total equity.

If Brewster's produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firmA) has no net working capital.B) is using its assets as efficiently as possible.C) has no debt of any kind.D) also has a current ratio of 14.E) has an equity multiplier of 1.4.

Assume J. K. Lumber increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, theA) equity multiplier will decrease.B) return on assets will decrease.C) profit margin will decline.D) return on equity will increase.E) total asset turnover will increase.

The lower a firm's inventory turnover, theA) longer it takes the firm to collect payment on its sales.B) faster the firm collects payment on its sales.C) faster the firm sells its inventory.D) longer inventory sits on the firm's shelves.E) smaller the amount of inventory held by the firm.

The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment that will be depreciated over 8 years. Assuming all else equal,A) Joe's will have a lower profit margin.B) Joe's will have a lower return on equity.C) Moe's will have a higher net income.D) Moe's will have a lower profit margin.E) Moe's will have a higher return on assets.

Enterprise value is computed asA) Price per share × Shares outstanding - CashB) Market capitalization + Market value of interest-bearing debt - CashC) Market capitalization - Market value of interest-bearing debtD) Price per share × Number of shares outstandingE) Market capitalization + Market value of all debt - Cash

A decrease in which one of the following accounts increases a firm's current ratio as well as its quick ratio?A) Accounts payableB) CashC) Accounts receivableD) InventoryE) Fixed assets

Which one of the following statements is correct concerning ratio analysis?A) Ratios cannot be used for comparison purposes over extended periods of time.B) Ratios do not address the problem of size differences among firms.C) Only a very limited number of ratios can be used for analytical purposes.D) Each ratio has a specific formula that is used consistently by all analysts.E) A single ratio is often computed differently by different individuals.

A total asset turnover measure of 0.84 means that a firm has $0.84 inA) sales for every $1 in total assets.B) total assets for every $1 in sales.C) total assets for every $1 in total equity.D) total assets for every $1 in cash.E) long-term assets for every $1 in total assets.

Which one of the following statements is correct if a firm has an accounts receivable turnover measure of 10?A) It takes the firm 36.5 days to pay its creditors.B) It takes the firm 36.5 days to sell its inventory and collect payment from the sale.C) It takes the firm 36.5 days to collect payment for a sale.D) The firm has 10 times more in accounts receivable than it does in cash.E) It takes an average of 10 days to collect payment from the firm's customers.

The quick ratio is calculated asA) current assets divided by current liabilities.B) current assets minus inventory, divided by current liabilities.C) net working capital divided by current liabilities.D) cash on hand divided by current liabilities.E) current liabilities divided by current assets.