21D 23-24 PoF Quiz 3

1. Profitability ratios demonstrate how liquidity, asset management, and debt management collectively influence a firm's operational results.

• True

• False

1. If a company were to sell some inventory for cash and retain the funds in its bank account, it is likely that its current ratio would remain relatively stable, but its quick ratio would decrease.

• True

• False

1. Which of the following statements is CORRECT?

• 1. A reduction in inventories would have no effect on the current ratio.

• An increase in inventories would have no effect on the current ratio.

• 1. If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.

• A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.

• If a firm increases its sales while holding its inventories constant, then, other things held constant, its fixed assets turnover ratio will decline.

1. Which of the following statements is CORRECT?

• 1. The ratio of long-term debt to total capital is more likely to experience seasonal fluctuations than is either the DSO or the inventory turnover ratio.

• An increase in a firm’s debt ratio, with no changes in its sales or operating costs, could be expected to lower its net profit margin.

• 1. If two firms have the same ROA, the firm with the most debt can be expected to have the lower ROE.

• 1. An increase in the DSO, other things held constant, could be expected to increase the total assets turnover ratio.

• 1. An increase in the DSO, other things held constant, could be expected to increase the ROE.

1. Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one approach to analyzing shifts in a firm's performance over time.

• True

• False

You have the following information on Mark's Home Shop: total liabilities and equity = $205 million, current liabilities = $45 million, inventory = $60 million, and quick ratio = 2.4 times. Using this information, calculate the balance for fixed assets on Mark Home's balance sheet. 

• $37.0million

• 1. $37.7million
     
     

• $37.0billion

• 1. $37.7billion

1. Vanessa's Ts, Inc. reported a debt-to-equity ratio of 3 times at the end of 2021. If the firm's total assets at year-end are $15 million, calculate how much of their assets is financed with equity. 

•  $3.75m

•  $3.5m

• $11.25m
  

• $45m

Your sister is thinking about starting a new business.  The company would require $380,000 of assets, and it would be financed entirely with common stock.  She will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%.  How much net income must be expected to warrant starting the business?

• 1. $58,482

• 1. $45,144

• 1. $52,300

• 1. $51,300

• 1. $39,501

1. In 2021, Solomon reported sales of $6,783 million, gross profits of $2,647 million, EBIT of $949 million, and net income of $681 million. The company's gross profit margin that year was closest to ________.

• 39%

• B) 38%

• C) 10%

• D) 14%

1. Major Inc.'s assets are $745,000, and its total debt outstanding is $185,000.  The new CFO wants to establish a debt ratio of 55%.  The size of the firm does not change.  How much debt must the company add or subtract to achieve the target debt ratio?

• 1. $168,563
     

• 1. $224,750

• 1. $244,750

• 1. $211,265

• 1. $271,948