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[QUESTION]
REFER TO: Ref. 05_03
58. In a common size balance sheet for 2019, accounts receivable is expressed as:
a. 86%.
b. 116.3%.
c. 32.4%.
d. 16.3%.
[QUESTION]
REFER TO: Ref. 05_03
59. The current ratio for 2019 is (rounded):
a. 1.4 to 1
b. 2.0 to 1
c. 2.7 to 1
d. 3.4 to 1
60. The quick ratio for 2019 is (rounded):
(Assume that total current assets include cash, marketable securities, accounts receivable and
inventory).
a. 1.1 to 1
b. 1.4 to 1
c. 1.6 to 1
d. 2.8 to 1
61. The accounts receivable turnover for 2019 is (rounded):
(Assume all sales are on account.)
a. 2.0 times.
b. 6.4 times.
c. 6.6 times.
d. 7.1 times.
62. The days receivable outstanding for 2019 is (rounded):
a. 51 days.
b. 55 days.
c. 60 days.
d. 183 days.
63. The inventory turnover for 2019 is (rounded):
a. 2.61 times.
b. 3.12 times.
c. 3.45 times.
d. 3.80 times.
[QUESTION]
REFER TO: Ref. 05_03
64. The days inventory held for 2019 is (rounded):
a. 96 days.
b. 106 days.
c. 116 days.
d. 138 days.
65. The long-term debt to assets for 2019 is (rounded):
a. 9.4%
b. 10.2%
c. 40.0%
d. 43.4%
66. If the intangible assets in 2019 are $50,000, then the long-term debt to tangible assets for
2019 is:
a. 10.0%
b. 10.2%
c. 30.7%
d. 42.5%
67. The interest coverage for 2019 is:
a. 12.8 times.
b. 13.8 times.
c. 20.5 times.
d. 21.5 times.
68. The operating cash flows to total liabilities for 2019 is (rounded):
a. 13.4%
b. 21.5%
c. 23.4%
d. 28.1%
69. With respect to asset utilization, which of the following is not correct?
a. Efficiency gains arise from improvements in managing accounts receivable.
b. How efficient the company is in utilizing its property, plant, and equipment
is reflected in the long-term asset turnover ratio.
c. Asset turnover is only one part of the ROA calculation.
d. Issues with inventory obsolescence will be evidenced in the current asset
turnover ratio.
70. Financial ratios used to determine credit risk include an assessment of
a. liquidity and asset utilization.
b. asset utilization and profitability.
c. solvency and liquidity.
d. profitability and solvency.
[QUESTION]
71, Which of the following is not correct with respect to computing ROCE?
a. Both common and preferred stock dividends are subtracted in arriving at net income available
to common stockholders.
b. ROCE is affected by both ROA and the degree of financial leverage employed by the
company.
c. The capital provided by common shareholders during the period can be computed by
averaging total common shareholders’ equity at the beginning and end of the period.
d. Interest charged on loans, and dividends declared on preferred stock, are both subtracted in
arriving at net income available to common shareholders.
[QUESTION]
72. With respect to financial leverage which of the following is not a valid statement?
a. Financial leverage makes bad years look worse by decreasing the shareholder return.
b. Return on assets will generally equal return on common equity except when the company has
no long-term debt.
c. Financial leverage makes good years look better by increasing the shareholder return.
d. Financial leverage is beneficial when the company earns more than the incremental after-tax
cost of debt.
73. Post Corporation purchases from suppliers on net 30 day terms, has an Accounts Receivable
Turnover of 8 times, and an Inventory Turnover of 12 times. Cash inflows and outflows are
a. evenly matched.
b. negatively mismatched by 60 days.
c. positively mismatched by 30 days.
d. negatively mismatched by 45 days.
74. The percentage of assets financed by long-term debt is best described by the
a. debt to equity ratio.
b. interest coverage ratio.
c. long-term debt to asset ratio.
d. long-term debt to tangible assets ratio.
75. When operating earnings and cash flows from operations are dissimilar, which of the
following ratios is a better measure of long-term solvency?
a. Interest coverage
b. Long-term debt to asset
c. Long-term debt to tangible assets
d. Operating cash flow to total liabilities
76. Which of the following financial ratios is not a component of the Z-score model?
a. Working capital/total assets.
b. Sales/total assets.
c. Common stock/total assets.
d. Retained earnings/total assets.
77. When assessing a company's credit risk:
a. Analysts use only financial ratios and do not need to review the statement of cash flows.
b. Analysts use only the statement of cash flows.
c. Both liquidity and solvency must be reviewed.
d. The assessment involves looking only at the operating and cash conversion cycles.
78. Which of the following best describes measures of immediate liquidity?
a. The current ratio and the quick ratio will always have different results regardless of the industry
in which the company operates.
b. The quick ratio excludes inventory in the denominator because most businesses cannot readily
convert inventory to cash.
c. The current ratio reflects existing cash as well as amounts to be converted to cash in the normal
operating cycle.
d. The quick ratio reflects existing cash as well as amounts to be converted to cash in the normal
operating cycle.
79. The accounts receivable turnover ratio
a. is not useful in determining changes in customer payment patterns.
b. uses total sales and not just credit sales in the computation.
c. is computed using net credit sales and average accounts receivable.
d. is computed using net credit sales and ending accounts receivable.
80. Changes in a company’s capital expenditures or fixed asset sales over time must
a. be carefully analyzed for changes in the company’s strategy.
b. be indicative of changes in the company’s strategy.
c. indicate incompetent management.
d. raise the company’s risk of default on its debt.
81. Select one of the following statements that best reflects the relationship between
the operating cycle and the cash conversion cycle:
a. The operating cycle reflects how long it takes to sell inventory.
b. The two cycles will always match.
c. The cash conversion cycle includes the operating cycle and the number of days
related to the purchase of inventory.
d. A mismatch between the two cycles indicates the company is headed for
bankruptcy.
82. Which of the following is not correct with respect to the debt to assets ratio?
a. Cyclical companies (those whose sales fluctuate widely due to changing economic
conditions) generally have a smaller debt to assets ratio.
b. Cyclical companies (those whose sales fluctuate widely due to changing economic
conditions) generally have a higher debt to assets ratio.
c. The percentage of long-term debt to assets would be higher for a utility company than for
a retailer.
d. A high debt ratio increases long-term solvency risk.
83. Solvency refers to:
a. short-term ability to fund the company's operating needs.
b. long-term ability to generate cash to for plant capacity needs and to fuel growth.
c. long-term ability to generate sufficient cash to satisfy plant capacity needs, fuel growth,
and to repay debt when due.
d. the company's ability to generate sufficient cash to repay debt when due.
84. Which of the following does not describe the impact of a firm's capital structure on
ROA and ROCE?
a. For a high-debt firm experiencing a profitable year, ROCE will likely be lower than
ROA if the debt was not used to support operations.
b. A highly levered firm can be advantageous to common stockholders.
c. For a firm with no debt, ROCE will likely be the same as the ROA.
d. For a high-debt firm experiencing a profitable year, ROCE will likely be higher than
ROA if the debt was used to support operations.
[QUESTION]
85. Although a company’s earnings are important in financial statement analysis, with respect to
credit evaluations and lending decisions an analysis of its cash flows is
a. optional.
b. central.
c. only important if the company has a high debt/equity ratio.
d. required by banking regulations.
86. Financially healthy companies
a. will always generate positive operating cash flows.
b. should generate positive operating cash flows in most years.
c. should generate positive investing cash flows.
d. should always see total cash inflows exceed total cash outflows.
