93) The ratio that measures the efficiency of all of a company’s assets used is the:
A) Accounts Receivable turnover ratio.
B) total asset turnover ratio.
C) inventory turnover ratio.
D) fixed asset turnover ratio.
94) Cypress Cruises has a cash balance of $80,000; short-term investments of $20,000; net
receivables of $60,000; and inventory of $450,000. Current liabilities total $200,000. The quick
ratio is:
A) 3.05 to 1.
B) 2.75 to 1.
C) 0.80 to 1.
D) 0.70 to 1.
95) Lionworks Inc.’s operating income for the year was $75,000. The interest expense was
$11,500 and the income tax expense was $6,500. Lionworks Inc.’s interest coverage ratio for the
year is:
A) 11.54.
B) 4.17.
C) 6.52.
D) 0.15.
96) Shore Stone Supply has an average days’ in receivable of 41 days. Shore’s Accounts
Receivable turnover is closest to:
A) 41.
B) 9.
C) 10.
D) 14.
97) S & C Company has a beginning Accounts Receivable balance of $65,000 and an ending
Accounts Receivable balance of $60,000. Sales are $250,000. S & C’s Accounts Receivable
turnover rate is:
A) 3.846.
B) 4.167.
C) 4.000.
D) 2.000.
98) Quickline Industries has a cost of goods sold of $1,900,000. The beginning and ending
merchandise inventories are $133,000 and $125,000, respectively. Quickline Industries inventory
turnover ratio is:
A) 65.5 times.
B) 33.8 times.
C) 14.7 times.
D) 29.4 times.
99) Cox Corporation has a cost of goods sold of $1,600,000. The beginning merchandise
inventory was $195,000 and the ending merchandise inventory is $205,000. Cox’s inventory
turnover ratio is:
A) 8.21 times.
B) 7.80 times.
C) 8.00 times.
D) 9.00 times.
12.3 Questions
1) The interest coverage ratio is an indicator of a company’s ability to repay interest on its debt.
2) The formula for the debt ratio is total liabilities divided by long-term assets.
3) Earnings per share and dividends per share are indicators of a company’s ability to reward
stockholders for the use of their money.
4) The dividend payout is a measure that is often looked at when valuing a company?
5) The price earnings ratio reflects the relationship of the current market price of a stock to its
earnings per share.
6) A high dividend yield means that stockholders are receiving a large return in the form of
dividends.
7) A low price earnings ratio typically means the future of a business is very bright.
8) The formula for the debt ratio is total liabilities divided by long-term assets.
9) A measure of how well earnings support dividend payments is:
A) earnings per share.
B) dividend payout ratio.
C) dividends per share.
D) dividend yield.
10) The ratio of dividends to the average number of common shares outstanding is:
A) earnings per share.
B) dividend payout ratio.
C) dividends per share.
D) dividend yield.
11) Evergreen Industrial reported the following for 2012:
Net sales:
$345,000
Net income:
$29,600
Market price per share of common stock:
$35.50
Dividends:
$18,500
Average number of shares of common stock
outstanding:
125,000
What are the dividends per share for Evergreen Industrial(to the nearest cent)?
A) $0.15/share
B) $0.24/share
C) $0.09/share
D) $0.28/share
12) Evergreen Industrial reported the following for 2012:
Net sales:
$345,000
Net income:
$29,600
Market price per share of common stock:
$35.50
Dividends:
$18,500
Average number of shares of common stock
outstanding:
125,000
What are the earnings per share for Evergreen Industrial(to the nearest cent)?
A) $0.15/share
B) $0.24/share
C) $0.09/share
D) $0.28/share
13) Evergreen Industrial reported the following for 2012:
Net sales:
$345,000
Net income:
$29,600
Market price per share of common stock:
$35.50
Dividends:
$18,500
Average number of shares of common stock
outstanding:
125,000
What is the dividend payout ratio for Evergreen Industrial?
A) 37.50%
B) 160.0%
C) 62.50%
D) 35.50%
14) Serenity Sounds, Inc. reported the following for 2012:
Net sales:
$220,000
Net income:
$37,000
Market price per share of common stock:
$28.75
Dividends:
$4,100
Average number of shares of common stock
outstanding:
10,000
What are the dividends per share for Serenity Sounds, Inc. (to the nearest cent)?
A) $4.10/share
B) $28.75/share
C) $0.41/share
D) $3.70/share
15) Serenity Sounds, Inc. reported the following for 2012:
Net sales:
$220,000
Net income:
$37,000
Market price per share of common stock:
$28.75
Dividends:
$4,100
Average number of shares of common stock
outstanding:
10,000
What is the dividend payout ratio for Serenity Sounds, Inc.?
A) 41.0%
B) 11.1%
C) 28.5%
D) 1.9%
16) Serenity Sounds, Inc. reported the following for 2012:
Net sales:
$220,000
Net income:
$37,000
Market price per share of common stock:
$28.75
Dividends:
$4,100
Average number of shares of common stock
outstanding:
10,000
What are the earnings per share for Serenity Sounds, Inc. (to the nearest cent)?
A) $37.00/share
B) $28.75/share
C) $0.41/share
D) $3.70/share
17) Island Coffee Company reported the following for 2012:
Earnings/share of
$19.23
Market price per share of common stock:
$67.00
Number of shares of common stock outstanding:
75,000
Net income:
$54,000
Dividends/share:
$6.73
What is the dividend yield for Island Coffee Company (to the nearest tenth of a percent)?
A) 28.7%
B) 10.0%
C) 38.7%
D) 35.0%
18) Island Coffee Company reported the following for 2012:
Earnings/share of
$19.23
Market price per share of common stock:
$67.00
Number of shares of common stock outstanding:
75,000
Net income:
$54,000
Dividends/share:
$6.73
What is the price earnings ratio for Island Coffee Company (rounded to two decimals)?
A) 9.96
B) 0.28
C) 2.85
D) 3.48
19) Caesar Corporation the following for 2012:
Earnings/share of
$17.68
Market price per share of common stock:
$52
Number of shares of common stock outstanding:
52,000
Net income:
$48,000
Dividends/share:
$7.14
What is the dividend yield for Caesar Corporation (to the nearest tenth of a percent)?
A) 13.7%
B) 40.4%
C) 92.3%
D) 34.0%
20) Caesar Corporation the following for 2012:
Earnings/share of
$17.68
Market price per share of common stock:
$52
Number of shares of common stock outstanding:
52,000
Net income:
$48,000
Dividends/share:
$7.14
What is the price earnings ratio for Caesar Corporation (rounded to two decimals)?
A) 2.48
B) 7.28
C) 2.94
D) 1.08
21) Current assets divided by current liabilities yields the:
A) quick ratio.
B) current ratio.
C) debt ratio.
D) working capital ratio.
22) Inventory and prepaid expenses are NOT included in the computation of the:
A) quick ratio.
B) current ratio.
C) debt ratio.
D) working capital ratio.
23) To determine the ability of a company to pay interest on its debt, you would calculate the:
A) debt ratio.
B) interest coverage ratio.
C) price-earnings ratio.
D) return on assets ratio.
24) Which of the following measures the ability for a company to meet long-term obligations or
take on more debt?
A) Return on equity
B) Debt ratio
C) Current ratio
D) Debt turnover
25) The formula “net income divided by average Stockholders’ Equity” yields:
A) return on equity.
B) return on assets.
C) earnings per share.
D) return on sales.
26) Which of the following ratios helps to evaluate how well a company is earning profit with
the money shareholders have invested?
A) Asset turnover ratio
B) Return on sales
C) Return on assets
D) Return on equity
27) A company’s net income for the year ended was $300,000. Stockholders’ Equity was
$1,600,000 at the end of the year, and $1,400,000 at the beginning of the year. The return on
equity would be:
A) 87.50%.
B) 21.43%.
C) 20.00%.
D) 18.75%.
28) What is the return on equity if sales are $100,000, net income is $22,700, beginning
Stockholders’ Equity is $88,000, and ending common Stockholders’ Equity is $84,000?
A) 22.7%
B) 25.8%
C) 27.0%
D) 26.4%
29) Which of the following would NOT be a red flag in a financial statement analysis?
A) Increased Accounts Receivable turnover
B) Decreased cash flow
C) High debt ratio
D) Low inventory turnover
30) Which of the following would be a red flag in a financial statement analysis?
A) High debt ratio
B) High inventory turnover
C) High current ratio
D) High earnings per share
31) Which of the following is a profitability ratio?
A) Cash conversion cycle
B) Earnings per share
C) Debt ratio
D) Gross profit percentage
32) Which of the following is a solvency ratio?
A) Cash conversion cycle
B) Earnings per share
C) Debt ratio
D) Gross profit percentage
33) Which of the following is NOT a liquidity ratio?
A) Current ratio
B) Accounts Payable payment period
C) Accounts Receivable turnover ratio
D) Receivables collection period
34) Which of the following is NOT an asset management ratio?
A) Inventory turnover ratio
B) Days-sales-in-inventory ratio
C) Fixed asset turnover ratio
D) Return on assets
35) Market analysis ratios are used to determine if the business is:
A) Investing its money and using its assets efficiently
B) Earning a net income or loss
C) Generating enough net income to reward stockholders for use of their money
D) Paying off its debts in a reasonable time frame
36) Why would a slow inventory turnover rate be a red flag in a financial statement analysis?
A) The company may have obsolete inventory.
B) The company may have bad salespeople.
C) The company may be overstating inventory.
D) Both A and C are reasons why it would be a red flag.
37) Why would a high debt ratio be a red flag in a financial statement analysis?
A) The company is borrowing more than it is earning.
B) The company may be unable to pay its debts.
C) The company is paying too much interest.
D) Both A and B are reasons why it would be a red flag.
38) Two measures that are often looked at in valuing a business are:
A) Earnings per Share and Dividend per Share.
B) Earnings per Share and Dividend Yield.
C) Price Earnings Ratio and Dividend Yield.
D) Price Earnings Ratio and Dividend per Share.
39) When does a business pay dividends?
A) At the end of the year
B) At the end of each quarter or semiannually
C) When stockholders request them
D) When the business doesn’t have a better use for the money