National Economic University
Program: BFT
Họ và tên: ............................................................................
Mid - term test
Financial Analysis
70 minutes
Số báo danh: .......
Mã đề 000
Part A
Question 1. Other things held constant, which of the following will not affect the current ratio, assuming
an initial current ratio greater than 1.0?
A. Fixed assets are sold for cash.
B. Long-term debt is issued to pay off current liabilities.
C. Accounts receivable are collected.
D. Cash is used to pay off accounts payable.
Question 2. Which of the following alternatives could potentially result in a net increase in a company's
free cash flow for the current year?
A. Reducing the days-sales-outstanding ratio.
B. Increasing the number of years over which fixed assets are depreciated.
C. Decreasing the accounts payable balance.
D. All of the answers are correct.
Question 3. Company R and Company S each have the same operating income (EBIT) and basic earning
power (BEP) ratio. Company S, however, has a lower times-interest-earned (TIE) ratio. Which of the
following statements is most correct?
A. Company S has a higher ROA.
B. Company S has a higher net income.
C. Company S has a higher interest expense.
D. All of the answers are correct.
Question 4. Company J and Company K each recently reported the same earnings per share (EPS).
Company J’s stock, however, trades at a higher price. Which of the following statements is most correct?
A. Company J must have a higher P/E ratio.
B. Company J must have a higher market to book ratio.
C. Company J must be riskier.
D. Company J must have fewer growth opportunities.
Question 5. Mesa Company has a current ratio = 1.9. Which of the following actions will increase the
company’s current ratio?
A. Use cash to reduce short-term notes payable.
B. Use cash to reduce accounts payable.
C. Issue long-term bonds to repay short-term notes payable.
D. All of the answers above are correct.
Question 6. If a company increases its debt ratio, but leaves its operating income (EBIT) and total assets
unchanged, which of the following is most likely to occur:
A. The company's tax liability will fall.
B. The company's net income will rise.
C. The company's basic earning power will fall.
D. The company's tax liability will fall and net income will rise.
Question 7. Companies A and B each have the same level of total assets, the same tax rate, and the same
earnings before interest and taxes (EBIT). Company A, however, has a higher debt ratio. Which of the
following statements is most correct?
A. Company A has a lower return on assets (ROA).
B. Company A has a lower basic earning power (BEP).
C. Company A has a lower times interest earned (TIE) ratio.
D. Answers a and c are correct.
Question 8. Which of the following statements is most correct?
A. If a company’s ROA is 7 percent, then its ROE must be greater than or equal to 7 percent.
B. The BEP and ROA will be the same for a company with no debt in its capital structure.
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C. A company with a low debt ratio will have a high equity multiplier.
D. Both statements a and c are correct.
Question 9. Demax Inc. has earnings after interest but before taxes of $300. The company's before-tax
times-interest-earned ratio is 7.00. Calculate the company's interest charges.
A. $42.86
B. $50.00
C. $40.00
D. $60.00
Question 10. A firm has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of
$7,500,000, total assets of $22,500,000, and an after-tax interest cost on total debt of 5 percent, what
is the firm's ROA?
A. 8.4%
B. 10.9%
C. 12.0%
D. 13.3%
Question 11. Huff Corporation has 100,000 shares of common stock outstanding. The company’s net
income is $750,000 and its P/E is 8. What is the company’s stock price?
A. $20.00
B. $30.00
C. $40.00
D. $60.00
Question 12. You are given the following information: Stockholders' equity = $1,250; price/earnings ratio
= 5; shares outstanding = 25; market/book ratio = 1.5. Calculate the market price of a share of the
company's stock.
A. $ 33.33
B. $ 75.00
C. $ 10.00
D. $166.67
Question 13. 13: The JBC Corporation has the following relationships:
Sales/Total assets
2.0
Return on assets (ROA)
4%
Return on equity (ROE)
6%
What is JBC’s profit margin and debt ratio?
A. 2% and 0.33
B. 4% and 0.33
C. 4% and 0.67
D. 2% and 0.67
Question 14. A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40
percent, and a net profit margin of 6 percent. What is the firm's times-interest-earned ratio?
A. 16
B. 10
C. 7
D. 11
Question 15. Mixon Office Supply had $24,000,000 in sales last year. The company’s net income was
$400,000. Its total assets turnover was 6.0. The company’s ROE was 15 percent. The company is
financed entirely with debt and common equity. What is the company’s debt ratio?
A. 0.20
B. 0.30
C. 0.33
D. 0.60
Question 16. Harbison Inc. sells all its merchandise on credit. It has a profit margin of 4 percent, days
sales outstanding equal to 60 days (based on a 365-day year), receivables of $147,945.2, total assets
of $3 million, and a debt ratio of 0.64. What is the firm's return on equity (ROE)?
A. 7.1%
B. 33.3%
C. 3.3%
D. 71.0%
Question 17. A fire has destroyed a large percentage of the financial records of the Carter Company. You
have the task of piecing together information in order to release a financial report. You have found
the return on equity to be 18 percent. If sales were $4 million, the debt ratio was 0.40, and total
liabilities were $2 million, what was the return on assets (ROA)?
A. 10.80%
B. 0.80%
C. 1.25%
D. 12.60%
Part B
Question 18. Colgate Motors has forecasted the following year-end balance sheet:
Assets:
Cash and marketable securities
$ 300
Inventories
500
Accounts receivable
700
Total current assets
$1,500
Net fixed assets
5,000
Total assets
$6,500
Liabilities and Equity:
Notes payable
$ 800
Accounts payable
400
Total current liabilities
$1,200
Long-term debt
3,000
Stockholders’ equity
2,300
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Total liabilities and equity
$6,500
The company also forecasts that its days sales outstanding (DSO) on a 365-day basis will be 35.486 days.
Now, assume instead that Colgate is able to reduce its DSO to the industry average of 30.417 days without
reducing its sales. Under this scenario, the reduction in accounts receivable would generate additional cash.
This additional cash would be used to reduce its notes payable. If this scenario were to occur, what would
be the company’s current ratio?
A. 1.35
B. 1.27
C. 1.00
D. 1.17
Part C
Question 19. The current ratio and inventory turnover ratio measure the liquidity of a firm. The current
ratio measures the relationship of a firm's current assets to its current liabilities and the inventory turnover
ratio measures how rapidly a firm turns its inventory back into a "quick" asset or cash.
A. True
B. False
C. None
D. None
Question 20. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that can be used
to assess how effectively the firm is managing its assets in consideration of current and projected
operating levels.
D . None
A. True
B. False
C. None
Question 21. Since ROA measures the firm's effective utilization of assets (without considering how these
assets are financed), two firms with the same EBIT must have the same ROA.
A. True
B. False
C. None
D. None
Question 22. Determining whether a firm's financial position is improving or deteriorating requires analysis
of more than one set of financial statements. Trend analysis is one method of measuring a firm's
performance over time.
A. True
B. False
C. None
D. None
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