Chapter 03 Analyzing Financial Statements Answer Key
Multiple Choice Questions
1.
Which of the following refer to ratios that measure the relationship between a firm’s liquid
(or current) assets and its current liabilities?
2.
Which type of ratio measures the dollars of current assets available to pay each dollar of
current liabilities?
3.
Which type of ratio measures a firm’s ability to pay off short-term obligations without
relying on inventory sales?
4.
Which ratio measures a firm’s ability to pay short-term obligations with its available cash
and market securities?
5.
Which statement is true?
6.
Which of the following ratios measure how efficiently a firm uses its assets, as well as
how efficiently the firm manages its accounts payable?
7.
Which ratio measures the number of dollars of sales produced per dollar of inventory?
8.
Which of these statements is true?
9.
Which of the following measures the number of days accounts receivable are held before
the firm collects cash from the sale?
10.
Which of the following measures the number of days that the firm holds accounts payable
before it has to extend cash to buy raw materials?
11.
Which of the following measures the number of dollars of sales produced per dollar of
fixed assets?
12.
Which of these statements is true?
13.
Which of these statements is true?
14.
Which of these ratios measure the extent to which the firm uses debt (or financial
leverage) versus equity to finance its assets?
15.
Which ratio measures the percentage of total assets financed by debt?
16.
Which of the following refers to the amount of debt versus equity a firm has on its balance
sheet?
17.
Which of these is NOT considered a coverage ratio?
18.
Which of these ratios show the combined effects of liquidity, asset management, and debt
management on the overall operation results of the firm?
19.
Which of the following measures the operating return on the firm’s assets, irrespective of
financial leverage and taxes?
20.
For publicly traded firms, which of these ratios measure what investors think of the
company’s future performance and risk?
21.
Which of these can be used by interested parties to identify changes in corporate
performance?
22.
Which of the following is the maximum growth rate that can be achieved by financing
asset growth with new debt and retained earnings?
23.
To interpret financial ratios, managers, analysts, and investors use which of the following
type of benchmarks?
24.
Which is true? Ratio analysis:
25.
Liquidity Ratios You are evaluating the balance sheet for Blue Jays Corporation. From the
balance sheet you find the following balances: cash and marketable securities = $200,000,
accounts receivable = $800,000, inventory = $1,000,000, accrued wages and taxes =
$250,000, accounts payable = $400,000, and notes payable = $300,000. What are Blue
Jays’ current ratio, quick ratio, and cash ratio, respectively?
26.
Liquidity Ratios The top part of Mars, Inc.’s 2013 balance sheet is listed as follows (in
millions of dollars).
What are Mars, Inc.’s current ratio, quick ratio, and cash ratio for 2013?
27.
Liquidity Ratios The top part of Rammy’s Inc.’s 2013 balance sheet is listed as follows (in
millions of dollars).
What are Rammy’s Inc.’s current ratio, quick ratio, and cash ratio for 2013?
28.
Asset Management Ratios Tops N Bottoms Corp. reported sales for 2013 of $50 million.
Tops N Bottoms listed $4 million of inventory on its balance sheet. Using a 365-day year,
how many days did Tops N Bottoms’ inventory stay on the premises? How many times per
year did Tops N Bottoms’ inventory turnover?
29.
Asset Management Ratios Rachets R Us Corp. reported sales for 2013 of $200,000.
Rachets R Us listed $25,000 of inventory on its balance sheet. Using a 365-day year, how
many days did Rachets R Us’s inventory stay on the premises? How many times per year
did Rachets R Us’s inventory turnover?
30.
Asset Management Ratios CornProducts Corp. ended the year 2013 with an average
collection period of 40 days. The firm’s credit sales for 2011 were $9 million. What is the
approximate year-end 2013 balance in accounts receivable for Corn Products?
31.
Debt Management Ratios Trina’sTrikes, Inc. reported a debt–to-equity ratio of 2 times at
the end of 2013. If the firm’s total debt at year-end was $10 million, how much equity does
Trina’s Trikes have?
32.
Debt Management Ratios Will’s Wheels, Inc. reported a debt–to-equity ratio of 0.65 times
at the end of 2013. If the firm’s total debt at year-end was $5 million, how much equity
does Will’s Wheels have?
33.
Debt Management Ratios You are considering a stock investment in one of two firms
(LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry.
LotsofDebt, Inc. finances its $100 million in assets with $90 million in debt and $10 million
in equity. LotsofEquity, Inc. finances its $100 million in assets with $10 million in debt and
$90 million in equity. What are the debt ratio, equity multiplier, and debt–to-equity ratio for
the two firms?