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1. The income statement of a firm shows the value of its assets and liabilities over a
specified period of time.
2. The higher the times interest earned ratio, the higher the interest expense.
3. The net working capital of a firm will decrease when accrued wages are paid with cash.
4. Net working capital is determined from the difference between current assets and current
liabilities.
5. Net working capital to total assets and current ratio are both liquidity ratios.
6. The net working capital to total assets ratio is always a larger number than the current
ratio.
7. The asset turnover ratio and inventory turnover ratio are both efficiency ratios.
8. The inventory turnover ratio times the average days in inventory equals 365.
9. Return on assets and return on equity are both profitability ratios.
10. Return on assets is always a larger number than the return on equity.
11. The reduction in value over time of intangible assets is known as amortization.
12. Receivable turnover ratio and asset turnover ratio are both efficiency ratios.
13. Market value added is the difference between the market value of the firm's equity and its
book value.
14. Market value added is the same as economic value added.
15. The difference between the current and quick ratios is that inventory has been subtracted
from current assets.
16. A healthy current ratio and an unhealthy quick ratio may be caused by excess inventory.
17. Other things equal, an increase in average accounts receivable will increase a firm's return
on assets.
18. Residual income is another term for economic value added.
19. EVA is the net profit of the firm adjusted for the cost of capital.
20. ROE is equal to ROA when the firm has no debt.
21. Increasing leverage will always act to increase a firm's ROE.
22. Which of the following is the
least
effective measure of operating performance?
23. Lease obligations are included in certain leverage ratios because leases:
24. A firm with no leases has a long-term debt ratio of 50%. This means that the book value
of equity:
25. When a firm's long-term debt-equity ratio is .98, the firm:
26. If a firm's total debt ratio is greater than .5, then:
27. A times interest earned ratio of 5 indicates the firm:
28. If a firm's cash coverage ratio is greater than its times interest earned ratio, then the:
29. An asset's liquidity measures its:
30. Which of the following actions could improve a firm's current ratio if it is now less than
1.0?
31. A firm's quick ratio of .49 suggests the firm:
32. A firm has $600,000 in current assets and $150,000 in current liabilities. Which of the
following is correct if it uses cash to pay off $50,000 in accounts payable?
33. How would you interpret an inventory turnover ratio of 10.7?
34. What are the annual sales for a firm with $400,000 in debt, a total debt ratio of .4, and an
asset turnover of 3?
35. Which one of the following will cause a reduction in the NWC turnover ratio all else held
constant?
36. The inventory turnover ratio compares:
37. When Tri-C Corp. compares its ratios to industry averages, it has a higher current ratio,
an average quick ratio, and a lower inventory turnover. What might you assume about Tri-C?
38. Which one of the following statements is most likely correct for a firm with an average
collection period of 90 days?
39. A firm reports a net profit margin of 10% on sales of $3 million when ignoring the effects
of financing. If taxes are $200,000, how much is EBIT?
40. Which of the following will allow your firm to achieve its targeted 16% ROA with an asset
turnover of 2.5?
41. What is the ROA of a firm with $150,000 in average receivables, which represents 60 days
sales, average assets of $750,000, and a profit margin of 9%?
42. Last year's return on equity was 30%. This year the ROE has decreased to 20% even
though the firm's earnings equaled last year's earnings. The firm has no preferred stock. What
caused the decrease?
43. Which one of these costs accounts for the difference between accounting income and
economic value added?
