Why is a higher current ratio good?

More short term assets available to pay current liabilities

Which of following is associated with higher TIE ratio?

High level of operating income relative to interest expense

How can a firm increase ROE, all else held equal?

Issue more debt and use to repurchase equity

A low inventory turnover could indicate _____________.

Sales are low relative to inventories

A low PE ratio of firm compared to industry could indicate which of the following?

Investors concerned about earnings in future

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FIN 441 - Chap 3 (Ratio analysis)

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Questions 21

Answers

1
Total debt to total assets ratio is expressed as:
(NP + LTD) / TA
Equity / Assets
(Total CL - LTD) / Sales
LTD / Equity
2
Why is a higher current ratio good?
Less short term assets available to pay current liabilities
Two of the answers are correct
More short term assets available to pay current liabilities
More invested in assets increases FCF
3
Higher debt levels ____________
do not affect total assets
lower net income through interest deduction
reduce ROA
All of the answers are correct
4
The goal of a firm is to maximize profit?
True
False
5
What is the least liquid current asset?
Accounts Payable
Cash
Net plant and equipment
Inventory
6
Which is the most liquid current asset?
None of the answers is correct
Cash
Plant and equipment
Inventory
7
DuPont Equation ___________
All of the answers are correct
allows for dissecting how PM, TAT, and EM affect ROE
provides a measure of ROE
is ROA times equity multiplier
8
Which is correct concerning market and book value?
Two of the answers are correct
None of the answers is correct
Book value reflects what stockholders have invested
Market value is forward looking
9
Which is correct for common size analysis
None of the answers is correct
Income statement items are expressed as a % of TA
Balance sheet items are expressed as a % of sales
Measure of trends in a ratio over time
10
Which of following is associated with higher TIE ratio?
High level of operating income relative to interest expense
None of the answers is correct
Higher chance of bankruptcy
Better opportunity to pay interest expenses from net income
11
Which of the following is correct considering ROE?
Share repurchases reduce ROE
Share repurchases increase ROE
Two answers are correct
Maximizing ROE is same as maximizing shareholder value
12
How can a firm increase ROE, all else held equal?
None of the answers is correct
Two of the answers are correct
Issue more debt and use to repurchase equity
Issue new stock
13
A higher debt ratio means greater use of leverage?
False
True
14
Net profit margin is expressed as ___________
Net income / Sales
EBIT / Sales
Gross income / sales
NOPAT / Sales
15
Which is correct about stock prices expressed on a ticker?
Price is listed per share
Price is looking backward at what firm has done
Two answers are correct
Price represents book value
16
If total asset turnover ratio is higher than industry average, then ________
Will have a positive effect on share price
Will have a negative effect on share price
Company is good manager of assets in producing sales
Two of the answers are correct
17
A low inventory turnover could indicate _____________.
A low level of inventory
None of the answers is correct
Sales are high relative to inventories
Sales are low relative to inventories
18
Total liabilities to total assets ratio is:
(Total CL - CA + LTD) / Net income
(Total CL + LTD) / TA
None is correct
(LTD + Total CA) / TA
19
A high DSO indicates which of the following?
Poor collection efforts
All of the answers are correct
Higher possibility may not collect over longer time period
A decrease in FCF from a higher level of AR
20
A low PE ratio of firm compared to industry could indicate which of the following?
Investors are overall optimistic about the company relative to the industry
Investors concerned about earnings in future
Two of the answers are correct
Investors concerned about earnings in the past
21
Which of the following is a weakness of a high current ratio, all other variables held constant?
Lower FCF
Higher FCF
None of the answers is correct
Too much inventory has negative impact on sales

FIN 441 - Chap 3 (Ratio analysis) Flashcards | StudBud