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Which one of the following is the maximum growth rate that a firm can achieve without any additional
external financing?
 
A. DuPont rate
B. External growth rate
C. Sustainable growth rate
D. Internal growth rate
E. Cash flow rate
   
The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of
the following conditions?
 
A. No new external financing of any kind
B. No new debt but additional external equity equal to the increase in retained earnings
C. New debt and external equity in equal proportions
D. New debt and external equity, provided the debt-equity ratio remains constant
E. No new external equity and a constant debt-equity ratio
   
Which one of the following is the abbreviation for the US government coding system that classifies a firm by it specific
type of business operations?
A. BEC
B. SED
C. BID
D. SIC
E. SBC
   
Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales
and costs over the past three years to determine if any trends are present and also determine where the firm might need
to make changes. Which of the following statements will best suit her purposes?
 
A. Income statement
B. Balance sheet
C. Common-size income statement
D. Common-size balance sheet
E. Statement of cash flows
   
A common-size balance sheet helps financial managers determine
 
A. which customers are paying on a timely basis.
B. if costs are increasing faster or slower than sales.
C. if changes are occurring in a firm's mix of assets.
D. if a firm is generating more or less sales per dollar of assets than in prior years.
E. the rate at which the firm's dividend payout is changing
   
Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends.
Given this, the percentage shown on a common-size income statement for the dividend account will:
 
A. remain constant over time.
B. be equal to the dividend amount divided by the net income.
C. vary in direct relation to the net profit percentage.
D. vary in direct relation to changes in the sales level.
E. vary but not in direct relation to any other variable
   
Common-size financial statements present all balance sheet account values as a percentage of:
 
A. the forecasted budget.
B. sales.
C. total equity.
D. total assets.
E. last year's account value
total assets
   
A firm has a current ratio of 1.4 and a quick ratio of .9. Given this,
you know for certain that the firm:
 
A. pays cash for its inventory.
B. has more than half its current assets invested in inventory.
C. has more cash than inventory.
D. has more current liabilities than it does current assets.
E. has positive net working capital
   
Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can
pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.
 
A. Current ratio
B. Debt ratio
C. Cash coverage ratio
D. Cash ratio
E. Quick ratio
   
Which one of the following is a measure of long-term solvency?
 
A. Price-earnings ratio
B. Profit margin
C. Cash coverage ratio
D. Receivables turnover
E. Quick ratio
   
The ratios that are based on financial statement values and used for comparison purposes are called:
 
A. financial ratios.
B. industrial statistics.
C. equity standards.
D. accounting returns.
E. analytical standards.
   
The DuPont identity can be accurately defined as:
 
A. Return on equity xTotal asset turnover xEquity multiplier.
B. Equity multiplier xReturn on assets.
C. Profit margin xReturn on equity.
D. Total asset turnover xProfit margin xDebt-equity ratio.
E. Equity multiplier xReturn on assets Profit margin.
   
At the most fundamental level, firms generate cash and __________.
 
spend it
   
Which of the following are sources of cash?

A. Purchasing an asset.
B. A decrease in notes payable.
C. An increase in notes payable.
D. A decrease in accounts receivable.
   
The most important tax rates. for financial decisions are​ ________ tax rates.
 
Marginal
   
The interest payments on corporate bonds are tax−deductible.
 
True
   
A​ corporation's average tax rate will always be lower than or equal to its marginal tax rate.
 
True
   
The sources and uses of cash over a stated period of time are reflected on the:

A. income statement.
B. balance sheet.
C. tax reconciliation statement.
D. statement of cash flows.
E. statement of operating position.
   
A supplier, who requires payment within 10 days, should be most concerned with which one of the following
ratios when granting credit?
 
A. Total debt
B. Current
C. Debt-equity
D. Cash
E. Quick
   
Which one of the following is a source of cash for a non-tax- paying firm?
 
A. Increase in accounts receivable.
B. Decrease in accounts payable.
C. Increase in inventory.
D. Increase in depreciation.
E. Increase in common stock
   
Which one of the following is one way in which financial managers use a common-size balance sheet?

A. To keep an eye on the firm's profit margin.
B. To identify changes in operating costs.
C. To track changes in a firm's capital structure.
D. To monitor labor costs.
   
Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015?
Assume 2014 is the base year.
 
A. 2015 inventory / 2015 Total assets
B. (2015 inventory / 2015 sales) / (2014 inventory / 2014 sales)
C. (2015 inventory / 2014 inventory) / (2015 total assets / 2014 total assets)
D. 2015 inventory / 2014 inventory
E. (2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets)
   
A common-size income statement helps compare financial results over time by controlling for changes in ________.
 
sales
   
Which one of the following is a source of cash?
A. Increase in accounts receivable
B. Decrease in accounts payable
C. Decrease in common stock
D. Decrease in inventory
E. Increase in fixed assets
   
Which of the following represents problems encountered  when comparing the financial statements of two separate entities?
 
I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.
II. The operations of the two firms may vary geographically.
III. The firms may use different accounting methods.
IV. The two firms may be seasonal in nature and have different fiscal year ends.
 
A. I, II, and III only.
B. I, II, III, and IV.
C. I and II only.
   
Activities of a firm which require the spending of cash are known as:

A. sources of cash.
B. uses of cash.
C. cash collections.
D. cash receipts.
E. cash on hand.
   
A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:
A. total assets.
B. total equity.
C. net income.
D. taxable income.
E. sales.
   
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time?

A. statement of standardization
B. statement of cash flows
C. common-base year statement
D. common-size statement
E. base reconciliation statement
   
Which of the following items are among the items used to compute the current ratio?

A. Cash
B. Earnings
C. Equipment
D. Accounts payable
   
Your firm has the following balance sheet statement​ items:
total current liabilities of​ $805,000;
total assets of​ $2,655,000;
fixed and other assets of​ $1,770,000; and
long−term debt of​ $200,000.
What is the amount of the​ firm's total current​ assets?
 
885,000
   
Relationships determined from a firm's financial information and used for comparison purposes are known as:

A. financial ratios.
B. identities.
C. dimensional analysis.
D. scenario analysis.
E. solvency analysis.
A. financial ratios
   
The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
A. equity equation
B. profitability determinant
C. SIC formula
D. Du Pont identity
E. equity performance formula
   
The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:
A. NASDAQ 100.
B. Standard & Poor's 500.
C. Standard Industrial Classification code.
D. Governmental ID code.
E. Government Engineered Coding System.
   
Patriot Corporation purchased manufacturing equipment with an expected useful life of five years.
The purchase of the machinery would be shown as
 
an asset on the balance sheet
   
When a company pays a dividend on common​ stock, it appears as
 
a reduction in retained earnings
   
Grass Gadgets had sales of​ $30 million and net income of​ $2 million in 2015.
Grass paid a dividend of​ $1.5 million. Assuming that their beginning balance for retained earnings was​ $3 million,
calculate their ending balance for retained earnings.
 
$3.5 million
   
If a company has inventory, the quick ratio will always be _______ the current ratio.
 
less than
   
Which one of the following is a source of cash?
A. increase in accounts receivable
B. decrease in notes payable
C. decrease in common stock
D. increase in accounts payable
E. increase in inventory
   
Which one of the following is a use of cash?
A. increase in notes payable
B. decrease in inventory
C. increase in long-term debt
D. decrease in accounts receivables
E. decrease in common stock
   
A balance sheet is a statement of the financial position of the firm on a given​ date, including its asset​ holdings, liabilities, and equity.
 
True
   
Gross plant and equipment minus accumulated depreciation represents the fair market value of a​ company's fixed assets.
 
False
   
Return on equity (ROE) is a measure of ________.
 
profitability
   
Which one of the following is a source of cash?
A. repurchase of common stock
B. acquisition of debt
C. purchase of inventory
D. payment to a supplier
E. granting credit to a customer
   
Which one of the following is a source of cash?
A. increase in accounts receivable
B. decrease in common stock
C. decrease in long-term debt
D. decrease in accounts payable
E. decrease in inventory
   
According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.
A. decrease; operating
B. decrease; financing
C. increase; operating
D. increase; financing
E. increase; investment
   
If the Marifield Steel Fabrication Company earned  $500,000 in net income and paid a cash dividend of  $307,000
to its​ stockholders, what are the​ firm's earnings per share if the firm has  110,000 shares of stock​ outstanding?
 
$4.54
   
Which of the following are sources of cash?

A. Purchasing an asset
B. A decrease in accounts receivable
C. A decrease in notes payable
D. An increase in notes payable
   
 
   
An important accounting goal is to report financial information to users in a way that is useful for ______.
 
decision making
   
A​ & K Co. expects to have earnings before taxes of​ $250,000 to​ $300,000.
The​ company's marginal tax rate is​ 39% and its average tax rate about​ 33%.
For every additional dollar A​ & K's pays out in common​ dividends, it's income tax liability will
 
be unaffected
   
A common-base year financial statement presents items relative to a certain base, which is the:
 
dollar amount of each item during a common base year.
   
Which of the basic financial statements is best used to answer the​ question, "How profitable is the​ business?"
 
Income Statement
   
Who owns the retained earnings of a public​ firm?
 
Common Stockholders
   
Which of the following represents an attempt to measure the earnings of the​ firm's operations over a given time​ period?
 
Income Statement
   
Stock that is repurchased by the issuing company is called
 
treasury stock
   
Which of the basic financial statements is best used to answer the questions​ "What does the company own and how is it​ financed?"
 
Balance Sheet
   
Which of the basic financial statements is best used to answer the questions​
"Where did the​ company's money come from and how was it spent over the preceding​ year?"
 
Cash Flow Statement
   
The revenue recognition principle requires that
 
revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered.
   
The income statement shows a​ company's earnings since it has been in business
 
False
   
Earnings before interest and taxes (EBIT)
 
Sales less cost of goods sold and operating expenses
   
Gross Profit
 
net sales - cost of goods sold
   
Which of the following best represents operating​ income?
 
Income before interest and taxes
   
Corporate income statements are usually compiled on an​ accrual, rather than​ cash, basis.
 
True
   
A​ & K Co. expects to have earnings before taxes of​ $250,000 to​ $300,000.
The​ company's marginal tax rate is​ 39% and its average tax rate about​ 33%.
For every additional dollar of interest​ expense, A​ & K's taxes will
 
fall by 39 cents.
   
Dividend payout ratio
 
Cash dividends / Net income
   
Retention ratio/plowback ratio
 
Addition to retained earnings / Net income
   
Current Ratio
 
Current assets (cash + AR + Inventory + Other current assets) / Current liabilities
   
Quick ratio
 
Current assets (Cash + Accounts receivable) - (Inventory + Other current assets) / Current liabilities
   
Cash ratio
 
Cash / Current liabilities
   
Days in Receivable
 
AR (Accounts receivable) / Daily Credit Sales / 365
   
Total debt ratio
 
Total assets - Total equity / Total assets
   
Debt-equity ratio
 
Total debt / Total equity
   
Equity multiplier
 
Total assets / Total equity
   
Inventory turnover
 
COGS (Cost of Goods Sold) / Inventory
   
Day's sales in inventory
 
365 days / Inventory turnover
   
Average inventory
 
(Beginning value + Ending value) / 2
   
Receivable turnover
 
Sales / Account receivable
   
Accounts payable turnover rate
 
COGS / Accounts payable
   
Total asset turnover
 
Sales / Total assets
   
Days' costs in payables
 
365 days / Payable turnover
   
Profit Margin
 
Net income / Sales
   
Return on Assets (ROA)
 
Net income / Total assets (Total debt + Equity)
   
Return on equity (ROE)
 
Net income / Total equity
   
Earnings per share
 
Net income / Shares outstanding
   
Price-Earnings ratio
 
Market price per share / Earnings per share
   
Price-Sales ratio
 
Price per share / Sales per share
   
Market-to-book ratio (MTB)
 
market price per share / book value per share (Equity) / Total number of shares)
   
Enterprise value
 
Total market value of the stock + Book value of all liabilities - Cash