chapter3
Student: ___________________________________________________________________________
1. A statement which presents all items in percentage terms is called a(n):
A. balance sheet.
B. ratio statement.
C. common-size statement.
D. income statement.
E. time-trend analysis.
2. Short-term solvency ratios are also referred to as:
A. leverage ratios.
B. turnover rates.
C. utilization ratios.
D. profitability ratios.
E. liquidity measures.
3. Ratios which analyze a firm's ability to meet its long-term obligations are called:
A. profitability ratios.
B. asset utilization ratios.
C. leverage ratios.
D. market value ratios.
E. liquidity ratios.
4. The ratio related to the amount of profit a firm earns for every $1 in sales is called the:
A. net income.
B. profit margin.
C. return on equity.
D. return on assets.
E. price-earnings ratio.
5. The relationship between a firm's earnings and the multiple of those earnings which investors are willing to
pay to purchase one share of stock is called the:
A. financial leverage ratio.
B. debt-equity ratio.
C. capital intensity ratio.
D. market-to-book ratio.
E. price-earnings ratio.
6. The percentage of a firm's net income that is distributed to shareholders is called the:
A. profit margin.
B. dividend payout ratio.
C. equity multiplier.
D. retention ratio.
E. return on equity.
7. The U.S. government coding system that classifies firms by their specific type of business operations is
known as the:
A. gross domestic classification system.
B. Standard Bar Code Industrial System (SBCIS).
C. governmental ID system.
D. Standard Industrial Classification (SIC) system.
E. Governmental Industrial Enterprise (GIE) system.
8. Which one of the following transactions will increase the liquidity of a firm?
A. using cash to purchase new equipment
B. increasing short-term debt while decreasing long-term debt by an equivalent amount
C. issuing long-term debt to repurchase shares of outstanding stock
D. increasing the sales on credit while reducing cash sales by the same amount
E. selling inventory on credit
9. If a manager notices that the firm's receivables turnover rate is declining, he or she should assume that:
A. the average amount of merchandise each customer is buying is declining.
B. the firm is making less profit on each item sold.
C. on average, it is taking each customer longer to pay for their purchases.
D. the current ratio of the firm is also declining.
E. the days' sales in receivables is also declining.
10. Which one of the following will increase the profit margin of a firm?
A. increasing the cost of goods sold
B. increasing the depreciation expense
C. increasing the fixed costs
D. decreasing the tax rate
E. increasing the interest paid
11. Roy's Upholstery Shop has sales of $639,320, total assets of $527,200, a debt-equity ratio of .75, and a
profit margin of 5 percent. What is the equity multiplier?
A. 1.21
B. 1.38
C. 1.44
D. 1.61
E. 1.75
12. Jefferson and Sons has total assets of $807,200, total equity of $509,500, total sales of $945,300, and net
income of $25,600. What is the profit margin?
A. 1.17 percent
B. 1.86 percent
C. 2.71 percent
D. 3.17 percent
E. 5.02 percent