Chapter 03 Working with Financial Statements

1. If a firm uses part of the cash it received from payment

of an account receivable to buy inventory and leaves
the rest in its bank account, its current ratio will remain
unchanged.

True False

2. If a firm uses cash to purchase inventory, its quick ratio

will increase.

True False

3. Another name for return on equity is return on total

capitalization.

True False

4. If a firm has only current assets and no fixed assets of

any kind, its times interest earned ratio must exceed its
cash coverage ratio.

True False

5. Due to the difficulty of access the true enterprise value,

one can use the market cap as a proxy for enterprise
value to calculate the EV/EBITDA ratio.

True False

6. An increase in a(n) _____________ account would be

considered a(n) __________ of funds.

I. asset; source
II. liability; source
III. expense; source

A.
B.
C.
D.
E.
7. Activities of the firm that generate cash are known as:

A.
B.
C.
D.
E.

8. Activities of the firm in which cash is spent are known

as:

A.
B.
C.
D.
E.

9. A _____________ standardizes items on the statement

of comprehensive income and statement of financial
position as a percentage of total sales and total assets,
respectively.

A.
B.
C.
D.
E.

10. A __________ standardizes items on the statement of

comprehensive income and statement of financial
position relative to a point in time.

A.
B.
C.
D.
E.
11. Relationships determined from a firm's financial
information and used for comparison purposes are
known as:

A.
B.
C.
D.
E.

12. Financial ratios that measure the firm's ability to pay its
bills over the short run without undue stress are known
as:

A.
B.
C.
D.
E.

13. The current ratio is measured as:

A.
B.
C.
D.
E.

14. The quick ratio is measured as:

A.
B.
C.
D.
E.

15. The cash ratio is measured as:

A.
B.
C.
D.
E.
16. The financial ratio measured as current assets divided
by average daily operating costs is the:

A.
B.
C.
D.
E.

17. The interval measure is an example of

a(n)____________ ratio.

A.
B.
C.
D.
E.

18. Ratios that measure the firm's financial leverage are

known as:

A.
B.
C.
D.
E.

19. The financial ratio measured as total assets minus total

equity, divided by total assets, is the:

A.
B.
C.
D.
E.

20. The debt-equity ratio is measured as:

A.
B.
C.
D.
E.
21. The equity multiplier ratio is measured as:

A.
B.
C.
D.
E.

22. The total long-term debt and equity of the firm is

frequently called:

A.
B.
C.
D.
E.

23. The financial ratio measured as the firm's long-term

debt divided by its total capitalization is:

A.
B.
C.
D.
E.

24. The financial ratio measured as EBIT divided by

interest expense is the __________.

A.
B.
C.
D.
E.

25. The financial ratio measured as EBIT plus depreciation,

divided by interest expense, is the:

A.
B.
C.
D.
E.
26. Ratios that measure how efficiently a firm uses its
assets to generate sales are known as:

A.
B.
C.
D.
E.

27. The inventory turnover ratio is measured as:

A.
B.
C.
D.
E.

28. The financial ratio days' sales in inventory is measured

as:

A.
B.
C.
D.
E.

29. The receivables turnover ratio is measured as:

A.
B.
C.
D.
E.

30. The financial ratio days' sales in receivables is

measured as:

A.
B.
C.
D.
E.
31. The net working capital turnover ratio is measured as:

A.
B.
C.
D.
E.

32. The fixed asset turnover ratio is measured as:

A.
B.
C.
D.
E.

33. The total asset turnover ratio is measured as:

A.
B.
C.
D.
E.

34. Ratios that measure how efficiently a firm's

management uses its assets in operations to generate
bottom-line net income are known as:

A.
B.
C.
D.
E.

35. The financial ratio measured as net income divided by

sales is known as the firm's:

A.
B.
C.
D.
E.
36. The financial ratio measured as net income divided by
total assets is known as the firm's:

A.
B.
C.
D.
E.

37. The financial ratio measured as net income divided by

total equity is known as the firm's:

A.
B.
C.
D.
E.

38. The financial ratio measured as the price per share of

stock divided by earnings per share is known as the:

A.
B.
C.
D.
E.

39. The market-to-book ratio is measured as:

A.
B.
C.
D.
E.

40. The ___________ breaks down return on equity into

three component parts: operating efficiency of the firm,
its asset use efficiency, and financial leverage.

A.
B.
C.
D.
E.
41. A use of cash can be defined as any activity that:

A.
B.
C.
D.
E.

42. A source of cash can be defined as any activity that:

A.
B.
C.
D.
E.

43. A statement that explains the changes in the cash

balance of a firm over time is called a(n):

A.
B.
C.
D.
E.

44. A statement that expresses each account as a percentage

of sales is called a:

A.
B.
C.
D.
E.

45. Current assets expressed as a multiple of current

liabilities is called the:

A.
B.
C.
D.
E.
46. Profit margin is defined as:

A.
B.
C.
D.
E.

47. The times interest earned ratio is defined as:

A.
B.
C.
D.
E.

48. The PE ratio is defined as:

A.
B.
C.
D.
E.

49. Return on assets is defined as:

A.
B.
C.
D.
E.

50. The Du Pont identity is defined as the:

A.
B.
C.
D.
E.
51. A source of cash is defined as:

A.
B.
C.
D.
E.

52. A common-size statement of comprehensive income is

defined as a financial statement wherein all items are
expressed as a percentage of:

A.
B.
C.
D.
E.

53. The value of the current assets divided by the value of

the current liabilities is called:

A.
B.
C.
D.
E.

54. The debt-equity ratio is measured as total:

A.
B.
C.
D.
E.

55. Net income divided by total revenue is referred to as:

A.
B.
C.
D.
E.
56. The average length of time it takes for a customer to
pay for his or her credit purchases is referred to as:

A.
B.
C.
D.
E.

57. Sales divided by the value computed as current assets

minus current liabilities is referred to as the:

A.
B.
C.
D.
E.

58. Earnings before interest and taxes divided by the

interest paid is called the:

A.
B.
C.
D.
E.

59. Return on assets is defined as:

A.
B.
C.
D.
E.

60. The price-earnings ratio is defined as:

A.
B.
C.
D.
E.
61. The function described as the profit margin times the
total asset turnover times the equity multiplier is known
as the:

A.
B.
C.
D.
E.

62. The financial statement that summarizes the sources

and uses of cash over a specified period of time is the:

A.
B.
C.
D.
E.

63. Ratios that measure a firm's financial leverage are

known as _____ ratios.

A.
B.
C.
D.
E.

64. Ratios that measure how efficiently a firm's

management uses its assets and equity to generate
bottom line net income are known as _____ ratios.

A.
B.
C.
D.
E.

65. The Enterprise Multiple is measured as:

A.
B.
C.
D.
E.
66. The _____ breaks down return on equity into three
component parts.

A.
B.
C.
D.
E.

67. The coding system that classifies firms by their specific

type of business operations is known as the:

A.
B.
C.
D.
E.

68. Which of the following would be considered a use of

cash?

I. Accounts receivable increase.

II. Accounts payable decrease.
III. Common stock increases.
IV. Net fixed assets decrease by the amount of
depreciation.

A.
B.
C.
D.
E.

69. Which of the following are considered a source of

cash?

I. Common stock decreases.

II. Accounts payable increase.
III. Accounts receivable decrease.
IV. Inventory increases.

A.
B.
C.
D.
E.
70. In the most general sense, which of the following would
you expect to be true?

A.
B.
C.
D.
E.

71. The net change in cash over a period of time is equal

to:

A.
B.
C.
D.
E.

72. Comparison of the financial statements of two firms in

the same general industry may be difficult if:

I. The size of the two firms' operations are different.

II. The firms have identical product lines and
operations.
III. The firms' financial statements are prepared using
different fiscal year-ends.

A.
B.
C.
D.
E.
73. You are comparing two companies by looking at
financial ratios they publish in their annual reports. You
know that:

I. You must be careful because not all financial

statement ratios are calculated the same way.
II. The statement of financial position ratios of a large
firm and a medium size firm cannot be compared.
III. These financial ratios will capture the relevant
differences between the two firms, leaving you with no
need to look at the rest of the reports.

A.
B.
C.
D.
E.

74. Problems with financial statement analysis include all

of the following EXCEPT:

A.
B.
C.
D.
E.

75. In a common size statement, the statement of financial

position may be expressed as a percentage of
____________ while the statement of comprehensive
income may be expressed as a percentage of
____________.

A.
B.
C.
D.
E.
76. Which of the following statements about the current
ratio is accurate?

A.
B.
C.
D.
E.

77. The financial manager of Mystery, Inc. tells her banker

that Mystery's accounts receivable declined by
$275,000 that day. Based on this, the bank knows that
Mystery's current ratio:

A.
B.
C.
D.
E.

78. All else the same, which of the following occurs when a
firm buys inventory with cash?

A.
B.
C.
D.
E.

79. All else unchanged, which of the following is true when

a firm sells a fixed asset on credit (an account
receivable is created)?

A.
B.
C.
D.
E.
80. A very short-term creditor would likely be most
interested in a firm's ________________.

A.
B.
C.
D.
E.

81. Which of the following statements is true?

A.
B.
C.
D.
E.

82. A financial manager who needs to find out how long it

will take before their firm runs out of cash if no further
cash comes in should consider the ________________.

A.
B.
C.
D.
E.

83. In words, what does an equity multiplier of 2 mean?

A.
B.
C.
D.
E.

84. Which of the following could be calculated with the use

of only a statement of financial position?

A.
B.
C.
D.
E.
85. A Toronto firm has a times interest earned ratio of 2.7
times. This means:

A.
B.
C.
D.
E.

86. The sales of SportCheck have increased recently and

inventory has declined slightly. A financial analyst
would expect to find that the:

A.
B.
C.
D.
E.

87. Tellus and Rojers Corp. are close competitors. Last

year, both had the same level of cost of goods sold, but
Tellus turned its inventory over five times during the
year while Rojers Corp. turned its inventory over every
65 days. If the objective is to keep inventory as low as
possible (on average), which of the following is true?

A.
B.
C.
D.
E.

88. Conceptually, what does the days' sales in receivables

ratio measure for a firm?

A.
B.
C.
D.
E.
89. In addition to days' sales in receivables and days' sales
in inventory we could calculate "days' sales in
payables" by computing the accounts payable turnover
and dividing it into 365 days. In words, what do these
ratios tell us?

A.
B.
C.
D.
E.

90. In words, what does a total asset turnover of 1.5 times

mean?

A.
B.
C.
D.
E.

91. Which of the following is a correct interpretation of a

profit margin of 0.20?

A.
B.
C.
D.
E.

92. Which of the following would result in a lower profit

margin, all else the same?

I. A decrease in cost of goods sold.

II. A higher corporate tax rate.
III. Doubling the amount of long-term debt while
decreasing common equity by the same amount.

A.
B.
C.
D.
E.
93. If the total assets of a firm decrease while all other
components of ROE remain unchanged, you would
expect the firm's:

A.
B.
C.
D.
E.

94. When would the return on equity (ROE) definitely

equal the return on assets (ROA)?

A.
B.
C.
D.
E.

95. Which of the following is NOT a correct statement

about the price/earnings ratio?

A.
B.
C.
D.
E.

96. Which of the following statements is false concerning

the use of accounting data versus market value data?

A.
B.
C.
D.
E.

97. Vendors providing trade credit to a firm tend to be most

interested in the firm's __________ ratios.

A.
B.
C.
D.
E.
98. If a firm is having difficulty controlling its operating
expenses, the trouble will be most directly reflected in
the firm's ________________ ratios.

A.
B.
C.
D.
E.

99. Which of the following is NOT incorporated into the

calculation of the Du Pont identity?

A.
B.
C.
D.
E.

100. Hilton Publishing and Jordan Publishing have identical

debt-equity ratios and profit margins. However, Hilton's
ROA is higher than Jordan's. Therefore, it must be true
that:

A.
B.
C.
D.
E.

101. Return on equity will increase if the

_________________.

A.
B.
C.
D.
E.
102. Which of the following is NOT a component of the Du
Pont identity?

A.
B.
C.
D.
E.

103. Which of the following does NOT correctly complete

this sentence: The financial statements of a company
___________________.

A.
B.
C.
D.
E.

104. Which of the following regarding financial statement

analysis is NOT correct?

A.
B.
C.
D.
E.

105. Which of the following is NOT a source of industry

benchmark information for Canadian companies?

A.
B.
C.
D.
E.

106. Which one of the following is a use of cash?

A.
B.
C.
D.
E.
107. Which of the following is (are) a source of cash?

I. An increase in accounts payable

II. A reduction in inventory
III. An increase in retained earnings
IV. An increase in notes payable

A.
B.
C.
D.
E.

108. On the statement of cash flows, the change in current

assets is listed in the section entitled:

A.
B.
C.
D.
E.

109. Common sized statements:

A.
B.
C.
D.
E.

110. Which one of the following is a measure of liquidity?

A.
B.
C.
D.
E.
111. Which of the following is (are) a measure of long-term
solvency?

I. Total debt ratio

II. Cash coverage ratio
III. Price-earnings ratio
IV. Market-to-book ratio

A.
B.
C.
D.
E.

112. The current ratio:

A.
B.
C.
D.
E.

113. The quick ratio:

A.
B.
C.
D.
E.

114. Which one of the following measures indicates how

long a firm can continue operating without any
additional cash inflows?

A.
B.
C.
D.
E.
115. Last year Mittel (Ottawa) had a total debt ratio of .31.
This year the total debt ratio is .33. Which one of the
following statements can be made with certainty based
on this information?

A.
B.
C.
D.
E.

116. An equity multiplier of 1.64 means that for every $1 the

firm raises in new equity, the firm can:

A.
B.
C.
D.
E.

117. If a firm acquires more long-term debt while also

issuing additional shares of stock, then the:

A.
B.
C.
D.
E.

118. Creditors are most likely interested in the:

A.
B.
C.
D.
E.

119. If the level of inventory rises, all else constant, then:

A.
B.
C.
D.
E.
120. An increase in the receivables turnover means that:

A.
B.
C.
D.
E.

121. A fixed asset turnover ratio of .72 means that:

A.
B.
C.
D.
E.

122. Which one of the following measures the efficiency

with which a firm uses it resources to generate sales?

A.
B.
C.
D.
E.

123. A reduction in interest expense, all else constant, will

cause a(n):

A.
B.
C.
D.
E.

124. Last year a Vancouver firm had a profit margin of 7%.

This year the profit margin is 6%. Sales remained
constant. Which one of the following statements is
correct based on this information?

A.
B.
C.
D.
E.
125. Stockholders are most interested in the:

A.
B.
C.
D.
E.

126. Aircraft Canada expects sales and net income to remain

constant next year. If Aircraft Canada wishes to
increase its earnings per share figures, then Aircraft
Canada could:

A.
B.
C.
D.
E.

127. A price earnings ratio of 14 means that:

A.
B.
C.
D.
E.

128. Which one of the following is true concerning the

market-to-book ratio?

A.
B.
C.
D.
E.

129. Which one of the following will increase the return on

equity as computed using the Du Pont identity given
that all else is held constant?

A.
B.
C.
D.
E.
130. Financial statement analysis provides useful
information to which of the following parties?

I. Creditors
II. Investors
III. Internal division managers
IV. Senior corporate officers

A.
B.
C.
D.
E.

131. A decrease in which one of the following is a source of

cash?

A.
B.
C.
D.
E.

132. Which one of the following transactions is a use of

cash?

A.
B.
C.
D.
E.

133. Which of the following are uses of cash?

I. reduction in long-term debt

II. increase in the number of shares of stock outstanding
III. decrease in inventory
IV. increase in net fixed assets

A.
B.
C.
D.
E.
134. Which one of the following is found in the operating
activity section of a statement of cash flows?

A.
B.
C.
D.
E.

135. According to the statement of cash flows, an increase in

inventory will _____ the cash flow from _____
activities.

A.
B.
C.
D.
E.

136. Which one of the following formulas represents an

asset utilization ratio?

A.
B.
C.
D.
E.

137. Leaf, Inc. of Kingston has a fixed asset turnover rate of

2.26 and a total asset turnover rate of 1.13. From this
information, you know that the:

A.
B.
C.
D.
E.
138. Peter's Pool House has an interval measure of 51. This
means that the Pool House has:

A.
B.
C.
D.
E.

139. Which of the following statements are correct?

I. The equity multiplier is equal to 1 plus the debt-

equity ratio.
II. Return on equity is equal to the return on assets
multiplied by the equity multiplier.
III. Return on equity is equal to total equity divided by
net income.
IV. Return on equity is equal to the equity multiplier
multiplied by the total asset turnover multiplied by the
profit margin.

A.
B.
C.
D.
E.

140. When you compare the current quick ratio for a firm to
the firm's quick ratio from prior periods, you are
conducting _____ analysis.

A.
B.
C.
D.
E.

141. An increase in which one of the following is a source of

cash?

A.
B.
C.
D.
E.
142. Which of the following is (are) sources of cash?

I. an increase in accounts receivable

II. a decrease in common stock
III. an increase in long-term debt
IV. a decrease in accounts payable

A.
B.
C.
D.
E.

143. Which one of the following is a use of cash?

A.
B.
C.
D.
E.

144. Which of the following is (are) uses of cash?

I. Payment of a note payable

II. Repurchase of common stock
III. Granting of credit to a customer
IV. Sale of a fixed asset

A.
B.
C.
D.
E.

145. Which one of the following is found in the financing

activity section of a statement of cash flows?

A.
B.
C.
D.
E.
146. According to the statement of cash flows, an increase in
accounts receivable will _____ the cash flow from
_____ activities.

A.
B.
C.
D.
E.

147. Which of the following are types of activities shown on

a statement of cash flows?

I. Investment
II. Liquidating
III. Operating
IV. Financing

A.
B.
C.
D.
E.

148. On a common-size statement of financial position, all

_____ accounts are shown as a percentage of _____.

A.
B.
C.
D.
E.

149. On a common-base year financial statement, all

accounts are expressed relative to the base:

A.
B.
C.
D.
E.
150. Which one of the following statements is correct
concerning ratio analysis?

A.
B.
C.
D.
E.

151. Which of the following are liquidity ratios?

I. Interval measure
II. Current ratio
III. Quick ratio
IV. Net working capital to total assets

A.
B.
C.
D.
E.

152. An increase in which one of the following accounts

increases a firm's current ratio without affecting its
quick ratio?

A.
B.
C.
D.
E.

153. A supplier, who requires payment within ten days, is

most concerned with which one of the following ratios
when granting credit?

A.
B.
C.
D.
E.
154. A Halifax firm has an interval measure of 83. This
means that the firm must:

A.
B.
C.
D.
E.

155. A firm has a total debt ratio of .47. This means that that
firm has 47 cents in debt for every:

A.
B.
C.
D.
E.

156. The long-term debt ratio is probably of most interest to

a firm's:

A.
B.
C.
D.
E.

157. A Toronto banker considering loaning money to a firm

for ten years would most likely prefer the firm have a
debt ratio of _____ and a times interest earned ratio of
_____.

A.
B.
C.
D.
E.
158. From a cash flow position, which one of the following
ratios best measures a firm's ability to pay the interest
on its debts?

A.
B.
C.
D.
E.

159. The higher the inventory turnover measure, the:

A.
B.
C.
D.
E.

160. Which one of the following statements is correct if a

firm has a receivables turnover measure of 10?

A.
B.
C.
D.
E.

161. A total asset turnover measure of 1.03 means that a firm

has $1.03 in:

A.
B.
C.
D.
E.

162. When a firm wishes to increase its net working capital

turnover rate, it should _____, all else constant.

A.
B.
C.
D.
E.
163. Bob's Toys has a fixed asset turnover rate of 1.2 and a
total asset turnover rate of .84. Gerold's Toys has a
fixed asset turnover rate of 1.1 and a total asset turnover
rate of .96. Both companies have similar operations.
Bob's Toys:

A.
B.
C.
D.
E.

164. Puffy's Pastries generates five cents of net income for

every $1 in sales. Thus, Puffy's has a _____ of 5
percent.

A.
B.
C.
D.
E.

165. If a firm produces a 10 percent return on assets and also

a 10 percent return on equity, then the firm:

A.
B.
C.
D.
E.

166. If shareholders want to know how much profit a firm is

making on their entire investment in the firm, the
shareholders should look at the:

A.
B.
C.
D.
E.
167. BD Hydro increases its operating efficiency such that
costs decrease while sales remain constant. As a result,
given all else constant, the:

A.
B.
C.
D.
E.

168. The only difference between Joe's and Moe's is that

Joe's has old, fully depreciated equipment. Moe's just
purchased all new equipment which will be depreciated
over eight years. Assuming all else equal:

A.
B.
C.
D.
E.

169. Last year, New Flying Industries had a price-earnings

ratio of 15. This year, the price earnings ratio is 18.
Based on this information, it can be stated with
certainty that:

A.
B.
C.
D.
E.

170. Second Cups has a price-earnings ratio of 16. Tam

Hortons has a price-earnings ratio of 19. Thus, you can
state with certainty that one share of stock in Tam
Hortons':

A.
B.
C.
D.
E.
171. Which two of the following are most apt to cause a firm
to have a higher price-earnings ratio?

I. Slow industry outlook

II. High prospect of firm growth
III. Very low current earnings
IV. Investors with a low opinion of the firm

A.
B.
C.
D.
E.

172. Vinnie's Motors of Winnipeg has a market-to-book ratio

of 3. The book value per share is $4.00. This means that
a $1 increase in the book value per share will:

A.
B.
C.
D.
E.

173. Which one of the following sets of ratios applies most

directly to shareholders?

A.
B.
C.
D.
E.
174. The three parts of the Du Pont identity can be generally
described as:

I. Operating efficiency, asset use efficiency and firm

profitability.
II. Financial leverage, operating efficiency and asset use
efficiency.
III. The equity multiplier, the profit margin and the total
asset turnover.
IV. The debt-equity ratio, the capital intensity ratio and
the profit margin.

A.
B.
C.
D.
E.

175. If a firm decreases its operating costs, all else constant,

then:

A.
B.
C.
D.
E.

176. Which one of the following statements is correct?

A.
B.
C.
D.
E.

177. It is easier to evaluate a firm using its financial

statements when the firm:

A.
B.
C.
D.
E.
178. Which two of the following represent the most effective
methods of directly evaluating the financial
performance of a firm?

I. Comparing the current financial ratios to those of the

same firm from prior time periods
II. Comparing a firm's financial ratios to those of other
firms in the firm's peer group who have similar
operations
III. Comparing the financial statements of the firm to
the financial statements of similar firms operating in
other countries
IV. Comparing the financial ratios of the firm to the
average ratios of all firms located in the same
geographic area

A.
B.
C.
D.
E.

179. Which of the following represent problems encountered

when comparing the financial statements of one firm
with those of another firm?

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 for
inventory purposes.
IV. The two firms may be seasonal in nature and have
different fiscal year ends.

A.
B.
C.
D.
E.
180. CCI Group Inc. (Toronto) has a current ratio of 1.1.
This implies that if the firm liquidates its current assets
in order to pay off its current liabilities, it can sell the
current assets for as little as:

A.
B.
C.
D.
E.

181. Assume a firm's current ratio equals 3.1. Which of the

following actions would increase it?

A.
B.
C.
D.
E.

182. A Montreal firm has current liabilities of $250, a

current ratio of 1.2, and a quick ratio of 0.81. Calculate
the level of inventory for this firm.

A.
B.
C.
D.
E.

183. Danny D.Inc. had cost of goods sold of $5,200, net

working capital of $120, total current assets of $600,
and a quick ratio of 0.1. What is Danny D's days' sales
in inventory?

A.
B.
C.
D.
E.
184. Calculate the value of cost of goods sold for Molsons
Brewing Company given the following information:
Current liabilities = $340,000; Quick ratio = 1.8;
Inventory turnover = 4.0; Current ratio = 3.3.

A.
B.
C.
D.
E.

185. CatchaTan Co. of British Columbia had net sales of

$800,000 over the past year. During that time, average
receivables were $200,001. What was the average
collection period?

A.
B.
C.
D.
E.

186. Martin's Method Acting School has a current ratio of 2,

a quick ratio of 1.8, net income of $180,000, a profit
margin of 10%, and an accounts receivable balance of
$150,001. What is the firm's average collection period?

A.
B.
C.
D.
E.

187. Atlasta Limo Corp. has an average collection period of

36.5 days. Sales are $300,001. What is the average
investment in receivables?

A.
B.
C.
D.
E.
188. If a firm has a total debt ratio of 0.5, what is its equity
multiplier?

A.
B.
C.
D.
E.

189. Tron, Inc. of Guelph has a times interest earned ratio of

4.1. Based on this ratio, a creditor knows that Tron's
EBIT must decline by more than __________ before
Tron will be unable to cover its interest expense.

A.
B.
C.
D.
E.

190. A small local company has net income of $200, interest

expenses of $50, and depreciation of $51. The corporate
tax rate is 50%. What is the cash coverage ratio?

A.
B.
C.
D.
E.

191. A firm has an ROA of 8%, sales of $100, and total

assets of $71. What is its profit margin?

A.
B.
C.
D.
E.
192. You have the following data for the Fosberg Winery of
St Catherines. What is Fosberg's return on assets
(ROA)? Return on equity = 15%; Earnings before taxes
= $30,000; Total asset turnover = 0.80; Profit margin =
4.5%; Tax rate = 35%.

A.
B.
C.
D.
E.

193. A firm has a total book value of equity of $2 million, a

market to book ratio of 2, and a book value per share of
$5.01. What is the total market value of the firm's
equity?

A.
B.
C.
D.
E.

194. Jorge Corp. of North Bay has 100,000 shares

outstanding. EBIT is $1 million and interest paid is
$200,001. If the corporate tax rate is 34%, what is
Jorge's earnings per share?

A.
B.
C.
D.
E.

195. Etling Eccentricities has 400,000 shares of common

stock outstanding, net income after tax of $1.2 million,
retained earnings of $17 million, and total equity of $35
million. What is EE's earnings per share?

A.
B.
C.
D.
E.
196. A Waterloo firm with net income of $500,000 pays 48%
of net income out in dividends. If the firm has 150,000
shares of common stock outstanding, what is the
dividend paid per share of stock?

A.
B.
C.
D.
E.

197. Given a profit margin = 10%, ROE = 20%, D/E = 1.5,

and assets = $200, calculate sales.

A.
B.
C.
D.
E.

198. A firm has sales of $500, total assets of $300, and a

debt/equity ratio of 1. If its return on equity is 15%,
what is its net income?

A.
B.
C.
D.
E.
199. What is the current ratio for Young in 2009?

A.
B.
C.
D.
E.

200. What is the quick ratio for Young for 2008?

A.
B.
C.
D.
E.
201. What is the total debt ratio for Young for 2009?

A.
B.
C.
D.
E.

202. What is the debt-equity ratio for 2008?

A.
B.
C.
D.
E.

203. What is the times interest earned ratio for 2009?

A.
B.
C.
D.
E.

204. What is the cash coverage ratio for 2009?

A.
B.
C.
D.
E.

205. What was inventory turnover for 2009?

A.
B.
C.
D.
E.
206. What was the average collection period for 2009?

A.
B.
C.
D.
E.

207. What was the total asset turnover in 2009?

A.
B.
C.
D.
E.

208. What was the profit margin in 2009?

A.
B.
C.
D.
E.

209. What was the return on equity for 2009?

A.
B.
C.
D.
E.

210. If Young stock sells for $40 and there are 100 million
shares outstanding, what is the P/E ratio?

A.
B.
C.
D.
E.
211. A firm has a debt-equity ratio of .56. What is the total
debt ratio?

A.
B.
C.
D.
E.

212. What was the greatest source of funds for Bo Knows

Profit Corp.?

A.
B.
C.
D.
E.
213. What was the greatest use of funds for Bo Knows Profit
Corp.?

A.
B.
C.
D.
E.

214. If you prepare a statement of cash flows, what is the

positive flow to cash from operating activities?
(Consider only inflows)

A.
B.
C.
D.
E.

215. If you were to prepare a statement of cash flows, what

is the negative flow from cash due to operating
activities? (Consider only outflows)

A.
B.
C.
D.
E.

216. If you were to prepare a statement of cash flows, what

is the cash flow from investment activities?

A.
B.
C.
D.
E.
217. If you were to prepare a statement of cash flows, what
is the net cash flow from financing activities?

A.
B.
C.
D.
E.

218. What was the quick ratio for Bo Knows Profit Corp. for
2009?

A.
B.
C.
D.
E.

219. If cash inflows for the company cease, the firm will be
able to stay in business for about:

A.
B.
C.
D.
E.

220. If the firm is currently carrying a price/earnings ratio of

2, what is the firm's approximate market price per
share?

A.
B.
C.
D.
E.
221. Which of the following contains the components of the
Du Pont identity for the company? Use year-end 2009
values where appropriate.

A.
B.
C.
D.
E.

222. Based on the information provided above, what was the

firm's tax rate in 2009?

A.
B.
C.
D.
E.
223. How did Marble Comics' net working capital to total
assets ratio change from 2008 to 2009?

A.
B.
C.
D.
E.

224. Which of Marble Comics' liquidity measures increased

from 2008 to 2009?

A.
B.
C.
D.
E.

225. What was Marble Comics' total debt ratio in 2009?

A.
B.
C.
D.
E.

226. Marble Comics' times interest earned ratio is:

A.
B.
C.
D.
E.

227. Assume Marble Comics' days' sales in inventory ratio

was 120 days in 2001. By how much did it change in
2009?

A.
B.
C.
D.
E.
228. The profit margin of Marble Comics Group is:

A.
B.
C.
D.
E.

229. Calculate Marble Comics' ROE for 2009.

A.
B.
C.
D.
E.

230. Sales are $75,000, cost of goods sold is $35,000 and

inventory is $5,000. What is the number of days sales in
inventory?

A.
B.
C.
D.
E.

231. Cash is $500, inventory is $4,800, accounts receivable

is $3,200 and accounts payable is $2,400. What is the
quick ratio?

A.
B.
C.
D.
E.

232. Earnings before interest and taxes is $74,300. Interest is

$8,300 and depreciation is $9,700. What is the cash
coverage ratio?

A.
B.
C.
D.
E.
233. Current assets are $94,700. Accounts payable is
$36,200, net income is $12,400 and sales are $110,800.
What is the net working capital turnover rate?

A.
B.
C.
D.
E.

234. A firm has a profit margin of 9% on sales of $400,000.

There are 10,000 shares of common stock outstanding.
What is the earnings per share?

A.
B.
C.
D.
E.

235. A London Ontario firm has a net income of $32,000

which provides a 12% return on assets. The firm has a
debt-equity ratio of .40. What is the return on equity?

A.
B.
C.
D.
E.

236. Little's Inc. provides a 10% return on equity. Sales are

$100,000 on total assets of $140,000 and total equity of
$85,000. What is the profit margin?

A.
B.
C.
D.
E.
237. What is the current ratio for 2009?

A.
B.
C.
D.
E.

238. What is the equity multiplier for 2009?

A.
B.
C.
D.
E.
239. What is the days' sales in receivables for 2009?

A.
B.
C.
D.
E.

240. What is the change in net working capital?

A.
B.
C.
D.
E.

241. What is the net working capital turnover rate for 2009?

A.
B.
C.
D.
E.

242. What is the cash coverage ratio?

A.
B.
C.
D.
E.

243. What is the market-to-book ratio if the Smith Co. has

2,603 shares of common stock outstanding with a
current market price of $22 per share?

A.
B.
C.
D.
E.
244. On a common size statement of comprehensive income
for 2009, earnings before interest and taxes would be
assigned a common value of:

A.
B.
C.
D.
E.
245. The industry in which RTF, Inc. operates has an
industry average of 21% for earnings before taxes. Is
RTF outperforming or underperforming the industry
and why?

A.
B.
C.
D.
E.

246. The component values used in the Du Pont analysis for

2009 are:

A.
B.
C.
D.
E.

247. During 2009, the quick ratio:

A.
B.
C.
D.

248. What was the change in the debt-equity ratio from 2008
to 2009?

A.
B.
C.
D.
E.

249. How many days does it take for inventory to sell?

A.
B.
C.
D.
E.
250. How many additional assets can RTF, Inc. acquire if the
company issues an additional $1,000 in common
stock?

A.
B.
C.
D.
E.

251. The sources of cash include:

A.
B.
C.
D.
E.
252. The uses of cash include:

A.
B.
C.
D.
E.

253. The net cash from financing activity for 2009 is:

A.
B.
C.
D.
E.

254. The net cash from investment activity for 2009 is:

A.
B.
C.
D.
E.

255. A Quebec City firm has a debt-equity ratio of .65. From

this, you can determine that the firm has _____ in assets
for every $1 in equity.

A.
B.
C.
D.
E.

256. Cora Operation has an inventory turnover of 121 and a

receivables turnover of 36. This means that it takes
_____ days for the firm to sell its inventory and collect
payment for that sale.

A.
B.
C.
D.
E.
257. Gwen's Pastry Shop has annual sales of $238,000, a
profit margin of 6 percent, and a return on assets of 7.7
percent. The firm has _____ in total assets.

A.
B.
C.
D.
E.

258. Stephen's Auto Body Shop (Oshawa) has a debt-equity

ratio of .6, a total asset turnover of 1.43, and a profit
margin of 5 percent. The firm has a return on assets of
_____ percent and a return on equity of _____ percent.

A.
B.
C.
D.
E.

259. Julie's Market Place has earnings per share of $.35, a

book value of $2.10 per share, and a market-to-book
ratio of 3. What is the firm's price-earnings ratio?

A.
B.
C.
D.
E.

260. During the year, Douglass Industries decreased the

accounts receivable by $230, decreased the inventory
by $150, and increased the accounts payable by $110.
These three changes represent a _____ of cash.

A.
B.
C.
D.
E.
261. Curly Industries generated net income of $980 for the
year. The depreciation expense was $120 and dividends
paid were $250. The accounts payable decreased by
$60, accounts receivable decreased by $20, inventory
increased by $80, and net fixed assets increased by
$360. What is the net cash flow from operating
activity?

A.
B.
C.
D.
E.

262. Water Forms, Inc. has sales of $268,900, net income of

$34,800, net fixed assets of $146,700, and current
assets of $98,200. The firm has $46,900 in inventory.
What is the common-size statement value of
inventory?

A.
B.
C.
D.
E.

263. In the base year, Marley Enterprises of Vancouver had

cash of $560, accounts receivable of $2,650, inventory
of $4,680, and fixed assets of $12,600. This year the
firm has cash of $630, accounts receivable of $3,280,
inventory of $5,101, and fixed assets of $15,850. What
is the common-base year value of the inventory?

A.
B.
C.
D.
E.
264. Larry's Lounge has cash of $1,670, accounts receivable
of $610, accounts payable of $2,900, and inventory of
$3,690. What is the value of the quick ratio?

A.
B.
C.
D.
E.

265. Smith & Sons has a debt-equity ratio of .55. What is the
total debt ratio?

A.
B.
C.
D.
E.

266. Swenson Motors has total debt of $682,400 and a debt-

equity ratio of .65. What is the value of the total assets?

A.
B.
C.
D.
E.

267. Life Industries has sales of $46,230, costs of goods sold

of $27,742.50, inventory of $675, and accounts
receivable of $2,300. How many days, on average, does
it take Life Industries to sell the inventory and collect
the payment on the sale?

A.
B.
C.
D.
E.
268. Nu Plastics has accounts receivable of $6,400,
inventory of $11,600, cash of $1,300, accounts payable
of $8,800, sales of $117,600, and cost of goods sold of
$89,300. What is the net working capital turnover rate?

A.
B.
C.
D.
E.

269. Bentley and Moore has net working capital of $6,900,

net fixed assets of $86,100, sales of $156,000, and
current liabilities of $41,700. How many dollars worth
of sales are generated from every $1 in total assets?

A.
B.
C.
D.
E.

270. Glen Acre Wines has sales of $682,100, total debt of

$285,000, total equity of $323,900, and a profit margin
of 8 percent. What is the return on assets?

A.
B.
C.
D.
E.

271. Su Lee's has sales of $54,600, total assets of $56,100,

and a profit margin of 4 percent. The firm has a total
debt ratio of 30 percent. What is the return on equity?

A.
B.
C.
D.
E.
272. Square D's has $42,700 in sales and a profit margin of
7.2 percent. There are 5,700 shares of stock outstanding
at a market price per share of $13.20. What is the price-
earnings ratio?

A.
B.
C.
D.
E.

273. Chadwick, Inc., has 125,000 shares of stock

outstanding, sales of $7.2 million, net income of
$600,000, a price-earnings ratio of 22, and a book value
per share of $36.30. What is the market-to-book ratio?

A.
B.
C.
D.
E.

274. Theodore's Corner Market has a debt-equity ratio of 60

percent, sales of $318,000, net income of $24,900, and
total debt of $112,500. What is the return on equity?

A.
B.
C.
D.
E.

275. Sandwiches-To-Go has a return on equity of 12 percent

and a debt-equity ratio of .40. The total asset turnover is
1.63 and the profit margin is 5 percent. The total equity
is $21,400. What is the amount of the net income?

A.
B.
C.
D.
E.
 Use the following statement of financial position and
statement of comprehensive income

276. What is the net working capital to total assets ratio for
Bluebird for 2009?

A.
B.
C.
D.
E.

277. What is the days' sales in inventory for Bluebird? (Use

average inventory.)

A.
B.
C.
D.
E.
278. What is the equity multiplier for Bluebird for 2009?

A.
B.
C.
D.
E.

279. What is the return on equity for Bluebird for 2009?

A.
B.
C.
D.
E.

280. Blue Bird, Inc. has 1,500 shares of stock outstanding.

The price-earnings ratio for 2009 is 21. What is the
market price per share of stock?

A.
B.
C.
D.
E.

281. What is the net cash flow from financing activities for
2009?

A.
B.
C.
D.
E.

282. What is the net cash flow from investment activity for
2009?

A.
B.
C.
D.
E.
283. Accounts payable for 2009 will have a value of _____
percent on the firm's common-size financial statement.

A.
B.
C.
D.
E.

The following statement of financial position and

statement of comprehensive income should be used.

284. How many dollars of sales are being generated by every

$1 that Woodburn has in total assets? (Use 2009 assets)

A.
B.
C.
D.
E.
285. What is Woodburn's total debt ratio for 2009?

A.
B.
C.
D.
E.

286. What is Woodburn's times interest earned ratio for

2009?

A.
B.
C.
D.
E.

287. What is Woodburn's debt-equity ratio for 2009?

A.
B.
C.
D.
E.

288. What is Woodburn's return on assets for 2009?

A.
B.
C.
D.
E.

289. How will Woodburn's accounts receivable appear on the

statement of cash flows for 2009?

A.
B.
C.
D.
E.
290. Woodburn, Inc. has a profit margin of _____ percent, a
total asset turnover of _____, an equity multiplier of
_____, and a return on equity of _____ percent. (Use
2009 values.)

A.
B.
C.
D.
E.

291. Last year Ty's Grocery had inventory of $237,500 and

fixed assets of $51,400. This year, Ty's has inventory of
$231,900 and fixed assets of $48,700. Depreciation for
this year is $6,300. Which one of the following
statements is true given this information?

A.
B.
C.
D.
E.

292. During the year, Doug's Bakery decreased its accounts

receivable by $50, increased its inventory by $100, and
decreased its accounts payable by $50. For these three
accounts, the firm has a net:

A.
B.
C.
D.
E.

293. A Halifax firm generates net income of $530. The

depreciation expense is $60 and dividends paid are $80.
Accounts payable decrease by $40, accounts receivable
decrease by $30, inventory increases by $20, and net
fixed assets decrease by $40. What is the net cash from
operating activity?

A.
B.
C.
D.
E.
294. A firm has sales of $1,500, net income of $100, total
assets of $1,000, and total equity of $700. Interest
expense is $50. What is the common-size statement
value of the interest expense?

A.
B.
C.
D.
E.

295. Last year, which is used as the base year, a firm had
cash of $60, accounts receivable of $100, inventory of
$200, and fixed assets of $500. This year the firm has
cash of $50, accounts receivable of $150, inventory of
$250, and fixed assets of $550. What is the common-
base year value of accounts receivable?

A.
B.
C.
D.
E.

296. Sing Lee's has accounts payable of $300, inventory of

$250, cash of $50, fixed assets of $500, accounts
receivable of $200, and long-term debt of $400. What is
the value of the net working capital to total assets
ratio?

A.
B.
C.
D.
E.

297. Rosita's Resources paid $250 in interest and $130 in

dividends last year. The times interest earned ratio is 3.8
and the depreciation expense is $60. What is the value
of the cash coverage ratio?

A.
B.
C.
D.
E.
298. Syed's Industries has accounts receivable of $700,
inventory of $1,200, sales of $4,200, and cost of goods
sold of $3,400. How long does it take Syed's to both
sell its inventory and then collect the payment on the
sale?

A.
B.
C.
D.
E.

299. Freda's, Inc. has sales of $3,200, current liabilities of

$900, total assets of $3,000, and net working capital of
$500. How many dollars worth of sales are generated
from every $1 in net fixed assets?

A.
B.
C.
D.
E.

300. Patti's has net income of $1,800, a price-earnings ratio

of 12, and earnings per share of $1.20. How many
shares of stock are outstanding?

A.
B.
C.
D.
E.

301. A firm has 5,000 shares of stock outstanding, sales of

$6,000, net income of $800, a price-earnings ratio of
10, and a book value per share of $.50. What is the
market-to-book ratio?

A.
B.
C.
D.
E.
302. Frederico's has a profit margin of 6 percent, a return on
assets of 8 percent, and an equity multiplier of 1.4.
What is the return on equity?

A.
B.
C.
D.
E.

303. Rojers Communications Inc. sells for $34.50 and there

are 605 million shares outstanding at the end of 2009.
Based on the 2009 annual report, EBIT is $2,024
million, net income is $1,002 million, and depreciation
is $1,760 million. What is the Enterprise Multiple?

A.
B.
C.
D.
E.

304. During the year, The Train Stop decreased its accounts
receivable by $60, increased its inventory by $130, and
decreased its accounts payable by $20. For these three
accounts, the firm has a net:

A.
B.
C.
D.
E.
305. Margo's Dress Shoppe had the following values as of
the end of last year and the end of this year. Which of
the following are sources of cash for the year?

A.
B.
C.
D.
E.

306. A Vancouver firm has sales of $1,640, net income of

$135, net fixed assets of $1,200, and current assets of
$530. The firm has $280 in inventory. What is the
common-size statement value of inventory?

A.
B.
C.
D.
E.

307. Last year, which is used as the base year, a firm had
cash of $46, accounts receivable of $132, inventory of
$319, and net fixed assets of $640. This year, the firm
has cash of $52, accounts receivable of $147, inventory
of $312, and net fixed assets of $576. What is the
common-base year value of accounts receivable?

A.
B.
C.
D.
E.
308. Monika's Gift Barn has cash of $316, accounts
receivable of $687, accounts payable of $709, and
inventory of $2,108. What is the value of the quick
ratio?

A.
B.
C.
D.
E.

309. Jeminson's Hardware has accounts payable of $682,

inventory of $3,608, cash of $340, fixed assets of
$4,211, accounts receivable of $418, and long-term
debt of $3,750. What is the value of the net working
capital to total assets ratio?

A.
B.
C.
D.
E.

310. A Victoria firm has total assets of $126,740 and net

fixed assets of $82,408. The average daily operating
costs are $1,211. What is the value of the interval
measure?

A.
B.
C.
D.
E.

311. A Vancouver firm has a debt-equity ratio of .56. What is

the total debt ratio?

A.
B.
C.
D.
E.
312. A firm has total debt of $1,850 and a debt-equity ratio
of .64. What is the value of the total assets?

A.
B.
C.
D.
E.

313. A Kingston firm has sales of $49,800, costs of $36,100,

interest paid of $380, and depreciation of $3,200. The
tax rate is 35 percent. What is the value of the cash
coverage ratio?

A.
B.
C.
D.
E.

314. Herman's Bar and Grill paid $1,618 in interest and $265
in dividends last year. The times interest earned ratio is
1.9 and the depreciation expense is $50. What is the
value of the cash coverage ratio?

A.
B.
C.
D.
E.

315. Big Foot Wholesalers has sales of $1,387,400, costs of

goods sold of $891,400, inventory of $188,936, and
accounts receivable of $94,800. How many days, on
average, does it take the firm to sell its inventory
assuming that all sales are on credit?

A.
B.
C.
D.
E.
316. Qwik Stop has accounts receivable of $4,830, inventory
of $9,083, sales of $38,600, and cost of goods sold of
$21,400. How many days does it take the firm to both
sell their inventory and collect the payment on the
sale?

A.
B.
C.
D.
E.

317. A Kinston firm has net working capital of $2,580, net

fixed assets of $13,120, sales of $22,580, and current
liabilities of $1,610. How many dollars worth of sales
are generated from every $1 in total assets?

A.
B.
C.
D.
E.

318. Gateway Lodging has annual sales of $1.22 million,

total debt of $380,000, total equity of $750,000, and a
profit margin of 7.45 percent. What is the return on
assets?

A.
B.
C.
D.
E.

319. Baker's Used Autos has sales of $638,400, total assets

of $524,200, and a profit margin of 9.8 percent. The
firm has a total debt ratio of 35 percent. What is the
return on equity?

A.
B.
C.
D.
E.
320. Katrina's Fury has $697,400 in sales. The profit margin
is 3.4 percent and the firm has 12,500 shares of stock
outstanding. The market price per share is $33. What is
the price-earnings ratio?

A.
B.
C.
D.
E.

321. Patti's Pizza has net income of $218,490, a price-

earnings ratio of 14.6, and earnings per share of $1.32.
How many shares of stock are outstanding?

A.
B.
C.
D.
E.

322. A Calgary firm has 11,000 shares of stock outstanding,

sales of $1.62 million, net income of $20,020, a price-
earnings ratio of 21.6, and a book value per share of
$8.64. What is the market-to-book ratio?

A.
B.
C.
D.
E.

323. The Furniture Barn has a profit margin of 8.7 percent, a

return on assets of 11.6 percent, and an equity
multiplier of 1.87. What is the return on equity?

A.
B.
C.
D.
E.
324. Taylor's Men's Wear has a debt-equity ratio of 55
percent, sales of $587,000, net income of $63,400, and
total debt of $196,000. What is the return on equity?

A.
B.
C.
D.
E.

325. An Edmonton firm has a debt-equity ratio of 62

percent, a total asset turnover of 1.39, and a profit
margin of 7.8 percent. The total equity is $672,100.
What is the amount of the net income?

A.
B.
C.
D.
E.

326. Given the following information, calculate sales value.

Total asset turnover 0.80; total liabilities $5,000; total
equity $5,000.

A.
B.
C.
D.
E.

327. Calculate net working capital turnover given the

following data. Total fixed assets $200,000; long-term
liabilities $55,000; total liabilities $80,000; total
shareholders' equity $220,000; total sales $800,000.

A.
B.
C.
D.
E.
328. Calculate net working capital turnover given the
following data. Total fixed assets $400,000; long-term
liabilities $155,000; total liabilities $280,000; total
shareholders' equity $320,000; net working capital
turnover 20

A.
B.
C.
D.
E.

329. Calculate total current assets given the following

information. Cash $10,000; supplies $3,000; average
collection period 54.75 days; days' sales in inventory
91.25 days; sales $80,000; COGS $60,000.

A.
B.
C.
D.
E.

330. Calculate cash given the following information. Total

current assets $57,000; supplies $4,000; average
collection period 60.83 days; days' sales in inventory
97.33 days; sales 90,000; cost of goods sold 75,000.

A.
B.
C.
D.
E.

331. Calculate depreciation expense given the following

information. Interest expense $2,000; times interest
earned 5; cash coverage ratio 5.5.

A.
B.
C.
D.
E.
332. How would a $5,000 increase in AR and a $2,000
decrease in inventory affect cash?

A.
B.
C.
D.
E.

333. How would a $15,000 decrease in AR and a $8,000

increase in inventory affect cash?

A.
B.
C.
D.
E.

334. Ajax Company has a debt-equity ratio of 0.75. Return

on assets is 9.5 percent. What is the return on equity?

A.
B.
C.
D.
E.

335. Bandras Company has a debt-equity ratio of 0.85.

Return on assets is 10.5 percent. What is the return on
equity?

A.
B.
C.
D.
E.
336. Using the Du Pont Identity Method, calculate return on
equity given the following information. Profit margin
16%; total asset turnover 0.85; equity multiplier 1.5.

A.
B.
C.
D.
E.

337. Using the Du Pont Identity Method, calculate return on

equity given the following information. Profit margin
18%; total asset turnover 0.70; equity multiplier 1.1.

A.
B.
C.
D.
E.

338. Using the Du Pont Identity Method, calculate the equity

multiplier given the following information. Profit
margin 17%; total asset turnover 0.88; return on equity
17.95%.

A.
B.
C.
D.
E.

339. Using the Du Pont Identity Method, calculate the equity

multiplier given the following information. Profit
margin 19%; total asset turnover 1.5; return on equity
37.05%.

A.
B.
C.
D.
E.
340. The Frasier Company has a long-term debt ratio of 0.5
and a current ratio of 1.3. Current liabilities are $900,
sales are $6,000, profit margin is 10%, and ROE is
19&. What is the amount of the firm's net fixed assets?

A.
B.
C.
D.
E.

341. The Frasier Company has a long-term debt ratio of 0.5

and a current ratio of 1.3. Current liabilities are $900,
sales are $6,000, profit margin is 10%, and ROE is
19&. What is the amount of the firm's net fixed assets?

A.
B.
C.
D.
E.

342. Dun & Bradstreet Canada publishes peer group

financial information for a host of industries, yet the
numbers typically only appear in common-size form.
Why not report average dollar amounts instead?
343. Prepare common-size statement of financial positions
for Marble Comics using the data below. Comment on
the firm's liquidity.

344. List and interpret three liquidity ratios.

345. A firm has days' sales in inventory of 105 days, an
average collection period of 35 days, and takes 42 days,
on average, to pay its accounts payable. Taken together,
what do these three figures imply about the firm's
operations and its cash flows?

346. What is a more meaningful measure of profitability for

a firm, return on assets or return on equity? Why?

347. Suppose you calculated the following ratio for a firm:

The sum of the compensation paid to owners, directors,
and managers, divided by total sales. Which class of
financial ratios should this be included in and why?
Who might be interested in such a ratio?
348. It is often said that anyone with a pencil can calculate
financial ratios, but it takes a brain to interpret them.
What kinds of things should the analyst keep in mind
when evaluating the financial statements of a given
firm?

349. The Vice President of Finance of Alpha, Inc. wants to

improve the current ratio on the company's next
financial statement. Explain what he/she can
legitimately do now to help accomplish this goal.
Provide specific examples in your answer.

350. The financial manager of ABC, Inc. would like to

somehow do a comparison of financial statements to
determine how ABC, Inc. is performing both
historically and competitively. Develop and explain a
plan for performing these comparisons.
351. Assume that your firm has a positive cash balance and
that the cash balance is increasing each year. Why then
is it important to analyze a statement of cash flows?

352. Describe some of the problems that are encountered

when comparing the financial statements of various
firms.

353. If shareholders could only have access to two financial

ratios for a firm, which two ratios presented in this
chapter do you think they would select to review and
why?
354. Explain the value provided by the Du Pont identity that
is not provided by just knowing the return on equity
percentage.
 Chapter 03 Working with Financial Statements Key
1. If a firm uses part of the cash it received from payment
of an account receivable to buy inventory and leaves
the rest in its bank account, its current ratio will remain
unchanged.

TRUE
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #1
Type: Concepts

2. If a firm uses cash to purchase inventory, its quick ratio

will increase.

FALSE
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #2
Type: Concepts

3. Another name for return on equity is return on total

capitalization.

FALSE
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #3
Type: Concepts

4. If a firm has only current assets and no fixed assets of

any kind, its times interest earned ratio must exceed its
cash coverage ratio.

FALSE
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #4
Type: Concepts

5. Due to the difficulty of access the true enterprise value,

one can use the market cap as a proxy for enterprise
value to calculate the EV/EBITDA ratio.

TRUE
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #5
Type: Concepts
6. An increase in a(n) _____________ account would be
considered a(n) __________ of funds.

I. asset; source
II. liability; source
III. expense; source

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #6
Type: Definitions

7. Activities of the firm that generate cash are known as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #7
Type: Definitions

8. Activities of the firm in which cash is spent are known

as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #8
Type: Definitions
9. A _____________ standardizes items on the statement
of comprehensive income and statement of financial
position as a percentage of total sales and total assets,
respectively.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #9
Type: Definitions

10. A __________ standardizes items on the statement of

comprehensive income and statement of financial
position relative to a point in time.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #10
Type: Definitions

11. Relationships determined from a firm's financial

information and used for comparison purposes are
known as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #11
Type: Definitions
12. Financial ratios that measure the firm's ability to pay its
bills over the short run without undue stress are known
as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #12
Type: Definitions

13. The current ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #13
Type: Definitions

14. The quick ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #14
Type: Definitions

15. The cash ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #15
Type: Definitions
16. The financial ratio measured as current assets divided
by average daily operating costs is the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #16
Type: Definitions

17. The interval measure is an example of

a(n)____________ ratio.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #17
Type: Definitions

18. Ratios that measure the firm's financial leverage are

known as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #18
Type: Definitions

19. The financial ratio measured as total assets minus total

equity, divided by total assets, is the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
 Ross - Chapter 03 #19
Type: Definitions

20. The debt-equity ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #20
Type: Definitions

21. The equity multiplier ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #21
Type: Definitions

22. The total long-term debt and equity of the firm is

frequently called:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #22
Type: Definitions

23. The financial ratio measured as the firm's long-term

debt divided by its total capitalization is:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
 Ross - Chapter 03 #23
Type: Definitions

24. The financial ratio measured as EBIT divided by

interest expense is the __________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #24
Type: Definitions

25. The financial ratio measured as EBIT plus depreciation,

divided by interest expense, is the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #25
Type: Definitions

26. Ratios that measure how efficiently a firm uses its

assets to generate sales are known as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #26
Type: Definitions
27. The inventory turnover ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #27
Type: Definitions

28. The financial ratio days' sales in inventory is measured

as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #28
Type: Definitions

29. The receivables turnover ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #29
Type: Definitions

30. The financial ratio days' sales in receivables is

measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #30
Type: Definitions
31. The net working capital turnover ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #31
Type: Definitions

32. The fixed asset turnover ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #32
Type: Definitions

33. The total asset turnover ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #33
Type: Definitions

34. Ratios that measure how efficiently a firm's

management uses its assets in operations to generate
bottom-line net income are known as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #34
Type: Definitions
35. The financial ratio measured as net income divided by
sales is known as the firm's:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #35
Type: Definitions

36. The financial ratio measured as net income divided by

total assets is known as the firm's:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #36
Type: Definitions

37. The financial ratio measured as net income divided by

total equity is known as the firm's:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #37
Type: Definitions

38. The financial ratio measured as the price per share of

stock divided by earnings per share is known as the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
 Ross - Chapter 03 #38
Type: Definitions

39. The market-to-book ratio is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #39
Type: Definitions

40. The ___________ breaks down return on equity into

three component parts: operating efficiency of the firm,
its asset use efficiency, and financial leverage.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #40
Type: Definitions

41. A use of cash can be defined as any activity that:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #41
Type: Definitions

42. A source of cash can be defined as any activity that:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
 Ross - Chapter 03 #42
Type: Definitions

43. A statement that explains the changes in the cash

balance of a firm over time is called a(n):

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #43
Type: Definitions

44. A statement that expresses each account as a percentage

of sales is called a:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #44
Type: Definitions

45. Current assets expressed as a multiple of current

liabilities is called the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #45
Type: Definitions
46. Profit margin is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #46
Type: Definitions

47. The times interest earned ratio is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #47
Type: Definitions

48. The PE ratio is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #48
Type: Definitions

49. Return on assets is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #49
Type: Definitions
50. The Du Pont identity is defined as the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #50
Type: Definitions

51. A source of cash is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #51
Type: Definitions

52. A common-size statement of comprehensive income is

defined as a financial statement wherein all items are
expressed as a percentage of:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #52
Type: Definitions

53. The value of the current assets divided by the value of

the current liabilities is called:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #53
 Type: Definitions

54. The debt-equity ratio is measured as total:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #54
Type: Definitions

55. Net income divided by total revenue is referred to as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #55
Type: Definitions

56. The average length of time it takes for a customer to

pay for his or her credit purchases is referred to as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #56
Type: Definitions

57. Sales divided by the value computed as current assets

minus current liabilities is referred to as the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #57
 Type: Definitions

58. Earnings before interest and taxes divided by the

interest paid is called the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #58
Type: Definitions

59. Return on assets is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #59
Type: Definitions

60. The price-earnings ratio is defined as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #60
Type: Definitions

61. The function described as the profit margin times the

total asset turnover times the equity multiplier is known
as the:

A.
B.
C.
D.
E.
Difficulty: Basic
 Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #61
Type: Definitions

62. The financial statement that summarizes the sources

and uses of cash over a specified period of time is the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #62
Type: Definitions

63. Ratios that measure a firm's financial leverage are

known as _____ ratios.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #63
Type: Definitions

64. Ratios that measure how efficiently a firm's

management uses its assets and equity to generate
bottom line net income are known as _____ ratios.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #64
Type: Definitions
65. The Enterprise Multiple is measured as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #65
Type: Definitions

66. The _____ breaks down return on equity into three

component parts.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #66
Type: Definitions

67. The coding system that classifies firms by their specific

type of business operations is known as the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #67
Type: Definitions
68. Which of the following would be considered a use of
cash?

I. Accounts receivable increase.

II. Accounts payable decrease.
III. Common stock increases.
IV. Net fixed assets decrease by the amount of
depreciation.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #68
Type: Concepts

69. Which of the following are considered a source of

cash?

I. Common stock decreases.

II. Accounts payable increase.
III. Accounts receivable decrease.
IV. Inventory increases.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #69
Type: Concepts

70. In the most general sense, which of the following would

you expect to be true?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #70
Type: Concepts
71. The net change in cash over a period of time is equal
to:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #71
Type: Concepts

72. Comparison of the financial statements of two firms in

the same general industry may be difficult if:

I. The size of the two firms' operations are different.

II. The firms have identical product lines and
operations.
III. The firms' financial statements are prepared using
different fiscal year-ends.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #72
Type: Concepts
73. You are comparing two companies by looking at
financial ratios they publish in their annual reports. You
know that:

I. You must be careful because not all financial

statement ratios are calculated the same way.
II. The statement of financial position ratios of a large
firm and a medium size firm cannot be compared.
III. These financial ratios will capture the relevant
differences between the two firms, leaving you with no
need to look at the rest of the reports.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #73
Type: Concepts

74. Problems with financial statement analysis include all

of the following EXCEPT:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #74
Type: Concepts

75. In a common size statement, the statement of financial

position may be expressed as a percentage of
____________ while the statement of comprehensive
income may be expressed as a percentage of
____________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #75
Type: Concepts
76. Which of the following statements about the current
ratio is accurate?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #76
Type: Concepts

77. The financial manager of Mystery, Inc. tells her banker

that Mystery's accounts receivable declined by
$275,000 that day. Based on this, the bank knows that
Mystery's current ratio:

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #77
Type: Concepts

78. All else the same, which of the following occurs when a
firm buys inventory with cash?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #78
Type: Concepts
79. All else unchanged, which of the following is true when
a firm sells a fixed asset on credit (an account
receivable is created)?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #79
Type: Concepts

80. A very short-term creditor would likely be most

interested in a firm's ________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #80
Type: Concepts

81. Which of the following statements is true?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #81
Type: Concepts
82. A financial manager who needs to find out how long it
will take before their firm runs out of cash if no further
cash comes in should consider the ________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #82
Type: Concepts

83. In words, what does an equity multiplier of 2 mean?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #83
Type: Concepts

84. Which of the following could be calculated with the use

of only a statement of financial position?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #84
Type: Concepts

85. A Toronto firm has a times interest earned ratio of 2.7

times. This means:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
 Ross - Chapter 03 #85
Type: Concepts

86. The sales of SportCheck have increased recently and

inventory has declined slightly. A financial analyst
would expect to find that the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #86
Type: Concepts

87. Tellus and Rojers Corp. are close competitors. Last

year, both had the same level of cost of goods sold, but
Tellus turned its inventory over five times during the
year while Rojers Corp. turned its inventory over every
65 days. If the objective is to keep inventory as low as
possible (on average), which of the following is true?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #87
Type: Concepts

88. Conceptually, what does the days' sales in receivables

ratio measure for a firm?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #88
Type: Concepts
89. In addition to days' sales in receivables and days' sales
in inventory we could calculate "days' sales in
payables" by computing the accounts payable turnover
and dividing it into 365 days. In words, what do these
ratios tell us?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #89
Type: Concepts

90. In words, what does a total asset turnover of 1.5 times

mean?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #90
Type: Concepts

91. Which of the following is a correct interpretation of a

profit margin of 0.20?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #91
Type: Concepts
92. Which of the following would result in a lower profit
margin, all else the same?

I. A decrease in cost of goods sold.

II. A higher corporate tax rate.
III. Doubling the amount of long-term debt while
decreasing common equity by the same amount.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #92
Type: Concepts

93. If the total assets of a firm decrease while all other

components of ROE remain unchanged, you would
expect the firm's:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #93
Type: Concepts

94. When would the return on equity (ROE) definitely

equal the return on assets (ROA)?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #94
Type: Concepts
95. Which of the following is NOT a correct statement
about the price/earnings ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #95
Type: Concepts

96. Which of the following statements is false concerning

the use of accounting data versus market value data?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #96
Type: Concepts

97. Vendors providing trade credit to a firm tend to be most

interested in the firm's __________ ratios.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #97
Type: Concepts
98. If a firm is having difficulty controlling its operating
expenses, the trouble will be most directly reflected in
the firm's ________________ ratios.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #98
Type: Concepts

99. Which of the following is NOT incorporated into the

calculation of the Du Pont identity?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #99
Type: Concepts

100. Hilton Publishing and Jordan Publishing have identical

debt-equity ratios and profit margins. However, Hilton's
ROA is higher than Jordan's. Therefore, it must be true
that:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #100
Type: Concepts
101. Return on equity will increase if the
_________________.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #101
Type: Concepts

102. Which of the following is NOT a component of the Du

Pont identity?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #102
Type: Concepts

103. Which of the following does NOT correctly complete

this sentence: The financial statements of a company
___________________.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #103
Type: Concepts
104. Which of the following regarding financial statement
analysis is NOT correct?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #104
Type: Concepts

105. Which of the following is NOT a source of industry

benchmark information for Canadian companies?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #105
Type: Concepts

106. Which one of the following is a use of cash?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #106
Type: Concepts
107. Which of the following is (are) a source of cash?

I. An increase in accounts payable

II. A reduction in inventory
III. An increase in retained earnings
IV. An increase in notes payable

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #107
Type: Concepts

108. On the statement of cash flows, the change in current

assets is listed in the section entitled:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #108
Type: Concepts

109. Common sized statements:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #109
Type: Concepts
110. Which one of the following is a measure of liquidity?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #110
Type: Concepts

111. Which of the following is (are) a measure of long-term

solvency?

I. Total debt ratio

II. Cash coverage ratio
III. Price-earnings ratio
IV. Market-to-book ratio

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #111
Type: Concepts

112. The current ratio:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #112
Type: Concepts
113. The quick ratio:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #113
Type: Concepts

114. Which one of the following measures indicates how

long a firm can continue operating without any
additional cash inflows?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #114
Type: Concepts

115. Last year Mittel (Ottawa) had a total debt ratio of .31.
This year the total debt ratio is .33. Which one of the
following statements can be made with certainty based
on this information?

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #115
Type: Concepts
116. An equity multiplier of 1.64 means that for every $1 the
firm raises in new equity, the firm can:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #116
Type: Concepts

117. If a firm acquires more long-term debt while also

issuing additional shares of stock, then the:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #117
Type: Concepts

118. Creditors are most likely interested in the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #118
Type: Concepts

119. If the level of inventory rises, all else constant, then:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #119
Type: Concepts
120. An increase in the receivables turnover means that:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #120
Type: Concepts

121. A fixed asset turnover ratio of .72 means that:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #121
Type: Concepts

122. Which one of the following measures the efficiency

with which a firm uses it resources to generate sales?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #122
Type: Concepts

123. A reduction in interest expense, all else constant, will

cause a(n):

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #123
Type: Concepts
124. Last year a Vancouver firm had a profit margin of 7%.
This year the profit margin is 6%. Sales remained
constant. Which one of the following statements is
correct based on this information?

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #124
Type: Concepts

125. Stockholders are most interested in the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #125
Type: Concepts

126. Aircraft Canada expects sales and net income to remain

constant next year. If Aircraft Canada wishes to
increase its earnings per share figures, then Aircraft
Canada could:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #126
Type: Concepts
127. A price earnings ratio of 14 means that:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #127
Type: Concepts

128. Which one of the following is true concerning the

market-to-book ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #128
Type: Concepts

129. Which one of the following will increase the return on

equity as computed using the Du Pont identity given
that all else is held constant?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #129
Type: Concepts
130. Financial statement analysis provides useful
information to which of the following parties?

I. Creditors
II. Investors
III. Internal division managers
IV. Senior corporate officers

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #130
Type: Concepts

131. A decrease in which one of the following is a source of

cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #131
Type: Concepts

132. Which one of the following transactions is a use of

cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #132
Type: Concepts
133. Which of the following are uses of cash?

I. reduction in long-term debt

II. increase in the number of shares of stock outstanding
III. decrease in inventory
IV. increase in net fixed assets

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #133
Type: Concepts

134. Which one of the following is found in the operating

activity section of a statement of cash flows?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #134
Type: Concepts

135. According to the statement of cash flows, an increase in

inventory will _____ the cash flow from _____
activities.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #135
Type: Concepts
136. Which one of the following formulas represents an
asset utilization ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #136
Type: Concepts

137. Leaf, Inc. of Kingston has a fixed asset turnover rate of

2.26 and a total asset turnover rate of 1.13. From this
information, you know that the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #137
Type: Concepts

138. Peter's Pool House has an interval measure of 51. This

means that the Pool House has:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #138
Type: Concepts
139. Which of the following statements are correct?

I. The equity multiplier is equal to 1 plus the debt-

equity ratio.
II. Return on equity is equal to the return on assets
multiplied by the equity multiplier.
III. Return on equity is equal to total equity divided by
net income.
IV. Return on equity is equal to the equity multiplier
multiplied by the total asset turnover multiplied by the
profit margin.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #139
Type: Concepts

140. When you compare the current quick ratio for a firm to
the firm's quick ratio from prior periods, you are
conducting _____ analysis.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #140
Type: Concepts

141. An increase in which one of the following is a source of

cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #141
Type: Concepts
142. Which of the following is (are) sources of cash?

I. an increase in accounts receivable

II. a decrease in common stock
III. an increase in long-term debt
IV. a decrease in accounts payable

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #142
Type: Concepts

143. Which one of the following is a use of cash?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #143
Type: Concepts

144. Which of the following is (are) uses of cash?

I. Payment of a note payable

II. Repurchase of common stock
III. Granting of credit to a customer
IV. Sale of a fixed asset

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #144
Type: Concepts
145. Which one of the following is found in the financing
activity section of a statement of cash flows?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #145
Type: Concepts

146. According to the statement of cash flows, an increase in

accounts receivable will _____ the cash flow from
_____ activities.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #146
Type: Concepts

147. Which of the following are types of activities shown on

a statement of cash flows?

I. Investment
II. Liquidating
III. Operating
IV. Financing

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #147
Type: Concepts
148. On a common-size statement of financial position, all
_____ accounts are shown as a percentage of _____.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #148
Type: Concepts

149. On a common-base year financial statement, all

accounts are expressed relative to the base:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #149
Type: Concepts

150. Which one of the following statements is correct

concerning ratio analysis?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #150
Type: Concepts
151. Which of the following are liquidity ratios?

I. Interval measure
II. Current ratio
III. Quick ratio
IV. Net working capital to total assets

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #151
Type: Concepts

152. An increase in which one of the following accounts

increases a firm's current ratio without affecting its
quick ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #152
Type: Concepts

153. A supplier, who requires payment within ten days, is

most concerned with which one of the following ratios
when granting credit?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #153
Type: Concepts
154. A Halifax firm has an interval measure of 83. This
means that the firm must:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #154
Type: Concepts

155. A firm has a total debt ratio of .47. This means that that
firm has 47 cents in debt for every:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #155
Type: Concepts

156. The long-term debt ratio is probably of most interest to

a firm's:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #156
Type: Concepts
157. A Toronto banker considering loaning money to a firm
for ten years would most likely prefer the firm have a
debt ratio of _____ and a times interest earned ratio of
_____.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #157
Type: Concepts

158. From a cash flow position, which one of the following

ratios best measures a firm's ability to pay the interest
on its debts?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #158
Type: Concepts

159. The higher the inventory turnover measure, the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #159
Type: Concepts
160. Which one of the following statements is correct if a
firm has a receivables turnover measure of 10?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #160
Type: Concepts

161. A total asset turnover measure of 1.03 means that a firm

has $1.03 in:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #161
Type: Concepts

162. When a firm wishes to increase its net working capital

turnover rate, it should _____, all else constant.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #162
Type: Concepts
163. Bob's Toys has a fixed asset turnover rate of 1.2 and a
total asset turnover rate of .84. Gerold's Toys has a
fixed asset turnover rate of 1.1 and a total asset turnover
rate of .96. Both companies have similar operations.
Bob's Toys:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #163
Type: Concepts

164. Puffy's Pastries generates five cents of net income for

every $1 in sales. Thus, Puffy's has a _____ of 5
percent.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #164
Type: Concepts

165. If a firm produces a 10 percent return on assets and also

a 10 percent return on equity, then the firm:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #165
Type: Concepts
166. If shareholders want to know how much profit a firm is
making on their entire investment in the firm, the
shareholders should look at the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #166
Type: Concepts

167. BD Hydro increases its operating efficiency such that

costs decrease while sales remain constant. As a result,
given all else constant, the:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #167
Type: Concepts

168. The only difference between Joe's and Moe's is that

Joe's has old, fully depreciated equipment. Moe's just
purchased all new equipment which will be depreciated
over eight years. Assuming all else equal:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #168
Type: Concepts
169. Last year, New Flying Industries had a price-earnings
ratio of 15. This year, the price earnings ratio is 18.
Based on this information, it can be stated with
certainty that:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #169
Type: Concepts

170. Second Cups has a price-earnings ratio of 16. Tam

Hortons has a price-earnings ratio of 19. Thus, you can
state with certainty that one share of stock in Tam
Hortons':

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #170
Type: Concepts

171. Which two of the following are most apt to cause a firm
to have a higher price-earnings ratio?

I. Slow industry outlook

II. High prospect of firm growth
III. Very low current earnings
IV. Investors with a low opinion of the firm

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #171
Type: Concepts
172. Vinnie's Motors of Winnipeg has a market-to-book ratio
of 3. The book value per share is $4.00. This means that
a $1 increase in the book value per share will:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #172
Type: Concepts

173. Which one of the following sets of ratios applies most

directly to shareholders?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #173
Type: Concepts

174. The three parts of the Du Pont identity can be generally

described as:

I. Operating efficiency, asset use efficiency and firm

profitability.
II. Financial leverage, operating efficiency and asset use
efficiency.
III. The equity multiplier, the profit margin and the total
asset turnover.
IV. The debt-equity ratio, the capital intensity ratio and
the profit margin.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #174
Type: Concepts
175. If a firm decreases its operating costs, all else constant,
then:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #175
Type: Concepts

176. Which one of the following statements is correct?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #176
Type: Concepts

177. It is easier to evaluate a firm using its financial

statements when the firm:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #177
Type: Concepts
178. Which two of the following represent the most effective
methods of directly evaluating the financial
performance of a firm?

I. Comparing the current financial ratios to those of the

same firm from prior time periods
II. Comparing a firm's financial ratios to those of other
firms in the firm's peer group who have similar
operations
III. Comparing the financial statements of the firm to
the financial statements of similar firms operating in
other countries
IV. Comparing the financial ratios of the firm to the
average ratios of all firms located in the same
geographic area

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #178
Type: Concepts

179. Which of the following represent problems encountered

when comparing the financial statements of one firm
with those of another firm?

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 for
inventory purposes.
IV. The two firms may be seasonal in nature and have
different fiscal year ends.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #179
Type: Concepts
180. CCI Group Inc. (Toronto) has a current ratio of 1.1.
This implies that if the firm liquidates its current assets
in order to pay off its current liabilities, it can sell the
current assets for as little as:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #180
Type: Problems

181. Assume a firm's current ratio equals 3.1. Which of the

following actions would increase it?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #181
Type: Problems

182. A Montreal firm has current liabilities of $250, a

current ratio of 1.2, and a quick ratio of 0.81. Calculate
the level of inventory for this firm.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #182
Type: Problems
183. Danny D.Inc. had cost of goods sold of $5,200, net
working capital of $120, total current assets of $600,
and a quick ratio of 0.1. What is Danny D's days' sales
in inventory?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #183
Type: Problems

184. Calculate the value of cost of goods sold for Molsons

Brewing Company given the following information:
Current liabilities = $340,000; Quick ratio = 1.8;
Inventory turnover = 4.0; Current ratio = 3.3.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #184
Type: Problems

185. CatchaTan Co. of British Columbia had net sales of

$800,000 over the past year. During that time, average
receivables were $200,001. What was the average
collection period?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #185
Type: Problems
186. Martin's Method Acting School has a current ratio of 2,
a quick ratio of 1.8, net income of $180,000, a profit
margin of 10%, and an accounts receivable balance of
$150,001. What is the firm's average collection period?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #186
Type: Problems

187. Atlasta Limo Corp. has an average collection period of

36.5 days. Sales are $300,001. What is the average
investment in receivables?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #187
Type: Problems

188. If a firm has a total debt ratio of 0.5, what is its equity
multiplier?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #188
Type: Problems
189. Tron, Inc. of Guelph has a times interest earned ratio of
4.1. Based on this ratio, a creditor knows that Tron's
EBIT must decline by more than __________ before
Tron will be unable to cover its interest expense.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #189
Type: Problems

190. A small local company has net income of $200, interest

expenses of $50, and depreciation of $51. The corporate
tax rate is 50%. What is the cash coverage ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #190
Type: Problems

191. A firm has an ROA of 8%, sales of $100, and total

assets of $71. What is its profit margin?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #191
Type: Problems
192. You have the following data for the Fosberg Winery of
St Catherines. What is Fosberg's return on assets
(ROA)? Return on equity = 15%; Earnings before taxes
= $30,000; Total asset turnover = 0.80; Profit margin =
4.5%; Tax rate = 35%.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #192
Type: Problems

193. A firm has a total book value of equity of $2 million, a

market to book ratio of 2, and a book value per share of
$5.01. What is the total market value of the firm's
equity?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #193
Type: Problems

194. Jorge Corp. of North Bay has 100,000 shares

outstanding. EBIT is $1 million and interest paid is
$200,001. If the corporate tax rate is 34%, what is
Jorge's earnings per share?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #194
Type: Problems
195. Etling Eccentricities has 400,000 shares of common
stock outstanding, net income after tax of $1.2 million,
retained earnings of $17 million, and total equity of $35
million. What is EE's earnings per share?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #195
Type: Problems

196. A Waterloo firm with net income of $500,000 pays 48%

of net income out in dividends. If the firm has 150,000
shares of common stock outstanding, what is the
dividend paid per share of stock?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #196
Type: Problems

197. Given a profit margin = 10%, ROE = 20%, D/E = 1.5,

and assets = $200, calculate sales.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #197
Type: Problems
198. A firm has sales of $500, total assets of $300, and a
debt/equity ratio of 1. If its return on equity is 15%,
what is its net income?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #198
Type: Problems

Ross - Chapter 03
199. What is the current ratio for Young in 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #199
Type: Problems

200. What is the quick ratio for Young for 2008?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #200
Type: Problems

201. What is the total debt ratio for Young for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #201
Type: Problems

202. What is the debt-equity ratio for 2008?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #202
Type: Problems
203. What is the times interest earned ratio for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #203
Type: Problems

204. What is the cash coverage ratio for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #204
Type: Problems

205. What was inventory turnover for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #205
Type: Problems

206. What was the average collection period for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #206
Type: Problems
207. What was the total asset turnover in 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #207
Type: Problems

208. What was the profit margin in 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #208
Type: Problems

209. What was the return on equity for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #209
Type: Problems

210. If Young stock sells for $40 and there are 100 million
shares outstanding, what is the P/E ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #210
Type: Problems
211. A firm has a debt-equity ratio of .56. What is the total
debt ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #211
Type: Problems

Ross - Chapter 03
212. What was the greatest source of funds for Bo Knows
Profit Corp.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #212
Type: Problems

213. What was the greatest use of funds for Bo Knows Profit
Corp.?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #213
Type: Problems

214. If you prepare a statement of cash flows, what is the

positive flow to cash from operating activities?
(Consider only inflows)

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #214
Type: Problems
215. If you were to prepare a statement of cash flows, what
is the negative flow from cash due to operating
activities? (Consider only outflows)

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #215
Type: Problems

216. If you were to prepare a statement of cash flows, what

is the cash flow from investment activities?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #216
Type: Problems

217. If you were to prepare a statement of cash flows, what

is the net cash flow from financing activities?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #217
Type: Problems
218. What was the quick ratio for Bo Knows Profit Corp. for
2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #218
Type: Problems

219. If cash inflows for the company cease, the firm will be
able to stay in business for about:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #219
Type: Problems

220. If the firm is currently carrying a price/earnings ratio of

2, what is the firm's approximate market price per
share?

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #220
Type: Problems
221. Which of the following contains the components of the
Du Pont identity for the company? Use year-end 2009
values where appropriate.

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #221
Type: Problems

222. Based on the information provided above, what was the

firm's tax rate in 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #222
Type: Problems
 Ross - Chapter 03

223. How did Marble Comics' net working capital to total

assets ratio change from 2008 to 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #223
Type: Problems
224. Which of Marble Comics' liquidity measures increased
from 2008 to 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #224
Type: Problems

225. What was Marble Comics' total debt ratio in 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #225
Type: Problems

226. Marble Comics' times interest earned ratio is:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #226
Type: Problems

227. Assume Marble Comics' days' sales in inventory ratio

was 120 days in 2001. By how much did it change in
2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #227
 Type: Problems

228. The profit margin of Marble Comics Group is:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #228
Type: Problems

229. Calculate Marble Comics' ROE for 2009.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #229
Type: Problems

230. Sales are $75,000, cost of goods sold is $35,000 and

inventory is $5,000. What is the number of days sales in
inventory?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #230
Type: Problems
231. Cash is $500, inventory is $4,800, accounts receivable
is $3,200 and accounts payable is $2,400. What is the
quick ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #231
Type: Problems

232. Earnings before interest and taxes is $74,300. Interest is

$8,300 and depreciation is $9,700. What is the cash
coverage ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #232
Type: Problems

233. Current assets are $94,700. Accounts payable is

$36,200, net income is $12,400 and sales are $110,800.
What is the net working capital turnover rate?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #233
Type: Problems
234. A firm has a profit margin of 9% on sales of $400,000.
There are 10,000 shares of common stock outstanding.
What is the earnings per share?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #234
Type: Problems

235. A London Ontario firm has a net income of $32,000

which provides a 12% return on assets. The firm has a
debt-equity ratio of .40. What is the return on equity?

A.
B.
C.
D.
E.
Difficulty: Challenge
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #235
Type: Problems

236. Little's Inc. provides a 10% return on equity. Sales are

$100,000 on total assets of $140,000 and total equity of
$85,000. What is the profit margin?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #236
Type: Problems
 Ross - Chapter 03

237. What is the current ratio for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #237
Type: Problems
238. What is the equity multiplier for 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #238
Type: Problems

239. What is the days' sales in receivables for 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #239
Type: Problems

240. What is the change in net working capital?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #240
Type: Problems

241. What is the net working capital turnover rate for 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #241
Type: Problems
242. What is the cash coverage ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #242
Type: Problems

243. What is the market-to-book ratio if the Smith Co. has

2,603 shares of common stock outstanding with a
current market price of $22 per share?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #243
Type: Problems

244. On a common size statement of comprehensive income

for 2009, earnings before interest and taxes would be
assigned a common value of:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #244
Type: Problems
 Ross - Chapter 03

245. The industry in which RTF, Inc. operates has an

industry average of 21% for earnings before taxes. Is
RTF outperforming or underperforming the industry
and why?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #245
Type: Problems
246. The component values used in the Du Pont analysis for
2009 are:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #246
Type: Problems

247. During 2009, the quick ratio:

A.
B.
C.
D.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #247
Type: Problems

248. What was the change in the debt-equity ratio from 2008
to 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #248
Type: Problems

249. How many days does it take for inventory to sell?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #249
Type: Problems
250. How many additional assets can RTF, Inc. acquire if the
company issues an additional $1,000 in common
stock?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #250
Type: Problems

Ross - Chapter 03
251. The sources of cash include:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #251
Type: Problems

252. The uses of cash include:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #252
Type: Problems

253. The net cash from financing activity for 2009 is:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #253
Type: Problems

254. The net cash from investment activity for 2009 is:

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #254
Type: Problems
255. A Quebec City firm has a debt-equity ratio of .65. From
this, you can determine that the firm has _____ in assets
for every $1 in equity.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #255
Type: Problems

256. Cora Operation has an inventory turnover of 121 and a

receivables turnover of 36. This means that it takes
_____ days for the firm to sell its inventory and collect
payment for that sale.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #256
Type: Problems

257. Gwen's Pastry Shop has annual sales of $238,000, a

profit margin of 6 percent, and a return on assets of 7.7
percent. The firm has _____ in total assets.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #257
Type: Problems
258. Stephen's Auto Body Shop (Oshawa) has a debt-equity
ratio of .6, a total asset turnover of 1.43, and a profit
margin of 5 percent. The firm has a return on assets of
_____ percent and a return on equity of _____ percent.

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #258
Type: Problems

259. Julie's Market Place has earnings per share of $.35, a

book value of $2.10 per share, and a market-to-book
ratio of 3. What is the firm's price-earnings ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #259
Type: Problems

260. During the year, Douglass Industries decreased the

accounts receivable by $230, decreased the inventory
by $150, and increased the accounts payable by $110.
These three changes represent a _____ of cash.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #260
Type: Problems
261. Curly Industries generated net income of $980 for the
year. The depreciation expense was $120 and dividends
paid were $250. The accounts payable decreased by
$60, accounts receivable decreased by $20, inventory
increased by $80, and net fixed assets increased by
$360. What is the net cash flow from operating
activity?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #261
Type: Problems

262. Water Forms, Inc. has sales of $268,900, net income of

$34,800, net fixed assets of $146,700, and current
assets of $98,200. The firm has $46,900 in inventory.
What is the common-size statement value of
inventory?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #262
Type: Problems

263. In the base year, Marley Enterprises of Vancouver had

cash of $560, accounts receivable of $2,650, inventory
of $4,680, and fixed assets of $12,600. This year the
firm has cash of $630, accounts receivable of $3,280,
inventory of $5,101, and fixed assets of $15,850. What
is the common-base year value of the inventory?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #263
Type: Problems
264. Larry's Lounge has cash of $1,670, accounts receivable
of $610, accounts payable of $2,900, and inventory of
$3,690. What is the value of the quick ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #264
Type: Problems

265. Smith & Sons has a debt-equity ratio of .55. What is the
total debt ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #265
Type: Problems

266. Swenson Motors has total debt of $682,400 and a debt-

equity ratio of .65. What is the value of the total assets?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #266
Type: Problems
267. Life Industries has sales of $46,230, costs of goods sold
of $27,742.50, inventory of $675, and accounts
receivable of $2,300. How many days, on average, does
it take Life Industries to sell the inventory and collect
the payment on the sale?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #267
Type: Problems

268. Nu Plastics has accounts receivable of $6,400,

inventory of $11,600, cash of $1,300, accounts payable
of $8,800, sales of $117,600, and cost of goods sold of
$89,300. What is the net working capital turnover rate?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #268
Type: Problems

269. Bentley and Moore has net working capital of $6,900,

net fixed assets of $86,100, sales of $156,000, and
current liabilities of $41,700. How many dollars worth
of sales are generated from every $1 in total assets?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #269
Type: Problems
270. Glen Acre Wines has sales of $682,100, total debt of
$285,000, total equity of $323,900, and a profit margin
of 8 percent. What is the return on assets?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #270
Type: Problems

271. Su Lee's has sales of $54,600, total assets of $56,100,

and a profit margin of 4 percent. The firm has a total
debt ratio of 30 percent. What is the return on equity?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #271
Type: Problems

272. Square D's has $42,700 in sales and a profit margin of

7.2 percent. There are 5,700 shares of stock outstanding
at a market price per share of $13.20. What is the price-
earnings ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #272
Type: Problems
273. Chadwick, Inc., has 125,000 shares of stock
outstanding, sales of $7.2 million, net income of
$600,000, a price-earnings ratio of 22, and a book value
per share of $36.30. What is the market-to-book ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #273
Type: Problems

274. Theodore's Corner Market has a debt-equity ratio of 60

percent, sales of $318,000, net income of $24,900, and
total debt of $112,500. What is the return on equity?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #274
Type: Problems

275. Sandwiches-To-Go has a return on equity of 12 percent

and a debt-equity ratio of .40. The total asset turnover is
1.63 and the profit margin is 5 percent. The total equity
is $21,400. What is the amount of the net income?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #275
Type: Problems
 Use the following statement of financial position and
statement of comprehensive income

Ross - Chapter 03

276. What is the net working capital to total assets ratio for
Bluebird for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #276
Type: Problems

277. What is the days' sales in inventory for Bluebird? (Use

average inventory.)

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #277
Type: Problems
278. What is the equity multiplier for Bluebird for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #278
Type: Problems

279. What is the return on equity for Bluebird for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #279
Type: Problems

280. Blue Bird, Inc. has 1,500 shares of stock outstanding.

The price-earnings ratio for 2009 is 21. What is the
market price per share of stock?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #280
Type: Problems

281. What is the net cash flow from financing activities for
2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
 Ross - Chapter 03 #281
Type: Problems

282. What is the net cash flow from investment activity for
2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #282
Type: Problems

283. Accounts payable for 2009 will have a value of _____

percent on the firm's common-size financial statement.

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #283
Type: Problems
 The following statement of financial position and
statement of comprehensive income should be used.

Ross - Chapter 03

284. How many dollars of sales are being generated by every

$1 that Woodburn has in total assets? (Use 2009 assets)

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #284
Type: Problems

285. What is Woodburn's total debt ratio for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #285
 Type: Problems

286. What is Woodburn's times interest earned ratio for

2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #286
Type: Problems

287. What is Woodburn's debt-equity ratio for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #287
Type: Problems

288. What is Woodburn's return on assets for 2009?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #288
Type: Problems

289. How will Woodburn's accounts receivable appear on the

statement of cash flows for 2009?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #289
 Type: Problems

290. Woodburn, Inc. has a profit margin of _____ percent, a

total asset turnover of _____, an equity multiplier of
_____, and a return on equity of _____ percent. (Use
2009 values.)

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #290
Type: Problems

291. Last year Ty's Grocery had inventory of $237,500 and

fixed assets of $51,400. This year, Ty's has inventory of
$231,900 and fixed assets of $48,700. Depreciation for
this year is $6,300. Which one of the following
statements is true given this information?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #291
Type: Problems

292. During the year, Doug's Bakery decreased its accounts

receivable by $50, increased its inventory by $100, and
decreased its accounts payable by $50. For these three
accounts, the firm has a net:

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #292
Type: Problems
293. A Halifax firm generates net income of $530. The
depreciation expense is $60 and dividends paid are $80.
Accounts payable decrease by $40, accounts receivable
decrease by $30, inventory increases by $20, and net
fixed assets decrease by $40. What is the net cash from
operating activity?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #293
Type: Problems

294. A firm has sales of $1,500, net income of $100, total

assets of $1,000, and total equity of $700. Interest
expense is $50. What is the common-size statement
value of the interest expense?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #294
Type: Problems

295. Last year, which is used as the base year, a firm had
cash of $60, accounts receivable of $100, inventory of
$200, and fixed assets of $500. This year the firm has
cash of $50, accounts receivable of $150, inventory of
$250, and fixed assets of $550. What is the common-
base year value of accounts receivable?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #295
Type: Problems
296. Sing Lee's has accounts payable of $300, inventory of
$250, cash of $50, fixed assets of $500, accounts
receivable of $200, and long-term debt of $400. What is
the value of the net working capital to total assets
ratio?

A.
B.
C.
D.
E.
Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #296
Type: Problems

297. Rosita's Resources paid $250 in interest and $130 in

dividends last year. The times interest earned ratio is 3.8
and the depreciation expense is $60. What is the value
of the cash coverage ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #297
Type: Problems

298. Syed's Industries has accounts receivable of $700,

inventory of $1,200, sales of $4,200, and cost of goods
sold of $3,400. How long does it take Syed's to both
sell its inventory and then collect the payment on the
sale?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #298
Type: Problems
299. Freda's, Inc. has sales of $3,200, current liabilities of
$900, total assets of $3,000, and net working capital of
$500. How many dollars worth of sales are generated
from every $1 in net fixed assets?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #299
Type: Problems

300. Patti's has net income of $1,800, a price-earnings ratio

of 12, and earnings per share of $1.20. How many
shares of stock are outstanding?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #300
Type: Problems

301. A firm has 5,000 shares of stock outstanding, sales of

$6,000, net income of $800, a price-earnings ratio of
10, and a book value per share of $.50. What is the
market-to-book ratio?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #301
Type: Problems
302. Frederico's has a profit margin of 6 percent, a return on
assets of 8 percent, and an equity multiplier of 1.4.
What is the return on equity?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #302
Type: Problems

303. Rojers Communications Inc. sells for $34.50 and there

are 605 million shares outstanding at the end of 2009.
Based on the 2009 annual report, EBIT is $2,024
million, net income is $1,002 million, and depreciation
is $1,760 million. What is the Enterprise Multiple?

A.
B.
C.
D.
E.
Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #303
Type: Problems

304. During the year, The Train Stop decreased its accounts
receivable by $60, increased its inventory by $130, and
decreased its accounts payable by $20. For these three
accounts, the firm has a net:

A.
B.
C.
D.
E.

Net cash flow = +$60 - $130 - $20 = -$90, which is a

use of cash

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #304
Type: Problems
305. Margo's Dress Shoppe had the following values as of
the end of last year and the end of this year. Which of
the following are sources of cash for the year?

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #305
Type: Problems

306. A Vancouver firm has sales of $1,640, net income of

$135, net fixed assets of $1,200, and current assets of
$530. The firm has $280 in inventory. What is the
common-size statement value of inventory?

A.
B.
C.
D.
E.

Common-size inventory = $280 ($1,200 + $530)

= .1618497 = 16.18 percent

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #306
Type: Problems
307. Last year, which is used as the base year, a firm had
cash of $46, accounts receivable of $132, inventory of
$319, and net fixed assets of $640. This year, the firm
has cash of $52, accounts receivable of $147, inventory
of $312, and net fixed assets of $576. What is the
common-base year value of accounts receivable?

A.
B.
C.
D.
E.

Common-base year accounts receivable = $147

$132 = 1.11

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #307
Type: Problems

308. Monika's Gift Barn has cash of $316, accounts

receivable of $687, accounts payable of $709, and
inventory of $2,108. What is the value of the quick
ratio?

A.
B.
C.
D.
E.

Quick ratio = ($316 + $687) $709 = 1.41

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #308
Type: Problems
309. Jeminson's Hardware has accounts payable of $682,
inventory of $3,608, cash of $340, fixed assets of
$4,211, accounts receivable of $418, and long-term
debt of $3,750. What is the value of the net working
capital to total assets ratio?

A.
B.
C.
D.
E.

Net working capital to total assets = ($340 + $418 +

$3,608 - $682) ($340 + $418 + $3,608 + $4,211)
= $3,684 $8,577 = .4295 = .43

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #309
Type: Problems

310. A Victoria firm has total assets of $126,740 and net

fixed assets of $82,408. The average daily operating
costs are $1,211. What is the value of the interval
measure?

A.
B.
C.
D.
E.

Interval measure = ($126,740 - $82,408) $1,211 =

36.6078 = 36.61 days

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #310
Type: Problems
311. A Vancouver firm has a debt-equity ratio of .56. What is
the total debt ratio?

A.
B.
C.
D.
E.

The debt-equity ratio is .56. Thus, if total debt is $56,

total equity is $100, and total assets are $156. Total debt
ratio = $56 $156 = .3590 = .36

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #311
Type: Problems

312. A firm has total debt of $1,850 and a debt-equity ratio

of .64. What is the value of the total assets?

A.
B.
C.
D.
E.

Total equity = $1,850 .64 = $2,890.625; Total

assets = $1,850 + $2,890.625 = $4,740.625 = $4,740.63

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #312
Type: Problems
313. A Kingston firm has sales of $49,800, costs of $36,100,
interest paid of $380, and depreciation of $3,200. The
tax rate is 35 percent. What is the value of the cash
coverage ratio?

A.
B.
C.
D.
E.

Cash coverage ratio = ($49,800 - $36,100) $380 =

36.05

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #313
Type: Problems

314. Herman's Bar and Grill paid $1,618 in interest and $265
in dividends last year. The times interest earned ratio is
1.9 and the depreciation expense is $50. What is the
value of the cash coverage ratio?

A.
B.
C.
D.
E.

EBIT = 1.9 × $1,618 = $3,074.20; Cash coverage ratio

= ($3,074.20 + $50) $1,618 = 1.93

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #314
Type: Problems
315. Big Foot Wholesalers has sales of $1,387,400, costs of
goods sold of $891,400, inventory of $188,936, and
accounts receivable of $94,800. How many days, on
average, does it take the firm to sell its inventory
assuming that all sales are on credit?

A.
B.
C.
D.
E.

Inventory turnover = $891,400 $188,936 = 4.718;

Days in inventory = 365 4.718 = 77.4 days

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #315
Type: Problems

316. Qwik Stop has accounts receivable of $4,830, inventory

of $9,083, sales of $38,600, and cost of goods sold of
$21,400. How many days does it take the firm to both
sell their inventory and collect the payment on the
sale?

A.
B.
C.
D.
E.

Days in inventory = 365 ($21,400 $9,083) =

154.92 days; Days' sales in receivables = 365
($38,600 $4,830) = 45.67 days; Total days in
inventory and receivables = 154.92 + 45.67 = 200.59
days = 201 days

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #316
Type: Problems
317. A Kinston firm has net working capital of $2,580, net
fixed assets of $13,120, sales of $22,580, and current
liabilities of $1,610. How many dollars worth of sales
are generated from every $1 in total assets?

A.
B.
C.
D.
E.

Total asset turnover = $22,580 ($2,580 + $13,120

+ $1,610) = 1.30; Every $1 in total assets generates
$1.30 in sales.

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #317
Type: Problems

318. Gateway Lodging has annual sales of $1.22 million,

total debt of $380,000, total equity of $750,000, and a
profit margin of 7.45 percent. What is the return on
assets?

A.
B.
C.
D.
E.

Return on assets = (.0745 × $1,220,000)

($380,000 + $750,000) = $90,890 $1,130,000
= .08043 = 8.04 percent

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #318
Type: Problems
319. Baker's Used Autos has sales of $638,400, total assets
of $524,200, and a profit margin of 9.8 percent. The
firm has a total debt ratio of 35 percent. What is the
return on equity?

A.
B.
C.
D.
E.

Return on equity = (.098 × $638,400) [$524,200 ×

(1 - .35)] = $62,563.20 $340,730 = .18362 = 18.36
percent

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #319
Type: Problems

320. Katrina's Fury has $697,400 in sales. The profit margin

is 3.4 percent and the firm has 12,500 shares of stock
outstanding. The market price per share is $33. What is
the price-earnings ratio?

A.
B.
C.
D.
E.

Earnings per share = (.034 × $697,400) 12,500

= .1.89693; Price-earnings ratio = $33.00 1.89693
= 17.3965 = 17.4

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #320
Type: Problems
321. Patti's Pizza has net income of $218,490, a price-
earnings ratio of 14.6, and earnings per share of $1.32.
How many shares of stock are outstanding?

A.
B.
C.
D.
E.

Number of shares = $218,490 $1.32 = 165,522.73

= 165,523

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #321
Type: Problems

322. A Calgary firm has 11,000 shares of stock outstanding,

sales of $1.62 million, net income of $20,020, a price-
earnings ratio of 21.6, and a book value per share of
$8.64. What is the market-to-book ratio?

A.
B.
C.
D.
E.

Earnings per share = $20,020 11,000 = $1.82;

Price per share = $1.82 × 21.6 = $39.312;Market-to-
book ratio = $39.312 $8.64 = 4.55

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #322
Type: Problems
323. The Furniture Barn has a profit margin of 8.7 percent, a
return on assets of 11.6 percent, and an equity
multiplier of 1.87. What is the return on equity?

A.
B.
C.
D.
E.

Return on equity = 11.6 percent × 1.87 = 21.69 percent,

using the Du Pont Identity

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #323
Type: Problems

324. Taylor's Men's Wear has a debt-equity ratio of 55

percent, sales of $587,000, net income of $63,400, and
total debt of $196,000. What is the return on equity?

A.
B.
C.
D.
E.

Return on equity = $63,400 ($196,000 .55) =

.17791 = 17.79 percent

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #324
Type: Problems
325. An Edmonton firm has a debt-equity ratio of 62
percent, a total asset turnover of 1.39, and a profit
margin of 7.8 percent. The total equity is $672,100.
What is the amount of the net income?

A.
B.
C.
D.
E.

Using the Du Pont identity: Total assets = (1 + .62) ×

$672,100 = $1,088,802; Total sales = $1,088,802 × 1.39
= $1,513,434.78; Net income = $1,513,434.78 × .078 =
$118,048

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #325
Type: Problems

326. Given the following information, calculate sales value.

Total asset turnover 0.80; total liabilities $5,000; total
equity $5,000.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #326
Type: Problems
327. Calculate net working capital turnover given the
following data. Total fixed assets $200,000; long-term
liabilities $55,000; total liabilities $80,000; total
shareholders' equity $220,000; total sales $800,000.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #327
Type: Problems
328. Calculate net working capital turnover given the
following data. Total fixed assets $400,000; long-term
liabilities $155,000; total liabilities $280,000; total
shareholders' equity $320,000; net working capital
turnover 20

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #328
Type: Multiple Choice
329. Calculate total current assets given the following
information. Cash $10,000; supplies $3,000; average
collection period 54.75 days; days' sales in inventory
91.25 days; sales $80,000; COGS $60,000.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #329
Type: Problems
330. Calculate cash given the following information. Total
current assets $57,000; supplies $4,000; average
collection period 60.83 days; days' sales in inventory
97.33 days; sales 90,000; cost of goods sold 75,000.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #330
Type: Problems
331. Calculate depreciation expense given the following
information. Interest expense $2,000; times interest
earned 5; cash coverage ratio 5.5.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #331
Type: Problems
332. How would a $5,000 increase in AR and a $2,000
decrease in inventory affect cash?

A.
B.
C.
D.
E.

If AR increases, it lowers cash indirectly. Conversely, if

Inventory is reduced cash increases due to sale of
inventory.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #332
Type: Concepts

333. How would a $15,000 decrease in AR and a $8,000

increase in inventory affect cash?

A.
B.
C.
D.
E.

If AR decreases, it increases cash indirectly.

Conversely, if Inventory is increased cash decreases due
to inventory not being sold.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #333
Type: Concepts
334. Ajax Company has a debt-equity ratio of 0.75. Return
on assets is 9.5 percent. What is the return on equity?

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #334
Type: Problems

335. Bandras Company has a debt-equity ratio of 0.85.

Return on assets is 10.5 percent. What is the return on
equity?

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #335
Type: Problems
336. Using the Du Pont Identity Method, calculate return on
equity given the following information. Profit margin
16%; total asset turnover 0.85; equity multiplier 1.5.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #336
Type: Problems

337. Using the Du Pont Identity Method, calculate return on

equity given the following information. Profit margin
18%; total asset turnover 0.70; equity multiplier 1.1.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #337
Type: Problems
338. Using the Du Pont Identity Method, calculate the equity
multiplier given the following information. Profit
margin 17%; total asset turnover 0.88; return on equity
17.95%.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #338
Type: Problems
339. Using the Du Pont Identity Method, calculate the equity
multiplier given the following information. Profit
margin 19%; total asset turnover 1.5; return on equity
37.05%.

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #339
Type: Problems
340. The Frasier Company has a long-term debt ratio of 0.5
and a current ratio of 1.3. Current liabilities are $900,
sales are $6,000, profit margin is 10%, and ROE is
19&. What is the amount of the firm's net fixed assets?

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #340
Type: Problems
341. The Frasier Company has a long-term debt ratio of 0.5
and a current ratio of 1.3. Current liabilities are $900,
sales are $6,000, profit margin is 10%, and ROE is
19&. What is the amount of the firm's net fixed assets?

A.
B.
C.
D.
E.

Difficulty: Intermediate
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #341
Type: Problems
342. Dun & Bradstreet Canada publishes peer group
financial information for a host of industries, yet the
numbers typically only appear in common-size form.
Why not report average dollar amounts instead?

The common-size numbers are inherently more useful

since they can be directly compared to the financial
statements of any firm. If average dollar figures were
presented, these numbers would have to be converted to
common-size numbers to facilitate comparisons. Plus,
since D&B Canada also publishes average sales and
average total assets, the user can always work
backwards to figure out the dollar amounts represented
by each category.

Difficulty: Challenge
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #342
Type: Essay
343. Prepare common-size statement of financial positions
for Marble Comics using the data below. Comment on
the firm's liquidity.

This is a relatively straightforward exercise to test the

students' ability to construct a common-size statement
of financial position. In terms of liquidity, both cash
and AR increased as a percent of total assets, (while
inventory decreased, indicating the firm's liquidity is on
the increase) In addition, total CA increased and total
CL decreased as a percent of total assets, again
increasing the firm's liquidity.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #343
Type: Essay
344. List and interpret three liquidity ratios.

Choose any three of:

1) Current ratio: the firm's ability to meet its financial

obligations as they come due over the coming year,
2) Quick ratio: the firm's ability to meet its near-term
financial obligations,
3) Cash ratio: the firm's ability to meet its near-term
financial obligations without depending on the
liquidation of inventory or accounts receivable,
4) Net working capital to total assets: The firm's
investment in NWC for each dollar of assets, and
5) Interval measure: The amount of time a firm can
operate if no further sales are made.

Difficulty: Basic
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #344
Type: Essay

345. A firm has days' sales in inventory of 105 days, an

average collection period of 35 days, and takes 42 days,
on average, to pay its accounts payable. Taken together,
what do these three figures imply about the firm's
operations and its cash flows?

It takes, on average, 105 days to sell inventory once it is

purchased by the firm, then it takes another 35 days to
collect on the receivables. Thus, the firm must finance
the inventory and receivables for 140 days. The first 42
days are financed with payables, on average, leaving 98
days worth of inventory and receivables that it must
finance using other sources. In terms of cash flow, the
average cash outflow occurs 42 days after inventory is
purchased while the average cash inflow occurs 98 days
later, 140 days after the inventory is purchased.

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #345
Type: Essay
346. What is a more meaningful measure of profitability for
a firm, return on assets or return on equity? Why?

Most would argue ROE since it measures returns

relative to the amount of money shareholders have
invested in the firm. In addition, since shareholder
wealth maximization is a firm's primary goal, it makes
more sense to look at this measure.

Difficulty: Basic
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #346
Type: Essay

347. Suppose you calculated the following ratio for a firm:

The sum of the compensation paid to owners, directors,
and managers, divided by total sales. Which class of
financial ratios should this be included in and why?
Who might be interested in such a ratio?

This doesn't fit well into any of the five categories

presented in the book although it would most likely be
included as a profitability ratio because it is a measure
of how much of each dollar in sales is used to pay these
salaries. The ratio would likely be important to all of
the three groups (owners, directors, managers) included
in the ratio, plus it would likely be important to lenders
as a measure of how much of the firm's income these
groups draw out of the business.

Difficulty: Challenge
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #347
Type: Essay

348. It is often said that anyone with a pencil can calculate

financial ratios, but it takes a brain to interpret them.
What kinds of things should the analyst keep in mind
when evaluating the financial statements of a given
firm?

This question is totally open-ended, and allows students

to call into play knowledge gleaned from other courses,
this course, and personal experience.

Difficulty: Challenge
 Learning Objective: 03-04 The determinants of a firms profitability.
Ross - Chapter 03 #348
Type: Essay

349. The Vice President of Finance of Alpha, Inc. wants to

improve the current ratio on the company's next
financial statement. Explain what he/she can
legitimately do now to help accomplish this goal.
Provide specific examples in your answer.

Some examples of actions that could be taken to

improve the current ratio include:

a. Selling long-term assets either for cash or on account.

b. Using cash to reduce current liabilities.
c. Acquiring long-term financing for current assets.
d. Selling inventory at a profit.
e. Converting short-term debt to long-term debt.

Difficulty: Intermediate
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #349
Type: Essay

350. The financial manager of ABC, Inc. would like to

somehow do a comparison of financial statements to
determine how ABC, Inc. is performing both
historically and competitively. Develop and explain a
plan for performing these comparisons.

The simplest way to do comparison analysis is to use

common-size statements. For a historical comparison,
common size statements for several of the past months,
quarters and/or years can be compared to ascertain what
trends are developing. For a competitive analysis, the
common-size statement for the firm can be compared to
industry averages or other comparable firms.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #350
Type: Essay
351. Assume that your firm has a positive cash balance and
that the cash balance is increasing each year. Why then
is it important to analyze a statement of cash flows?

It is possible that the increase in the cash flows is a

result of issuing more equity or assuming more debt
and not the result of generating cash from operations. If
a firm cannot generate positive cash flows internally,
the firm will eventually encounter difficulties in raising
external funds and will most likely encounter financial
difficulties and possibly face bankruptcy.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #351
Type: Essay

352. Describe some of the problems that are encountered

when comparing the financial statements of various
firms.

Student answers should include some of the following

problems: the difficulty in classifying a firm into a
particular industry especially if the firm is a
conglomerate; the geographic dispersion of firms; the
differences in accounting methods in various countries;
the differences in accounting methods within the same
country; differences in regulatory requirements and the
financial effects of those requirements; different
seasonality effects; and one-time events.

Difficulty: Intermediate
Learning Objective: 03-01 The sources and uses of a firms cash flows.
Ross - Chapter 03 #352
Type: Essay
353. If shareholders could only have access to two financial
ratios for a firm, which two ratios presented in this
chapter do you think they would select to review and
why?

Student answers will vary but will most likely include

the return on equity, the price-earnings ratio, or the
market-to-book ratio. Students should explain the value
of the ratios they select.

Difficulty: Challenge
Learning Objective: 03-02 How to standardize financial statements for comparison purposes.
Ross - Chapter 03 #353
Type: Essay

354. Explain the value provided by the Du Pont identity that

is not provided by just knowing the return on equity
percentage.

The Du Pont identity consists of the equity multiplier,

the total asset turnover, and the profit margin. These
values reveal the amount of assets that can be
controlled for every $1 of equity invested in the firm,
the number of sales generated from every $1 of assets,
and the amount of profit earned from every $1 of sales.
This provides an insight into the financial leverage
employed, the efficiency with which the assets are
utilized, and the control over the operating costs.

Difficulty: Challenge
Learning Objective: 03-03 How to compute and; more importantly; interpret some common ratios.
Ross - Chapter 03 #354
Type: Essay
Chapter 03 Working with Financial Statements Summary