What is the book value per share for a company that has ... · PDF fileWhat is the book value...

What is the book value per share for a company that has total stockholders' equity of $10,000,000,

preferred stock of $50,000, and 300,000 common shares outstanding?

a $33.17

$33.33

$33.50

$28.57

Challenge

"'Your answer is correct.

]

The correct answer is shown.

Vertical analysis focuses on the relations among financial statement items at a given point in time.

~Your answer is correct.

Challenge

If a company has current assets of $225,000 and current liabilities of $200,000, what is the working

capital?

$(25,000)

& $25,000

$425,000

1.125%

Challenge

._,Your answer Is correct.

]


Analyzing financial data over time is horizontal analysis. (Enter only one word per blank.)


Challenge

If a company had earnings before interest expense and income taxes of $2,000,000 and Interest

expense of $400,000, what is the times interest earned ratio?

0.2

6

4

~Your answer Is correct.

a_5 ________________________________________ 1

Challenge


A(n) common-size financial statement is a vertical analysis in which each financial statement item is

expressed as a percentage.


Challenge

If a company has sales on account of $400,000 and average accounts receivable balance of

$50,000, what is the accounts receivable turnover?

'-'Your answer is correct.

$450,000

·~8~~~~~~~~~~~~~~~~~-) 0.125

$350,000

Challenge

If a company has cost of goods sold of $20,000,000, a beginning inventory balance of $4,000,000

and an ending inventory balance of $4,500,000, what is the inventory turnover ratio?

5

4.4


a_4_.7 ________________________________________ _,J Challenge

If a company has cash of $30,000, marketable securities of $40,000, accounts receivable of

$50,000, inventory of $20,000, short-term notes receivable of $30,000, and current liabilities of

$60,000, what is its acid-test ratio?

1.2

1.83

2.83


a ___ 2_.5 ____________________ _,,J

Challenge

If a company has total liabilities of $500,000 and stockholders' equity of $700,000, what is the debt

to-equity ratio?


1.71

lfal_o_.11 __________________________________________ )

0.4

1.4

Challenge


Long-term creditors are concerned with a company's ability to keep a reasonable balance between its

liabilities and stockholders' equity. This balance is measured by the debt-to-equi~ ratio.


Challenge

A company has earnings per share of $7 and market price per share of $49. What is the price

earnings ratio?


a_1 ________________________________________ 1

0.14

49

343

Challenge


The ratio that excludes inventories and prepaid expenses from total current assets, leaving only the

more liquid (or "quick") assets to be divided by current liabilities, is the acid-test ratio.


Challenge

What are the three types of analytical techniques that are widely used when comparing financial

statements? (Check all three techniques.)


Interviewing key executives

& Ratios

a Common-size statements

a Dollar and percentage changes on statements

Challenge

) ) )

If a company has current assets of $200,000 and current liabilities of $120,000, what is the current

ratio?

$320,000

$80,000


if1_1_.67 ______________________ )

0.6

Challenge


The accounts receivable turnover is computed by dividing sales on account (credit sales) by the

average accounts receivable balance for the year.


Challenge

Calculate earnings per share if net income is $100,000, preferred dividends are $20,000 and the

average number of common shares outstanding is 20,000.

$6

$5


a_$4 _________________________________________ 1

Challenge

If a company had Net income of $60,000, Preferred dividends of $20,000, Average total

stockholders' equity of $300,000 and Average preferred stock of $50,000, then the return on

common stockholders' equity is:


32%

lfl_1_6o/c_o _____________________ )

22.9%

20%

Challenge


The relationship between the market price of a share of stock and the stock's current earnings per

share is often stated in terms of the uric~-earnings ratio. (Enter only one word per blank.)


Challenge

Which of the following are examples of performing financial statement analysis? (Check all that

apply.)


Examining trends in key economic data

Analyzing financial ratios to assess the financial health of a company

a Examining trends in key financial data

a Comparing financial data across companies

Understanding how an income statement works

Challenge

)


The ividend payou ratio gauges the portion of current earnings being paid out in dividends.


Challenge


Inventory Turnover ratio measures how many times a company's inventory has been sold and

replaced during the year.


Challenge

Which of the following is the excess of current assets over current liabilities?


Working capital

Another way to state this is current assets - current liabilities.

Gross margin percentage

Return on total assets

Financial leverage

Challenge

Sam's has a market price per share of $30 and a dividend per share of $3. What is the dividend yield

ratio?


110%

90%

a __ 1_0%_0 _____________________ 1

1000%

Challenge

If a company has an inventory turnover of 4, what is the average sale period?

a 91.25days

365 days

4 days

93 days

Challenge


)


Book Value per share measures the amount that would be distributed to holders of each share of

common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were

paid off. (Enter only one word per blank.)


Challenge


The current ratio is found by dividing current assets by current liabilities.

~ Your answer is correct.

ChaUenge

If Sales are $10,000, cost of goods sold is $6,000, and gross margin is $4,000, what is the gross

margin percentage?


250%

60%

·~4_0%_o __________________________________________ )

160%

Challenge

Which of the following is found by showing data for several years as a percentage of a base year?

lfl Trend percentage

Dividend yield ratio

Vertical analysis

Gross margin percentage

Cha'llenge


)


The return on total 1ssets is a measure of operating performance.(Enter only one word per blank)


Challenge


The ividend yield ratio measures the rate of return, in the form of cash dividends only, that would be

earned by an investor who buys common stock at the current market price.


Challenge

What is the average collection period when accounts receivable turnover is 12.3?

lfl 30 days

45 days

12 days

Less than one day

Cha'llenge


)

The return on which of the following is computed by subtracting preferred dividends from net income

and dividing that total by the average common stockholders' equity?

a Common stockholders' equity

Total assets

Book value per share

Working capital

Challenge

"Your answer is correct.

)

Which of the following ratios measure how well a company is doing from the standpoint of the

common stockholder? (Check all that apply.)


Inventory turnover

a Return on common stockholders' equity

a Return on total assets

Accounts receivable turnover

a Earnings per share

Challenge

) )

)


In a horizontal analysis, the dollar changes highlight the changes that are the most important

economically; the oercentagA changes highlight the changes that are the most unusual. (Enter only

one word per blank.)


Challenge


365 days can be divided by the accounts receivable turnover to determine the average number of

days required to receive payment on an account, which is known as the average collecuo period.


Challenge

If a company has average total assets of $2,000,000, net income of $400,000, interest expense of

$10,000 and a tax rate of 35%, what is the return on total assets?

20.18%

& 20.33%

13.33%

20%

Challenge


)

Which of the following are examples of performing financial statement analysis? (Check all that

apply.)


Understanding how an income statement works

Comparing financial data across companies

Analyzing financial ratios to assess the financial health of a company

Examining trends in key economic data

a Examining trends in key financial data

Challenge

)


In order to compare the financial results of two different companies, both companies need to use the

same accounting 1 riethods. (Enter only one word per blank)


Challenge

Which of the following refers to the difference between the rate of return the company earns on

investments on its own assets and the rate of return that the company must pay its creditors?

a Financial leverage

Book value per share

Times interest earned ratio

Working capital

Challenge


)

If a company has a dividend per share of $1.50 and earnings per share of $4.00, what is the

dividend payout ratio?

a 37.5%

600%

64%

267%

Challenge


]

Which of the following statements are true in regard to comparative and common-size financial

statements? (Check all that apply.)


Comparative financial statements report both the dollar change and percentage change from one

year to the next.

Common-size financial statements report each item as percentage of total assets or total sales.

Comparative financial statements, such as an income statement, report each item as a

percentage of sales.

Challenge


When computing earnings per share, net income available for common stockholders is net income

minus d1v1dends paid to the owners of the company's preferred stock. (Enter only one word per

blank.)


Challenge

Why is the times interest earned ratio based on earnings before interest expense and income taxes?


Interest expense and income taxes are not actual expenses of business operations.

Income tax expense is unknown at the time the income statement is prepared.

Earnings before interest expense and income taxes is the amount available for making interest

payments.

The amount of interest expense is variable and changes as payments are made or money is

borrowed.

Challenge


A company with an inventory turnover ratio that is much ower than the average for its industry may

have too much inventory.


Challenge

Which of the following measures a company's ability to protect its long term creditors?

a Times interest earned ratio

Price-earnings ratio

Current ratio

Accounts receivable turnover

Challenge


)

With which of the following financial ratios would a long-term creditor be most concerned? (Check all

that apply.)

a Times interest earned ratio

a Debt-to-equity ratio

Average collection period

Inventory turnover

Working capital

Challenge


] ]

Which ratio is found by dividing gross margin by sales?

Gross margin analysis

a Gross margin percentage

Price-earnings ratio

Earnings per share

Challenge


)

For which group would working capital, current ratio, and inventory turnover be the most useful?

Board of directors

Stockholders

Long-term creditors

a Short-term creditors

Challenge


)

In addition to financial ratios, which of the following are typical ways used to analyze a company?

(Check all that apply.)


Evaluation of how much production takes place each day

a Evaluation of industry trends

Evaluation of changes in consumer tastes

a Evaluation of changes within the company

Challenge

When constructing a common-size comparative income statement, the changes in accounts from one

year to the next are usually expressed as a percentage of which account?


Retained earnings

Gross profit

Net income

lfl sales )

Challenge

True or false: Although financial statement analysis is a useful tool, there are very important

limitations to it.


False

lfl_r _ru_e ______________________________________________ ~]

Challenge


A high price-earnings ratio means that investors are willing to pay a premium for the company's stock

because the company is expected to have greater than average future earnings growth. On the other

hand, if investors believe a company's future earnings growth is limited, then a lo\v' price-earnings

ratio would result.


Challenge

Why would an investor be interested in knowing a company's earnings per share?


An investor's only goal in purchasing stock is to receive high dividends, and the higher the net

income, the greater the dividend payout.

The greater the number of shares an investor owns, the greater the value per share.

Earnings form the basis of dividend payments and future increases in the value of shares.

The greater the earnings per share, the higher the dividend payment will be.

Challenge


Marke value reflects expectations about future earnings and dividends, whereas boo value reflects

the results of events that have occurred in the past.


Challenge

If the average collection period for a company is calculated to be 35 days, what does this mean?


On average, customers are allowed 35 days to return their purchases.

a On average, it takes 35 days to collect a credit sale.

On average, it takes 35 days to process and calculate the balance in accounts receivable.

On average, it takes 35 days to sell inventory.

Challenge

]


In industries with little financial risk, creditors tolerate high debt-to-equity ratios, and in industries

with more financial risk, creditors demand low debt-to-equity ratios.


Challenge

When evaluating the trend in a company's current ratio, a(n) ___ ratio might be a sign of

eliminating obsolete inventory whereas a(n) ___ ratio might be the result of stockpiling inventory.


improving, declining

a declining, improving )

Challenge


The acid-test ratio is designed to measure how well a company can meet its obligations without

having to liquidate or depend too heavily on its inventory.

VYour answer is correct.

Challenge

Which of the following helps managers figure out how well the company and its business units are

performing?

Financial objectives

a Financial ratios

Past due accounts payable

Financial predictions

Challenge


]


Maintaining large amounts of working capital is costly because it must be financed with long-term

debt and equity.


Challenge

How can a company assess how well they are doing from the standpoint of its stockholders?

a Financial ratios

Looking at the revenues

Looking at the net income

Asking for stockholder input

Challenge


]

When constructing a common-size comparative balance sheet, the changes in account balances from

one year to the next are usually expressed as a percentage of:

total liabilities

D total assets

total stockholders' equity

total sales

Challenge


)

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