Chapter 3 Working with Financial Statements
Chapter 03 Quiz A Student Name_________________________
Student ID ____________
Use the following financial statements to answer this quiz.
Cash
Accounts receivable
Inventory
Net fixed assets
Total assets
Balance Sheet
$ 2,300 Accounts payable
4,600 Long-term debt
11,800 Common stock
44,700 Retained earnings
$63,400 Total liab. & equity
Income Statement
Sales
$71,500
Cost of goods sold
52,900
Depreciation
5,400
Interest
500
Taxes
4,300
Net income
$ 8,400
$ 4,200
26,500
20,000
12,700
$63,400
Select the best answer. All answers are rounded.
________ 1.
What is the debt-equity ratio?
a. 0.42
b. 0.57
c. 0.81
d. 0.94
________ 2.
How many days on average does it take the firm to sell its inventory?
a. 4.48 days
b. 5.57 days
c. 65.53 days
d. 81.42 days
________ 3.
What is the times interest earned ratio?
a. 16.8
b. 21.9
c. 26.4
________ 4.
What is the profit margin?
a. 2.72 percent b. 5.00 percent
d. 29.7
c. 11.75 percent d. 11.00 percent
________ 5.
What is the return on equity?
a. 20.71 percent b. 25.69 percent c. 36.67 percent d. 42.00 percent
________ 6.
What is the PEG ratio if there are 2,000 shares of stock outstanding, the market price per share is $46, and
the earnings growth rate is 2.8 percent?
a. 3.91
b. 4.06
c. 4.14
d. 4.22
________ 7.
If the accounts payable had a balance of $4,600 last year, then accounts payable is _____ of cash this year.
a. a source
b. a use
c. neither a source nor a use
________ 8.
If the common stock account had a balance of $22,000 last year, then the common stock account is a _____
of cash this year.
a. a source
b. a use
c. neither a source nor a use
________ 9.
What is the market-to-book ratio if there are 2,000 shares of stock outstanding and the market price per
share is $46?
a. 2.81
b. 4.06
c. 4.54
d. 5.39
________ 10.
What is the common size ratio of the depreciation expense?
a. 7.55 percent b. 8.14 percent c. 8.52 percent d. 9.45 percent
3-1
Chapter 3 Working with Financial Statements
Chapter 03 Quiz A
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
d
d
c
c
b
a
b
b
a
a
Answers
Debt-equity ratio = ($4,200 + $26,500) / ($20,000 + $12,700) = $30,700 / $32,700 = .94
Inventory turnover ratio = $52,900 / $11,800 = 4.48305 Days’ sales in inventory = 365 / 4.48305 = 81.42 days
Times interest earned = ($71,500 − $52,900 − $5,400) / $500 = 26.4
Profit margin = $8,400 / $71,500 =.11748 = 11.75 percent
Return on equity = $8,400 / ($20,000 + $12,700) = .25688 = 25.69 percent
PEG = [$46 / ($8,400 / 2,000)] / 2.8 = 10.95238 / 2.8 = 3.91
A decrease in a liability account is a use of cash.
A decrease in an equity account is a use of cash.
Market-to-book ratio = $46 / [($20,000 + $12,700) / 2,000] = $46 / $16.35 = 2.81
Common size ratio of depreciation = $5,400 / $71,500 = .0755 = 7.55 percent
3-2
Chapter 3 Working with Financial Statements
Chapter 03 Quiz B
Student Name _________________________
Student ID ____________
Use the following financial statements to answer this quiz.
Cash
Accounts receivable
Inventory
Net fixed assets
Total assets
Balance Sheet
980 Accounts payable
4,160 Long-term debt
11,750 Common stock
32,500 Retained earnings
$49,390 Total liab. & equity
$
Income Statement
Sales
$52,600
Cost of goods sold
40,960
Depreciation
4,610
Interest
1,260
Taxes
1,970
Net income
$ 3,800
$ 3,610
15,740
18,400
11,640
$49,390
Select the best answer. All answers are rounded.
________ 1.
What is the quick ratio?
a. 0.10
b. 0.27
c. 1.42
d. 4.68
________ 2.
On average, how long does it take the firm to collect payment from a customer?
a. 12.64 days
b. 16.28 days
c. 22.42 days
d. 28.87 days
________ 3.
What is the price-sales ratio if there are 2,500 shares of stock outstanding at a price per share of $72?
a. 3.42
b. 3.87
c. 4.14
d. 4.20
________ 4.
What is the profit margin?
a. 6.67 percent b. 7.22 percent
c. 7.69 percent
d. 8.03 percent
What is the cash coverage ratio?
a. 8.67
b. 9.24
c. 10.31
d. 10.59
What is the total asset turnover?
a. 0.42
b. 0.57
c. 0.84
d. 1.06
________ 5.
________ 6.
________ 7.
If the accounts payable had a balance of $4,210 last year, then accounts payable is ____ of cash this year.
a. a source
b. a use
c. neither a source nor a use
________ 8.
The average inventory turnover rate for the industry best related to this firm is 3.6. This indicates that
this firm is selling its inventory _____ its peers on an average basis.
a. faster than
b. slower than
c. at the same pace as
________ 9.
What is the PEG ratio if there are 2,500 shares of stock outstanding with a market price of $18.40 per
share? The expected earnings growth rate is 3.4 percent.
a. 3.56
b. 4.27
c. 4.41
d. 4.90
________10.
What is the common size ratio for long-term debt?
a. 24.08 percent b. 27.79 percent c. 31.87 percent d. 34.20 percent
3-3
Chapter 3 Working with Financial Statements
Chapter 03 Quiz B
1.
2.
c
d
3.
4.
5.
6.
7.
8.
a
b
b
d
b
b
9.
10.
a
c
Answers
Quick ratio = ($980 + $4,160) / $3,610 = 1.42
Accounts receivable turnover = $52,600 / $4,160 = 12.64423; Days sales in receivables = 365 / 12.64423 = 28.87
days
Price-sales ratio = $72 / ($52,600 / 2,500) = $72 / $21.04 = 3.42
Profit margin = $3,800 / $52,600 = .07224 = 7.22 percent
Cash coverage ratio = ($52,600 − $40,960) / $1,260 = 9.24
Total asset turnover = $52,600 / $49,390 = 1.06
Accounts payables decreased which is a use of cash.
Inventory turnover = $40,960 / $11,750 = 3.49. The lower the turnover rate, the slower the pace at which the
inventory is selling.
PEG =[ $18.40 / ( $3,800 / 2,500)] / 3.4 = 12.10526 / 3.4 = 3.56
Common size ratio for long-term debt = $15,740 / $49,390 = .31869 = 31.87 percent
3-4
Chapter 3 Working with Financial Statements
Chapter 03 Quiz C
Student Name _________________________
Student ID ____________
Use the following financial statements to answer questions 1 through 8.
Cash
Accounts receivable
Inventory
Net fixed assets
Total assets
Balance Sheet
2006
2007
$ 2,100
$ 1,800
3,700
4,400
14,500
16,700
41,300
45,800
$61,600
$68,700
Accounts payable
Long-term debt
Common stock
Retained earnings
Total liab. & equity
2006
$ 6,300
26,400
18,000
10,900
$61,600
2007
$ 5,900
26,300
21,000
15,500
$68,700
Income Statement
Sales
$66,900
Cost of goods sold
50,700
Depreciation
5,600
Interest
2,300
Taxes
2,900
Net income
$ 5,400
Select the best answer. All answers are rounded.
________ 1.
What is the current ratio for 2007?
a. 0.92
b. 1.05
c. 3.22
d. 3.88
________ 2.
What is the accounts receivable turnover rate? Use the average receivables for 2006 and 2007.
a. 14.87
b. 16.52
c. 22.10
d. 24.55
________ 3.
What is the profit margin for 2007?
a. 7.23 percent
b. 7.45 percent
________ 4.
c. 7.86 percent
What is the common size ratio for retained earnings for 2007?
a. 22.56 percent
b. 26.93 percent
c. 27.65 percent
d. 8.07 percent
d. 28.49 percent
________ 5.
What is the price-sales ratio if there are 4,000 shares of stock outstanding and the market price per share is
$37.50?
a. 2.24
b. 2.99
c. 3.07
d. 3.80
________ 6.
What is the return on equity based on 2007 values?
a. 13.33 percent
b. 14.14 percent
c. 14.79 percent
d. 16.78 percent
________ 7.
What are the dividends per share if there are 4,000 shares of stock outstanding?
a. $0.02
b. $0.15
c. $0.20
d. $0.35
________ 8.
What is the common size ratio for the inventory for 2007?
a. 21.08 percent
b. 21.17 percent
c. 23.54 percent
d. 24.31 percent
Which one of the following accounts represents an investment activity?
a. inventory
b. accounts payable
c. cost of goods sold
d. net fixed assets
________ 9.
________ 10.
Which of the following are correct formulas for computing the return on equity?
I.
ROE = Net income / Total equity
II.
ROE = Return on assets × (1 + Debt-equity ratio)
III.
ROE = Profit margin × Total asset turnover × Equity multiplier
IV.
ROE = Return on assets × (1 + Equity multiplier)
a.
I and III only
b.
II and IV only
c.
I, II, and III only
d.
I, III, and IV only
3-5
Chapter 3 Working with Financial Statements
Chapter 03 Quiz C
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
d
b
d
a
a
c
c
d
d
c
Answers
Current ratio for 2007 = ($1,800 + $4,400 + $16,700) / $5,900 = 3.88
Average A/R = ($3,700 + $4,400)  2 = $4,050 ; A/R turnover = $66,900 / $4,050 = 16.52
Profit margin = $5,400 / $66,900 = .0807 = 8.07 percent
Common size ratio for retained earnings for 2007 = $15,500 / $68,700 = .2256 = 22.56 percent
Price-sales ratio = $37.50 / ($66,900 / 4,000) = $37.50 / $16.725 = 2.24
Return on equity based on 2007 equity = $5,400 / ($21,000 + $15,500) = .1479 = 14.79 percent
Dividends per share = [$5,400 − ($15,500 − $10,900)] / 4,000 = $800 / 4,000 = $0.20
Common size ratio for inventory for 2007 = $16,700 / $68,700 = .2431 = 24.31 percent
Net fixed assets is the investment activity account.
Options I, II, and III are correct formulas for computing the return on equity.
3-6