Week 7- financial analysis
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Practice
• Question 1
30 seconds
Q.

Common‐size financial statements represent all figures on the financial statements

in inflation adjusted dollars from a base year. B) as if all companies being compared had the same total revenue.

as if all companies being compared had the same total revenue.

as if all companies being compared had the same total assets.

as a percentage of either sales or total assets.

• Question 2
30 seconds
Q.

The debt ratio is a measure of a firmʹs

leverage.

profitability.

liquidity.

efficiency.

• Question 3
30 seconds
Q.

Which of the following statements is true?

Current assets consist of cash, accounts receivable, inventory, and net plant, property and equipment.

The quick ratio is a more restrictive measure of a firmʹs liquidity than the current ratio.

For the average firm, inventory is considered to be more ʺliquidʺ than accounts receivable.

A successful firmʹs current liabilities should always be greater than its current assets.

• Question 4
30 seconds
Q.

Which of the following financial ratios is the best measure of the operating effectiveness of a firmʹs management?

Current ratio

Gross profit margin

Quick ratio

Return on investment

• Question 5
30 seconds
Q.

Smith Corporation has current assets of \$11,400, inventories of \$4,000, and a current ratio of 2.6. What is Smithʹs quick or acid test ratio?

1.69

0.54

0.74

1.35

• Question 6
30 seconds
Q.

Spinnit Limited has a debt ratio of .57, current liabilities of \$14,000, and total assets of \$70,000. What is the level of Spinnit Limitedʹs total liabilities?

\$25,900

\$24,600

\$39,900

\$53,900

• Question 7
30 seconds
Q.

Heavy Load, Inc. has sales of \$3,450,000, total assets of \$1,240,000, and total liabilities of \$275,000, which consist strictly of notes payable. The firmʹs operating profit margin is 16.1%, and it pays a 10% rate of interest on its notes payable. How much is the firmʹs interest coverage ratio?

15.6

45.3

20.2

3.0

• Question 8
30 seconds
Q.

Corbin, Inc. had net income of \$150,000 on sales of \$5,000,000 during 2014. In addition, the firmʹs total assets were \$2,500,000, and its capital structure is comprised of 40% debt and 60% equity. Assume the company has no preference shares. What was Corbinʹs return on equity in 2014?

15%

2.5%

10%

Return on equity cannot be determined with the information provided.

• Question 9
30 seconds
Q.

Dew Point Demolitions, Inc. generated a 1.23 total asset turnover in its latest fiscal year on assets of \$2,112,077. The firm has total liabilities of \$950,997. The firmʹs net profit margin was 10.3%. What is Dew Pointʹs return on equity? Assume the company has no preference shares. Round to the nearest 0.1%.

23.1%

12.6%

5.5%

18.2%

• Question 10
30 seconds
Q.

Which of the following is a limitation related to the usage of ratios when reviewing a firmʹs performance?