Which of the following is the most significant comparability problem encountered when using firms in the same industry as a benchmark for financial ratios?
|A)||The flexibility of GAAP guidelines in accounting for tax.|
|B)||The size of the firm being analyzed.|
|C)||The flexibility of GAAP guidelines in accounting for depreciation.|
|D)||The flexibility of GAAP guidelines in accounting for corporate debt and equity.|
_______________ is widely used by the borrowers to ascertain firm's debt capacity and also enable them to determine the bond rating.
|A)||Interest coverage ratio|
|B)||Debt to Equity ratio|
A(n) ____________ is ____________ net income when adjusting net income in order to compute cash provided by operations in the statement of cash flows.
|A)||increase in accounts receivable; added to|
|B)||decrease in inventories; subtracted from|
|C)||increase in accounts payable; added to|
|D)||decrease in wages payable; added to|
Which among the following ratios is a profitability ratio?
|D)||Return on equity|
A company has EBIT equal to $100,000, an asset/equity ratio of 2.5, a tax rate of 40%, and interest expense of $20,000. The firm's compound leverage factor is ____________.
A company in a 30% tax bracket has return on assets (ROA) equal to 16% and asset turnover ratio equal to 2. What is the firm's operating profit margin?
FASB Statement No. 157 places assets in one of three "buckets." Level 1 lists:
|A)||assets that are not actively traded, but their values still may be estimated using observable market data on similar assets.|
|B)||assets that are traded in active markets and valued at their market price|
|C)||assets that can be valued only with inputs that are difficult to observe.|
|D)||assets that are traded in active markets and valued at their historical price|
A company has a tax rate of 25%, a debt/equity ratio of 0.50, interest burden ratio of 0.70 and operating profit margin of 10%. The firm generates $2.00 in sales per dollar of assets. Calculate the firm's return on equity (ROE).
National Furniture Company has a return on equity (ROE) of 12%, a debt/equity ratio of 0.4, a tax rate of 20%, and the interest rate on its debt is 10%. Calculate the firm's operating return on assets (ROA).
Economic value added is a measure of the dollar value of a firm's return in excess of its __________ cost.
Economic earnings is defined as:
|A)||Actual cash required by the firm in order to make it economically stable.|
|B)||The real flow of cash that a firm could pay out without impairing its productive capacity.|
|C)||Earnings before interest and taxes divided by total assets.|
|D)||Earnings of a firm as reported on its income statement|
A company has a price-earnings (P/E) ratio of 20 and return on equity (ROE) of 15%. Calculate the firm's market-to-book-value ratio.
Two identical companies (X and Y) use different inventory valuation methods during a period of increasing prices. Company X uses last-in first-out (LIFO) and Company Y uses first-in first-out (FIFO). Company X will have ____________ cost of goods sold, and ___________ inventory level on its balance sheet, compared to Company Y.
|B)||higher; the same|
Regarding the interpretation of financial statements, which of the following is generally considered the major additional complication when analyzing foreign firms?
|A)||fluctuating exchange rates|
|B)||differences in accounting standards|
|C)||lack of common benchmarks|
|D)||differences in inflation rates|
The term 'quality of earnings' refers to the extent to which a firm's accounting earnings are ______________.
|A)||equivalent to the firm's operating cash flow|
|B)||sustainable and reflect economic earnings|
|C)||calculated in conformity with GAAP|
|D)||unaffected by inflation and changes in interest rates|