Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1)
1)
A current ratio of ________ to 1 is considered a strong indication that a company can pay current
liabilities.
A)
2.50
B)
2.00
C)
1.35
D)
1.00
Answer:
B
Explanation:
2)
2)
Which class of contractors has the highest general overhead ratio?
A)
Commercial
B)
Highway
C)
Residential
D)
Specialty contractors
Answer:
D
Explanation:
3)
3)
What is a good target range for the degree of fixed asset newness for a construction company?
A)
40 to 60%
B)
60 to 75%
C)
60 to 100%
D)
0 to 40%
Answer:
A
Explanation:
4)
4)
The collection period measures the ________ time it takes to collect a company’s accounts
receivables.
A)
minimum
B)
average
C)
maximum
D)
current
Answer:
B
Explanation:
1
5)
5)
Which of the following ratios may be calculated before and after taxes?
A)
Return on assets
B)
Return on equity
C)
Profit margin
D)
All of the above
Answer:
D
Explanation:
6)
6)
Which class of contractors has the lowest median pretax profit margin?
A)
Commercial
B)
Highway
C)
Residential
D)
Specialty contractors
Answer:
A
Explanation:
7)
7)
Which class of contractors has the lowest median assets to revenue ratio?
A)
Commercial
B)
Highway
C)
Residential
D)
Specialty contractors
Answer:
A
Explanation:
8)
8)
Which of the following would not be used to calculate the average age of accounts payable?
A)
Materials
B)
Accounts payable
C)
Subcontracts
D)
Labor
Answer:
D
Explanation:
2
9)
9)
Which of the following would not be used to calculate the quick ratio?
A)
Cash
B)
Accounts receivable
C)
Equity/net worth
D)
Current liabilities
Answer:
C
Explanation:
10)
10)
Which class of contractors has the highest median debt to equity ratio?
A)
Residential
B)
Specialty contractors
C)
Highway
D)
Commercial
Answer:
A
Explanation:
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11)
When calculating financial ratios for the year, when would the monthly averages be used instead of using the
average of the beginning and end of the year?
Answer:
When the amounts reported on the balance sheet at the beginning and ending of the year are not
representative of the average balance for the year. This is the case for excavation companies whose
fiscal year is the same as the calendar year and who have limited operations during the winter months
because of poor working conditions (e.g., snow).
12)
What does the current liabilities to net worth ratio measure?
Answer:
The current liabilities to net worth ratio is a measurement of the risk that short–term creditors are
taking by extending credit to the company compared to the risk the company’s owners are taking in the
company.
13)
Why do highway contractors have a lower current assets to total assets ratio that other classes of contractors?
Answer:
Because of their large investment in excavation equipment.
14)
How are financial statements analyzed?
Answer:
Analysis of financial statements is done by dividing one category or group of categories on the
company’s financial statements by another category or group of categories on the company’s financial
statements. By making this calculation, we create a ratio that can be compared to averages for the
industry.
15)
What does the accounts payable to revenues ratio measure?
Answer:
The accounts payable to revenues ratio is a measurement of how much a company is using its
suppliers and subcontractors as a source of funds.
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16)
What does a high fixed assets to net worth ratio indicate?
Answer:
A high fixed assets to net worth ratio indicates a company has a heavy investment in fixed assets. Fixed
assets require a constant stream of income to offset their loss in value (depreciation).
17)
What does months in backlog measure?
Answer:
Months in backlog is a measure of how many months of work the company has if they were to perform
work at the average rate that they performed work during the last 12 months.
18)
What does the degree of fixed assets newness measure?
Answer:
The degree of fixed asset newness is a measurement of how new a company’s assets are.
19)
What are the most common tools used to track a company’s financial health?
Answer:
The most common tools used to track and measure a company’s financial health are the company’s
balance sheet and the income statement.
20)
When would subcontractor payment not be used to calculate working capital turns?
Answer:
When a company passes payments on from the owners to subcontractors, working capital is not used
to pay subcontractors, and a better measurement of working capital turns is obtained by subtracting
the subcontractor payments from the revenues.
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Answer Key
Testname: C6
1)
B
2)
D
3)
A
4)
B
5)
D
6)
A
7)
A
8)
D
9)
C
10)
A
11)
When the amounts reported on the balance sheet at the beginning and ending of the year are not representative of the
average balance for the year. This is the case for excavation companies whose fiscal year is the same as the calendar
year and who have limited operations during the winter months because of poor working conditions (e.g., snow).
12)
The current liabilities to net worth ratio is a measurement of the risk that short–term creditors are taking by extending
credit to the company compared to the risk the company’s owners are taking in the company.
13)
Because of their large investment in excavation equipment.
14)
Analysis of financial statements is done by dividing one category or group of categories on the company’s financial
statements by another category or group of categories on the company‘s financial statements. By making this
calculation, we create a ratio that can be compared to averages for the industry.
15)
The accounts payable to revenues ratio is a measurement of how much a company is using its suppliers and
subcontractors as a source of funds.
16)
A high fixed assets to net worth ratio indicates a company has a heavy investment in fixed assets. Fixed assets require
a constant stream of income to offset their loss in value (depreciation).
17)
Months in backlog is a measure of how many months of work the company has if they were to perform work at the
average rate that they performed work during the last 12 months.
18)
The degree of fixed asset newness is a measurement of how new a company’s assets are.
19)
The most common tools used to track and measure a company’s financial health are the company’s balance sheet and
the income statement.
20)
When a company passes payments on from the owners to subcontractors, working capital is not used to pay
subcontractors, and a better measurement of working capital turns is obtained by subtracting the subcontractor
payments from the revenues.
5