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Multiple Choice Quiz
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1

An example of a liquidity ratio is
A)current ratio
B)fixed asset turnover
C)acid test or quick ratio
D)A and C
E)B and C
2

A firm has a higher asset turnover ratio than the industry average, which implies
A)the firm is utilizing assets more efficiently than other firms in the industry.
B)the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C)the firm is more profitable than other firms in the industry.
D)the firm has a higher P/E ratio than other firms in the industry.
E)the firm has higher spending on new fixed assets than other firms in the industry.
3

Over a period of thirty-odd years in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately
A)5%.
B)20%.
C)15%.
D)30%.
E)none of the above
4

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies
A)the firm is more profitable than other firms in the industry.
B)the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C)the firm has a higher P/E ratio than other firms in the industry.
D)the firm is utilizing its assets more efficiently than other firms in the industry.
E)none of the above
5

According to the study by Norby (1983), the inflation-adjusted data required by FASB 33
A)was ignored by most analysts.
B)was useful in estimating intrinsic value.
C)provided better estimates of real economic earnings than the unadjusted data.
D)added consistency to financial statement analysis.
E)none of the above
6

A measure of asset utilization is
A)sales divided by working capital.
B)return on equity capital.
C)return on total assets.
D)operating profit divided by sales.
E)none of the above
7

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes
A)higher inventory turnover.
B)higher reported sales.
C)lower ending inventory.
D)higher income taxes.
E)none of the above
8

CFE Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm
A)utilizes assets effectively.
B)has too much equity in the capital structure.
C)has a relatively low dividend payout ratio.
D)has relatively high current liabilities.
E)none of the above
9

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years
A)sales/total assets.
B)retained earnings/total assets.
C)debt/equity.
D)debt/total assets.
E)none of the above
10

If a firm's ratio of (total liabilities/total assets) is higher than the industry average while the total capitalization of the firm's stockholders' equity) is lower than the industry average, the most likely assumption is that the firm
A)has more current assets than the industry average.
B)has more leased assets than the industry average.
C)will be more profitable than the industry average.
D)has more current liabilities than the industry average.
E)none of the above





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