Missouri Southern State University

ECON 350

Financial Management

Chapter 3 Quiz

1)The stockholder's report may include all of the following EXCEPT

A) a cash budget.

2. an income statement.
3. a statement of cash flows.
4. a statement of retained earnings.

2. Earnings available to common shareholders are defined as net profits
   1. after taxes.

B) after taxes minus preferred dividends.

3. after taxes minus common dividends.
4. before taxes.

3. The                              represents a summary statement of the firm's financial position at a given point in time.
   1. income statement

B) balance sheet

3. statement of cash flows
4. statement of retained earnings

4. A firm has the following accounts and financial data for 2012:

Sales Revenue                  $ 3,060                  Cost of goods sold                                                $1,800 Accounts Receivable                                  500                 Preferred stock dividends                            18 Interest expense                                      126                 Tax rate        40%

Total oper. expenses             600                 Number of shares of common Accounts payable  240                 stocks outstanding                                                        1,000

The firm's net profits after taxes for 2012 is                                                                                                            . A) -$206

B) $213

C) $320

D) $206

5.                             analysis involves the comparison of different firms' financial ratios at the same point in time.
   1. Time-series

B) Cross-sectional

3. Marginal
4. Quantitative

6. The analyst should be careful when evaluating a ratio analysis that
   1. the overall performance of the firm may be judged on a single ratio.

B) the dates of the financial statements being compared are from the same time.

3. pre-audited statements are used.
4. all of the above.

7. The                              ratios are primarily measures of return.
   1. liquidity
   2. activity
   3. debt

D) profitability

8. A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might
   1. improve its collection practices, thereby increasing cash and increasing its current and quick ratios.
   2. improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratios.

C) decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios.

D) increase inventory, thereby increasing current assets and the current and quick ratios.

9. The                              ratio measures the proportion of total assets provided by the firm's creditors.
   1. total asset turnover
   2. fixed asset turnover
   3. current

D) debt

FIGURE 2.1

Balance Sheet Cole Eagan Enterprises

December 31, 2012

Cash                 $4,500                      Accounts Payable                                   $10,000 Accounts Receivable                                   Notes Payable

Inventories                                     Accruals                                                            1,000 Total Current Assets                                                            Total Current Liabilities

Net Fixed Assets                          Long-Term Debt

Total Assets                                                 Stockholders’ Equity Total Liab. & S.E.

Information

1. 1. 1. Sales totaled $110,000.
      2. The gross profit margin was 25 percent.
      3. Inventory turnover was 3.0.
      4. There are 360 days in the year.
      5. The average collection period was 65 days.
      6. The current ratio was 2.40.
      7. The total asset turnover was 1.13.
      8. The debt ratio was 53.8 percent.

10. Inventories for CEE in 2012 were                                   . (See Figure 2.1.) A) $36,667

B) $32,448

C) $27,500 D) $ 9,167

11. The                              is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales.

1. retained earnings statement
2. source and use statement

C) common-size income statement

D) profit and loss statement

12. The                              measures the percentage of each sales dollar remaining after ALL expenses, including taxes, have been deducted.

A) net profit margin

2. operating profit margin
3. gross profit margin
4. earnings available to common shareholders

13. A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and total liabilities of $750,000 has a return on equity of

1. 20 percent.
2. 15 percent.
3. 3 percent.

D) 4 percent.

14. In the DuPont system, the return on equity is equal to

1. (net profit margin)x(total asset turnover).
2. (stockholders' equity)x(financial leverage multiplier).

C) (return on total assets)x(financial leverage multiplier).

D) (return on total assets)x(total asset turnover).

15. A firm with a substandard return on total assets can improve its return on equity, all else remaining the same, by

A) increasing its debt ratio.

2. increasing its total asset turnover.
3. decreasing its debt ratio.
4. decreasing its total asset turnover.