325. Financial ratios that reflect the degree to which a firm relies on borrowed funds are called
________ ratios.
326. Earnings per share, return on sales, and return on equity are examples of:
327. ________ measures the amount of profit earned by a company for each share of
outstanding common stock.
328. __________ earnings per share measures the amount of profit a firm earns per share of
outstanding common stock when preferred stock, stock options, warrants and convertible debt
securities are also taken into account.
329. Generally the higher the risk involved in an activity, the ________ the rate of return
expected by investors.
330. A firm’s efficient use of its assets in running the business is key to maintaining sufficient
cash flow. Ratios that accountants utilize to measure the efficient use of assets are called
____________ ratios.
331. ________ measures the speed of inventory moving through the firm and its conversion into
sales.
332. In order to understand if the results of ratio calculations indicate a financially strong
company, the results:
333. If a firm has a debt to owners’ equity ratio of .54 (or 54%) we can conclude that:
334. Generally, a high ___________ ratio could lead investors and creditors to view the
company as being very risky.
335. In order to calculate the current ratio for your firm, you divide the total value of current
assets by:
336. Leverage ratios indicate the extent to which ________ has been used to fund a business’s
operations.
337. The Music Museum, LLC, sells a unique assortment of sheet music. The company
indexes just about any published music ever written before 1970. Its customers are high school
and college band directors, church choir directors, and glee clubs who require several copies of
the same music, including music written for a variety of instruments. To buy inventory for resale,
the business seeks out wholesalers with large inventories. Due to the fact that cash flow is
always an important concern, the owner keeps a watchful eye on how quickly various genres of
sheet music sell. To help him in this assessment, which of the following ratios would be an
important part of this company’s financial analysis?
338. Your firm is a supplier to a major chain of discount stores. You have heard rumors that
this chain of discount stores is in financial difficulty. Which financial ratios would indicate the
discount store’s ability or inability to pay its short-term debts?
339. As a bank loan officer, you are considering a loan application by Peak Performance
Sporting Goods. The company has provided you with the following information from its balance
sheet:
Peak Performance’s current ratio is:
340. Peak Performance Sporting Goods Company has just applied for a bank loan in order to
expand the business. Using the most recent balance sheet data provided by the company owner,
you calculate that the company’s current ratio is 2.5. In your presentation to the company boss,
you remark:
341. As a bank loan officer, you are considering a loan application by Peak Performance
Sporting Goods. The company has provided you with the following information:
Peak Performance’s debt to owners’ equity ratio (rounded to the nearest tenth of a percent) is:
342. Zoey was asked by the company controller to determine if the company could borrow
more money for an expansion project. When she calculated a leverage ratio, she determined that
the company already had 1.5 times as much debt as equity. Do you agree with her assessment
that the company should back off with borrowing more funds at this time?
343. You have just calculated the acid-test ratio for Peak Performance Sporting Goods [acid
test ratio = 1.0]. As a loan officer for the local bank, you are called into your boss’s office to
interpret the results of this ratio. Which of the following statements best reflects an
understanding of these results?
344. As a recent college graduate with a degree in accounting, Jeff is helping a newly formed
construction company set up its accounting system. Although the company had purchased
accounting software, Jeff wants to make certain that future reports will distinguish between
current liabilities and long-term liabilities. In the future, he will need to know the amount of total
current liabilities in order to ___________________.
345. Peak Performance Sporting Goods Company continues to perform well in spite of an
economic recession. Company executives credit this to the strong partnerships it enjoys with
category killer and large discount chains. Last week Peak Performance reported basic EPS
[earnings per share] = $.80/share. If the firm has 4,000,000 shares outstanding, net income after
taxes for the same period = _____.
346. The top managers of Highbrow Bookstores want to indicate to the firm’s shareholders
how effectively they have managed the company. Perhaps the most meaningful way to do this
would be by reporting strong:
347. Peak Performance Sporting Goods Company has reported net income after taxes =
$3,750,000, with 18,250,000 shares outstanding. Basic Earning per Share for Peak Performance =
________.
348. Bob Stewart plans to visit his financial planner today to discuss investment strategy. As a
young accountant, he knows he can afford to invest in a few riskier investments. Which of the
following ratios will be an important measure of profitability for Bob?