Question 1
Orange Electronics Inc. has a profitability ratio of 0.14, an asset turnover ratio of 1.7, a debt to equity ratio of 0.60 and a total asset to equity ratio of 1.60. What is the firm's ROE?
A. 14.28%
B. 22.85%
C. 38.08%
D. 41.76%
Question 2
Computing liquidity ratios is ________ but interpreting them is ________.
A. complex, even more complex
B. complex, more straightforward
C. straightforward, more complex
D. none of these
Question 3
The DuPont Model measures ROE by multiplying __________.
A. the current ratio x total asset turnover x the equity multiplier
B. the profitability ratio x times interest earned x the equity multiplier
C. the profitability ratio x total asset turnover x the equity multiplier
D. the current ratio x times interest earned x the equity multiplier
Question 4
The fundamental starting point of all the accounting statements is the__________.
A. accounting identity
B. computing identity
C. investing identity
D. financing identity
Question 5
Which of the following statements is TRUE?
A. The current ratio is current assets divided by current liabilities.
B. Total asset turnover is net income divided by total assets.
C. The cash coverage ratio equals cash divided by current liabilities.
D. The quick ratio equals current assets - current liabilities divided by current liabilities.
Question 6
Which of the following address the question of whether a company can meet its obligations over the long term?
A. liquidity ratios
B. asset utilization ratios
C. debt ratios
D. financial leverage ratios
Question 7
Return on equity can increase as a result of an increase in which of the following ratios?
A. net income/ sales
B. sales/ total assets
C. total assets/ equity
D. All of the above will have a positive influence on the ROE.
Question 8
In finance, we separate operating decisions from financing decisions and thus exclude __________ as a part of operating income from the income statement.
A. cash flow
B. dividends
C. interest expense
D. earnings
Question 9
Which of the following address the question of whether a company can meet its obligations over the short term?
A. liquidity ratios
B. asset utilization ratios
C. debt ratios
D. financial leverage ratios
Question 10
Which of the statements below is FALSE?
A. The cash coverage ratio is EBIT plus depreciation divided by interest expense.
B. Times interest earned equals EBIT divided by interest expense.
C. The times interest earned ratio tells us the number of times a company has resorted to debt financing over the year.
D. The debt ratio basically tells us the amount in debt for every dollar of assets.
Question 11
The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the __________, the so-called bottom line of the income statement.
A. after-tax income
B. before-tax income
C. net income
D. EBIT
Question 12
Which of the statements below is FALSE?
A. The acid ratio test equals current assets minus inventories divided by current liabilities.
B. Examples of liquidity ratios include the current ratio, the cash coverage ratio, and the quick ratio.
C. The current ratio is current assets divided by current liabilities.
D. Inventory turnover equals cost of goods sold divided by inventory.
Question 13
__________ help(s. us analyze whether a company is moving toward financial stress or is using debt to benefit the company and ultimately, the owners of the company.
A. Financial leverage ratios
B. Asset management ratios
C. Days' sales in inventory
D. Total asset turnover
Question 14
Which of the statements below is FALSE?
A. Officers of a company or others who have a fiduciary responsibility to the owners can trade on their acquired private information about the company prior to the information being made public.
B. One potential problem in the world of finance can arise when some owners or potential owners have access to more information about a company than do others.
C. Regulation Fair Disclosure (or Reg FD. requires companies to release all material information to all investors at the same time.
D. The 10-K must be filed within sixty days after the end of the company's fiscal year.
Question 15
__________ can be helpful for managers to understand short-term cash obligations.
A. Profitability ratios
B. Asset management ratios
C. Solvency ratios
D. Liquidity ratios
Question 16
Which of the statements below is FALSE?
A. Financial statements are a collection of historical and current activities of the company.
B. The collection of value over time found in financial statements requires us to pay attention to how we construct financial ratios so as to glean information for analysis.
C. All financial statements are constructed with the same accounting principles, so you can always compare different firms based solely on these statements.
D. We want to analyze financial statements so as to compare different companies and their performance relative to our company.
Question 17
The income statement begins with revenue and subtracts various operating expenses until arriving at__________.
A. earnings after taxes
B. net income
C. taxable income
D. EBIT
Question 18
Which of the statements below is FALSE?
A. The income statement summarizes and categorizes a company's revenues and expenses for that period.
B. Typically, income statements are prepared quarterly and annually for distribution outside the company, but usually monthly for internal managers.
C. The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT..
D. The balance sheet reports the performance of the firm over the past period. It summarizes and categorizes a company's revenues and expenses for that period.
Question 19
Which of the statements below is FALSE?
A. The textbook uses the framework of the income statement to find the operating income of the company (an accounting measure. and then makes adjustments to find the true cash flow from operations.
B. In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.
C. Three fundamental issues separate net income and cash flow: accrual-based accounting, non-cash expense items, and interest expense.
D. Generally Accepted Accounting Principles (GAAP. in the United States allow the use of accrual accounting to record revenue.
Question 20
There are four primary financial statements that are used to measure the performance of a firm. Which of the choices below are included among these four?
A. the balance statement and income statement
B. the income sheet and statement of retained earnings
C. the statement of cash flow and statement of balance
D. the balance sheet and statement of cash flow
