02. Finance

The principal reason for preparing common size statements is

• to make meaningful comparisons between firms that are not the same size.

• to make meaningful comparisons between different quarters within the fiscal year.

• to eliminate the effects of inflation.

• to make meaningful comparisons between firms in different industries.

The debt ratio is a measure of a firm's

• leverage.

• profitability.

• liquidity.

• efficiency.

If you were given the components of current assets and of current liabilities, what ratios could you compute?

• Profitability ratios

• Capital structure ratios

• Asset management ratios

• Liquidity ratios

Which of the following transactions does NOT affect the quick ratio?

• Land held for investment is sold for cash.

• Equipment is purchased and is financed by a long-term debt issue.

• Inventories are sold for cash.

• Inventories are sold on a credit basis.

Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is

• 90 days.

• 45 days.

• 75 days.

• 60 days.

The question "Did the common stockholders receive an adequate return on their investment?" is answered through the use of

• liquidity ratios.

• profitability ratios.

• coverage ratios.

• leverage ratios.

Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall's debt ratio.

• 30%

• 40%

• 50%

• 60%

The DuPont method decomposes return on equity into

• return on assets and the debt ratio.

• return on assets and the equity multiplier.

• operating income and inventory turnover.

• net profit margin and fixed asset turnover.

What is the reason for computing the acid test ratio in addition to the current ratio?

• inventory is the most liquid of the liquid assets.

• a firm's inventory may not be particularly liquid.

• inventory is the best collateral for short term loans.

• compared to accounts receivable, inventory balances may be difficult to verify

Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

• Current ratio

• Gross profit margin

• Quick ratio

• Return on investment