31. Dee’s has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91.

31. Dee’s has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91. Sam’s has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.88. Both companies have similar operations. Based on this information, Dee’s must be doing which one of the following?
A. utilizing its fixed assets more efficiently than Sam’s
B. utilizing its total assets more efficiently than Sam’s
C. generating $1 in sales for every $1.12 in net fixed assets
D. generating $1.12 in net income for every $1 in net fixed assets
E. maintaining the same level of current assets as Sam’s

32. Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. turnover

 

33. If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:
A. may have short-term, but not long-term debt.
B. is using its assets as efficiently as possible.
C. has no net working capital.
D. has a debt-equity ratio of 1.0.
E. has an equity multiplier of 1.0.

34. Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
A. return on equity
B. return on assets
C. profit margin
D. equity multiplier
E. price-earnings ratio

35. Al’s has a price-earnings ratio of 18.5. Ben’s also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al’s has a higher PEG ratio than Ben’s?
A. Al’s has more net income than Ben’s.
B. Ben’s is increasing its earnings at a faster rate than the Al’s.
C. Al’s has a higher market value per share than does Ben’s.
D. Ben’s has a lower market-to-book ratio than Al’s.
E. Al’s has a higher net income than Ben’s.

36. Tobin’s Q relates the market value of a firm’s assets to which one of the following?
A. initial cost of creating the firm
B. current book value of the firm
C. average asset value of similar firms
D. average market value of similar firms
E. today’s cost to duplicate those assets

 

37. The price-sales ratio is especially useful when analyzing firms that have which one of the following?
A. volatile market prices
B. negative earnings
C. positive PEG ratios
D. a negative Tobin’s Q
E. increasing sales

38. Shareholders probably have the most interest in which one of the following sets of ratios?
A. return on assets and profit margin
B. long-term debt and times interest earned
C. price-earnings and debt-equity
D. market-to-book and times interest earned
E. return on equity and price-earnings

39. Which one of the following accurately describes the three parts of the Du Pont identity?
A. operating efficiency, equity multiplier, and profitability ratio
B. financial leverage, operating efficiency, and profitability ratio
C. equity multiplier, profit margin, and total asset turnover
D. debt-equity ratio, capital intensity ratio, and profit margin
E. return on assets, profit margin, and equity multiplier

40. An increase in which of the following will increase the return on equity, all else constant?
I. sales
II. net income
III. depreciation
IV. total equity
A. I only
B. I and II only
C. II and IV only
D. II and III only
E. I, II, and III only

 

41. Which of the following can be used to compute the return on equity?
I. Profit margin´ Return on assets
II. Return on assets´ Equity multiplier
III. Net income/Total equity
IV. Return on assets´ Total asset turnover
A. I and III only
B. II and III only
C. II and IV only
D. I, II, and III only
E. I, II, III, and IV

42. The Du Pont identity can be used to help managers answer which of the following questions related to a firm’s operations?
I. How many sales dollars has the firm generated per each dollar of assets?
II. How many dollars of assets has a firm acquired per each dollar in shareholders’ equity?
III. How much net profit is a firm generating per dollar of sales?
IV. Does the firm have the ability to meet its debt obligations in a timely manner?
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III and IV only
E. I, II, III, and IV

43. A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?
A. equity multiplier
B. total asset turnover
C. profit margin
D. return on assets
E. return on equity

 

44. Which one of the following statements is correct?
A. Book values should always be given precedence over market values.
B. Financial statements are frequently used as the basis for performance evaluations.
C. Historical information provides no value to someone who is predicting future performance.
D. Potential lenders place little value on financial statement information.
E. Reviewing financial information over time has very limited value.

45. It is easier to evaluate a firm using financial statements when the firm:
A. is a conglomerate.
B. has recently merged with its largest competitor.
C. uses the same accounting procedures as other firms in the industry.
D. has a different fiscal year than other firms in the industry.
E. tends to have many one-time events such as asset sales and property acquisitions.

46. The most acceptable method of evaluating the financial statements of a firm is to compare the firm’s current:
A. financial ratios to the firm’s historical ratios.
B. financial statements to the financial statements of similar firms operating in other
C. countries.
D. financial ratios to the average ratios of all firms located within the same geographic area.
E. financial statements to those of larger firms in unrelated industries.
F. financial statements to the projections that were created based on Tobin’s Q.

47. Which of the following represent problems encountered when comparing the financial statements of two separate entities?
I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.
II. The operations of the two firms may vary geographically.
III. The firms may use differing accounting methods.
IV. The two firms may be seasonal in nature and have different fiscal year ends.
A. I and II only
B. II and III only
C. I, III, and IV only
D. I, II, and III only
E. I, II, III, and IV

 

48. Wise’s Corner Grocer had the following current account values. What effect did the change in net working capital have on the firm’s cash flows for 2009?

A. net use of cash of $37
B. net use of cash of $83
C. net source of cash of $83
D. net source of cash of $111
E. net source of cash of $135

49. During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. How did these three accounts affect the firm’s cash flows for the year?
A. $245 use of cash
B. $165 use of cash
C. $95 use of cash
D. $95 source of cash
E. $165 source of cash

50. A firm generated net income of $878. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $22, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?
A. $876
B. $902
C. $904
D. $922
E. $930
51. A firm has sales