Multiple Choice Questions

A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?
  • equity multiplier, profit margin, and total asset turnover
  • II and III only
  • equity multiplier
  • I, II, and III only
The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:
  • NASDAQ 100.
  • Standard & Poor's 500.
  • Standard Industrial Classification code.
  • Governmental ID code.
  • Government Engineered Coding System.
The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
  • equity equation
  • profitability determinant
  • SIC formula
  • Du Pont identity
  • equity performance formula
Jasper United had sales of $21,000 in 2011 and $24,000 inThe firm's current accounts remained constant. Given this information, which one of the following statements must be true?
  • The total asset turnover rate increased.
  • The days' sales in receivables increased.
  • The net working capital turnover rate increased.
  • The fixed asset turnover decreased.
  • The receivables turnover rate decreased.
According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.
  • price-earnings ratio
  • increase; operating
  • decrease; operating
  • decrease in the quick ratio
A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
  • total assets.
  • total equity.
  • net income.
  • taxable income.
  • sales.
If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:
  • has an equity multiplier of 1.0.
  • return on equity and price-earnings
  • total assets for the current year.
  • base-year accounts receivables
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
  • statement of standardization
  • statement of cash flows
  • common-base year statement
  • common-size statement
  • base reconciliation statement
The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:
  • financial ratios to the firm's historical ratios.
  • financial statements to the financial statements of similar firms operating in other countries.
  • financial ratios to the average ratios of all firms located within the same geographic area.
  • financial statements to those of larger firms in unrelated industries.
  • financial statements to the projections that were created based on Tobin's Q.
Ratios that measure a firm's financial leverage are known as _____ ratios.
  • asset management
  • long-term solvency
  • short-term solvency
  • profitability
  • book value
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
  • asset management
  • long-term solvency
  • short-term solvency
  • profitability
  • turnover
Activities of a firm which require the spending of cash are known as:
  • sources of cash.
  • uses of cash.
  • cash collections.
  • cash receipts.
  • cash on hand.
Which one of the following accurately describes the three parts of the Du Pont identity?
  • operating efficiency, equity multiplier, and profitability ratio
  • financial leverage, operating efficiency, and profitability ratio
  • equity multiplier, profit margin, and total asset turnover
  • debt-equity ratio, capital intensity ratio, and profit margin
  • return on assets, profit margin, and equity multiplier
Tobin's Q relates the market value of a firm's assets to which one of the following?
  • initial cost of creating the firm
  • current book value of the firm
  • average asset value of similar firms
  • average market value of similar firms
  • today's cost to duplicate those assets
Shareholders probably have the most interest in which one of the following sets of ratios?
  • has an equity multiplier of 1.0.
  • total assets for the current year.
  • today's cost to duplicate those assets
  • return on equity and price-earnings
The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?
  • decrease in the day's sales in inventory
  • decrease in inventory
  • statement of cash flows.
  • utilizing its total assets more efficiently than Sam's
The price-sales ratio is especially useful when analyzing firms that have which one of the following?
  • volatile market prices
  • negative earnings
  • positive PEG ratios
  • a negative Tobin's Q
  • increasing sales
The sources and uses of cash over a stated period of time are reflected on the:
  • income statement.
  • balance sheet.
  • tax reconciliation statement.
  • statement of cash flows.
  • statement of operating position.
The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its following obligations?
  • payment to supplier
  • payment to employee
  • payment of interest to a lender
  • payment of principle to a lender
  • payment of a dividend to a shareholder
Dee's has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.Sam's has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.Both companies have similar operations. Based on this information, Dee's must be doing which one of the following?
  • utilizing its fixed assets more efficiently than Sam's
  • utilizing its total assets more efficiently than Sam's
  • generating $1 in sales for every $1.12 in net fixed assets
  • generating $1.12 in net income for every $1 in net fixed assets
  • maintaining the same level of current assets as Sam's
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
  • financial ratios.
  • has an equity multiplier of 1.0.
  • 0.5
  • sales.
On the Statement of Cash Flows, which of the following are considered operating activities?I. costs of goods soldII. decrease in accounts payableIII. interest paidIV. dividends paid
  • I, II, and IV only.
  • I, II, and III only
  • I, II, III, and IV
  • I and II only
According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.
  • decrease; operating
  • decrease in inventory
  • decrease in the quick ratio
  • decrease in common stock
Relationships determined from a firm's financial information and used for comparison purposes are known as:
  • financial ratios.
  • accounts receivable
  • negative earnings
  • profitability
Which of the following can be used to compute the return on equity?I. Profit margin × Return on assetsII. Return on assets × Equity multiplierIII. Net income/Total equityIV. Return on assets × Total asset turnover
  • II and IV only
  • II and III only
  • II only.
  • I and II only.
An increase in which of the following will increase the return on equity, all else constant?I. salesII. net incomeIII. depreciationIV. total equity
  • I, II, and III only
  • II and IV only
  • I and II only
  • I and II only.
A firm has an interval measure ofThis means that the firm has sufficient liquid assets to do which one of the following?
  • pay all of its debts that are due within the next 48 hours
  • pay all of its debts that are due within the next 48 days
  • cover its operating costs for the next 48 hours
  • cover its operating costs for the next 48 days
  • meet the demands of its customers for the next 48 hours
Which of the following represent problems encountered when comparing the financial statements of two separate entities?I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.II. The operations of the two firms may vary geographically.III. The firms may use differing accounting methods.IV. The two firms may be seasonal in nature and have different fiscal year ends.
  • I, II, and III only
  • II and IV only
  • II and III only
  • I, II, III, and IV
Which of the following ratios are measures of a firm's liquidity?I. cash coverage ratioII. interval measureIII. debt-equity ratioIV. quick ratio
  • I, II, and III only
  • I and IV only
  • II only.
  • II and IV only
A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?
  • current
  • cash
  • debt-equity
  • quick
  • total debt
An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?
  • accounts payable
  • cash
  • inventory
  • accounts receivable
  • fixed assets
Which one of the following is a use of cash?
  • increase in notes payable
  • decrease in inventory
  • increase in long-term debt
  • decrease in accounts receivables
  • decrease in common stock
Al's has a price-earnings ratio of 18.Ben's also has a price-earnings ratio of 18.Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?
  • Al's has more net income than Ben's.
  • Ben's is increasing its earnings at a faster rate than the Al's.
  • Al's has a higher market value per share than does Ben's.
  • Ben's has a lower market-to-book ratio than Al's.
  • Al's has a higher net income than Ben's.
On the Statement of Cash Flows, which of the following are considered financing activities?I. increase in long-term debtII. decrease in accounts payableIII. interest paidIV. dividends paid
  • II and IV only
  • I and II only.
  • I and IV only
  • I and II only
On a common-size balance sheet all accounts are expressed as a percentage of:
  • sales for the period.
  • the base year sales.
  • total equity for the base year.
  • total assets for the current year.
  • total assets for the base year.
The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations?I. How many sales dollars has the firm generated per each dollar of assets?II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity?III. How much net profit is a firm generating per dollar of sales?IV. Does the firm have the ability to meet its debt obligations in a timely manner?
  • equity multiplier
  • II and III only
  • Du Pont identity
  • I, II, and III only
On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following?
  • current year sales
  • current year total assets
  • base-year sales
  • base-year total assets
  • base-year accounts receivables
Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
  • return on equity
  • return on assets
  • profit margin
  • total asset turnover
  • price-earnings ratio
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Multiple Choice Questions
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