1) A firm has a current ratio of? 1; in order to improve its
liquidity? ratios, this firm might? ________.
A. improve its collection practices by providing extended
credit policy.
B. decrease current liabilities by utilizing more
longminus?term ?debt, thereby increasing the current and quick ratios.
C. increase? inventory, thereby increasing current assets
and the current and quick ratios.
D. improve its collection practices and pay accounts?
payable, thereby decreasing current liabilities and decreasing the current and
quick ratios
?2) ________ is a term used to describe the magnification of
risk and return introduced through the use of fixed?cost ?financing, such as
preferred stock and debt.
A. Financial leverage
B. Benchmarking
C. Fixed?payment coverage
D. Operating leverage
3) If a firm expects short?term cash? surpluses, it can
plan? ________.
A. short?term borrowing
B. leverage decisions
C. short?term investments
D. long?term investments
?4) P/E ratio measures the? ________.
A. intrinsic value of the stock to earnings per share
B. market price of the stock to retained earnings
C. market value of the stock to earnings per share
D. book value of the stock to earnings per share
5) Which of the following is a source of cash? flows?
A. repurchase of stock
B. increase in accounts payable
C. decrease in notes payable
D. increase in marketable securities
?6)________ analysis involves the comparison of different?
firms’ financial ratios at the same point in time.
A. Technical
B. Cross?sectional
C. Time?series
D. Marginal
7) The depreciable value of an? asset, under? MACRS, is the?
________.
A. current cost minus salvage value
B. the original cost plus installation
C. the original cost plus installation? costs, minus salvage
value
D. current cost
?8) ________ generally? reflect(s) the anticipated financial
impact of planned long?term actions.
A. A cash budget
B. Operating financial plans
C. Strategic financial plans
D. A pro forma income statement
9) The modified DuPont formula relates the? firm’s return on
total assets? (ROA) to its? ________.
A. operating leverage
multiplier
B. total asset turnover
C. return on equity? (ROE)
D. net profit margin
10) An internal forecast is based on? ________.
A. the prediction of a? firm’s sales over a given period
through surveys sent to financial analysts
B. the relationships between a? firm’s sales and certain
economic indicators
C. a ? build-up, or? consensus, of sales forecasts through
a? firm’s own sales? channels, adjusted for additional factors such as production
capabilities
D. developing the pro forma income statement to forecast
sales and then express the various income statement items as percentage of
projected sales
11) Which of the following is a limitation of ratio?
analysis?
A. Ratios that reveal large deviations from the norm merely
indicate the possibility of a problem.
B. It is difficult to access audited financial statements
for ratio analysis.
C. Ratio analysis assumes that inflation has no effect on a?
firm’s business.
D. Financial ratios cannot reveal certain specific aspects
of a? firm’s financial position
12) The best way to adjust for the presence of fixed costs
when using the simplified approach for pro forma income statement preparation
is? ________.
A. to proportionately vary the fixed costs with the change
in sales
B. to break the? firm’s historical costs into fixed and
variable components
C. to disproportionately vary the costs with the change in
sales
D. to adjust for projected fixed?asset outlays
13) ________ measures the percentage of profit earned on
each sales dollar before interest and taxes but after all costs and expenses.
A. Gross profit margin
B. Net profit margin
C. Operating profit margin
D. Earnings available to common shareholders
14) Review Question? 3-20? (LO3-6) What three areas of
analysis are combined in the modified DuPont formula?? Explain how the DuPont
formula is used to dissect the? firm’s results and isolate their causes.
15) The cash flows from operating activities section of the
statement of cash flows includes? ________.
A. labor expense
B. dividends paid
C. principal paid
D. proceeds from the sale of fixed assets
16) A firm plans to retire outstanding bonds in the next
planning period. Which of the following gets? affected?
A. previous year income statement and previous year balance
sheet
B. previous year income statement and statement of retained
earnings
C. pro forma income statement and pro forma balance sheet
D. pro forma income statement and proxy statement
17) A firm with a low net profit margin can improve its
return on total assets by? ________.
A. decreasing its fixed asset turnover
B. increasing its total asset turnover
C. decreasing its total asset turnover
D. increasing its debt ratio
18) If an inventory turnover is divided into? 365, it
becomes a measure of? ________.
A. sales turnover
B. the average age of the inventory
C. financial efficiency
D. the average collection period
19) A weakness of the percent?of?sales method of preparing a
pro forma income statement is? ________.
A. the assumption that the? firm’s past financial condition
is an accurate predictor of its future
B. the difficulty faced in calculation and preparation of
such statements
C. that it forecasts income and then expresses the various
income statement items as percentages of projected income.
D. the assumption that the firm faces linear total revenue
and total operating cost functions
