55) Walton, Inc. provides the following data:
2019
2018
Cash
$44,000
$25,000
Accounts Receivable, Net
101,000
62,000
Merchandise Inventory
78,000
50,000
Property, Plant, and Equipment, Net
182,000
120,000
Total Assets
$405,000
$257,000
Additional information for the year ending December 31, 2019:
Net Credit Sales
$550,000
Cost of Goods Sold
150,000
Interest Expense
24,000
Net Income
184,000
Calculate the rate of return on total assets for 2019. (Round your answer to two decimal places.)
A) 45.43%
B) 62.84%
C) 71.60%
D) 51.36%
56) Regarding the profit margin ratio, which of the following statements is incorrect?
A) The higher the profit margin ratio, the more sales dollars end up as profit.
B) The profit margin ratio is computed by dividing net sales by net income.
C) The profit margin ratio shows how much net income a business earns on every $1.00 of sales.
D) The profit margin ratio focuses on the profitability of a company and is often reported in the business
press.
57) The profit margin ratio ________.
A) focuses on the liquidity of the business
B) is computed by dividing net sales by net income
C) shows how much gross profit a business earns on every $1.00 of sales
D) is often compared to the industry average
58) Amber, Inc. provides the following information for 2019:
Net income
$270,000
Market price per share of common stock
$60 per share
Dividends paid
$180,000
Common stock outstanding at Jan. 1, 2019
165,000 shares
Common stock outstanding at Dec. 31, 2019
230,000 shares
The company has no preferred stock outstanding. Calculate the earnings per share for 2019. (Round your
answer to two decimal places.)
A) $0.46 per share
B) $1.64 per share
C) $1.37 per share
D) $1.17 per share
59) O’Connors, Inc. provides the following information for 2018:
Net income $180,000
Market price per share of common stock $20.00/share
Common stockholders‘ equity at Jan. 1, 2018 $1,100,000
Common stockholders‘ equity at Dec. 31, 2018 $1,500,000
12% preferred stock outstanding $100,000
Calculate the return on common stockholders’ equity. (Round to two decimals.)
60) The dividend yield can be calculated for both common and preferred stockholders.
61) The price/earnings ratio shows the market price of $1 of earnings.
62) The dividend payout ratio measures the annual dividend per share as a proportion of the market
price per share.
63) The price/earnings ratio shows the ________.
A) dividend yield of the company
B) market price of $1 of earnings
C) proportion of total assets financed by debt
D) value that the stock market places on the dividends paid by the company
64) Ketchen, Inc. provides the following information for 2018:
Net income
$290,000
Market price per share of common stock
$70 per share
Dividends paid
$190,000
Common stock outstanding at Jan. 1, 2018
150,000 shares
Common stock outstanding at Dec. 31, 2018
240,000 shares
The company has no preferred stock outstanding. Calculate the price/earnings ratio of common stock.
(Round any intermediate calculations and your final answer to two decimal places.)
A) 57.85 times
B) 70.00 times
C) 46.98 times
D) 36.27 times
65) Commons, Inc. provides the following information for 2018:
Net income
$36,000
Market price per share of common stock
$16/share
Dividends paid
$0.70/share
Common stock outstanding at Jan. 1, 2018
130,000 shares
Common stock outstanding at Dec. 31, 2018
165,000 shares
The company has no preferred stock outstanding. Calculate the dividend yield for common stock.
(Round your answer to two decimal places.)
A) 4.38%
B) 1.50%
C) 2.88%
D) 4.58%
66) Pearlman, Inc. provides the following information for 2019:
Net income
$285,000
Market price per share of common stock
$40.00/share
Dividends paid
$1.00/share
Common stock outstanding at Jan. 1, 2019
130,000 shares
Common stock outstanding at Dec. 31, 2019
140,000 shares
The company has no preferred stock outstanding. Calculate the dividend payout ratio. (Round any
intermediate calculations and your final answer to two decimal places.)
A) 45.66%
B) 24.32%
C) 40.00%
D) 47.39%
67) Unexpected or inconsistent movements among sales, merchandise inventory, and receivables reflect
normal market conditions and do not pose red flags in financial statements.
68) If inventory turnover is too slow, a company may be unable to sell goods or it may be understating
merchandise inventory.
69) If the debt ratio is too high, the company may be unable to pay its debts.
70) Analysts look for red flags in financial statements that may signal financial trouble. Which of the
following is a red flag that suggests that a company may be in trouble?
A) a decline in days’ sales in inventory
B) a decrease in days’ sales in receivables from year to year
C) a reduction in the debt ratio
D) net cash provided by operating activities is consistently lower than net income
71) Analysts look for red flags in financial statements that may signal financial trouble. Which of the
following is a red flag that suggests that a company may be in trouble?
A) a significant decrease in net income for several years in a row
B) a consistent movement in sales, merchandise inventory, and accounts receivable
C) a reduction in the debt ratio
D) operating activities are a major source of cash flows