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1-Common-size financial statements present all balance sheet account values as a percentage of:
A. the forecasted budget.
B. sales.
C. total equity.
D. total assets.
2-The Du Pont identity can be totally defined by which one of the following?
A. Return on equity, total asset turnover, and equity multiplier
B. Equity multiplier and return on assets
C. Profit margin and return on equity
D. Total asset turnover, profit margin, and debt-equity ratio
3-A common-size balance sheet helps financial managers determine:
A. which customers are paying on a timely basis.
B. if costs are increasing faster or slower than sales.
C. if changes are occurring in a firm’s mix of assets.
D. if a firm is generating more or less sales per dollar of assets than in prior years.
4-Which one of the following is a measure of long-term solvency?
A. Price-earnings ratio
B. Profit margin
C. Equity multiplier
D. Receivables turnover
5-The cash coverage ratio is used to evaluate the:
A. liquidity of a firm.
B. speed at which a firm generates cash.
C. length of time that a firm can pay its bills if no additional cash becomes available.
D. ability of a firm to pay the interest on its debt.
6-The equity multiplier is equal to:
A. one plus the debt-equity ratio.
B. one plus the total asset turnover.
C. total debt divided by total equity.
D. total equity divided by total assets.
7-Financial statement analysis:
A. is primarily used to identify account values that meet the normal standards.
B. is limited to internal use by a firm’s managers.
C. provides useful information that can serve as a basis for forecasting future performance.
D. provides useful information to shareholders but not to debt holders.
8-Russell’s Hardware has inventory of $218,000, equity of $421,800, total assets of $647,700,
and sales of $587,200. What is the common-size percentage for the inventory account?
A. 26.81 percent
B. 33.66 percent
C. 37.12 percent
D. 49.09 percent
9-Foreign Travel Services has net income of $48,400, total assets of $219,000, total equity of
$154,800, and total sales of $311,700. What is the common-size percentage for the net income?
A. 9.00 percent
B. 13.90 percent
C. 15.53 percent
D. 22.10 percent
10-Peter’s Motor Works has total assets of $689,400, long-term debt of $299,500, total equity of
$275,000, net fixed assets of $497,800, and sales of $721,500. The profit margin is 4.6 percent.
What is the current ratio?
A. 0.60
B. 0.91
C. 1.01
D. 1.67
11-Holiday House has sales of $648,000, a profit margin of 6.1 percent, and a capital intensity
ratio of 0.84. What is the total asset turnover rate?
A. 1.04
B. 1.08
C. 1.13
D. 1.19
12-Circle Stores has net income of $41,000, a profit margin of 6.7 percent, and a return on assets
of 9 percent. What is the capital intensity ratio?
A. 0.74
B. 0.86
C. 1.16
D. 1.34
13-The Closet Shoppe has total sales of $713,200 and a profit margin of 5.8 percent. Currently,
the firm has 12,500 shares outstanding. What are the earnings per share?
A. $2.98
B. $3.31
C. $3.56
D. $3.89
14-The ratios that are based on financial statement values and used for comparison purposes are
called:
A. financial ratios.
B. industrial statistics.
C. equity standards.
D. accounting returns.
15-Which one of the following is the maximum growth rate that a firm can achieve without any
additional external financing?
A. Du Pont rate
B. External growth rate
C. Sustainable growth rate
D. Internal growth rate
16-Builder’s Outlet just hired a new chief financial officer. To get a feel for the company, she
wants to compare the firm’s sales and costs over the past 3 years determine if any trends are
present and also determine where the firm might need to make changes. Which one of the
following statements will best suit her purposes?
A. Income statement
B. Balance sheet
C. Common-size income statement
D. Common-size balance sheet
17-High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the
form of annual dividends. Given this, the percent shown on a common-size income statement for
the dividend account will:
A. remain constant over time.
B. be equal to the dividend amount divided by the net income.
C. vary in direct relation to the net profit percentage.
D. vary in direct relation to changes in the sales level.
18-Which one of the following transactions will increase the liquidity of a firm?
A. Cash purchase of new production equipment
B. Payment of an account payable
C. Cash purchase of inventory
D. Credit sale of inventory at cost
19-Which one of the following actions will increase the current ratio, all else constant? Assume
the current ratio is greater than 1.0.
A. Cash purchase of inventory
B. Cash payment of an account receivable
C. Cash payment of an account payable
D. Credit sale of inventory at cost
20-The cash coverage ratio is used to evaluate the:
A. liquidity of a firm.
B. speed at which a firm generates cash.
C. length of time that a firm can pay its bills if no additional cash becomes available.
D. ability of a firm to pay the interest on its debt.

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