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Exam 13: Analyzing Financial Statements

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Question 31

True/False

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Some analysts do not use the cash ratio because they see it as too stringent a test of liquidity and it is very sensitive to small events.

A) True
B) False

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Question 32

Multiple Choice

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Which of the following statements is incorrect?

A) If selling and administrative expenses as a percentage of sales increases, then gross profit percentage will decrease.
B) If the cost of goods sold percentage decreases and other expenses do not change, then profit margin will increase as a percentage of sales.
C) If sales dollars decrease, a company might still report a higher gross profit percentage if cost of goods sold decreases at a faster rate than the decrease in sales.
D) It is possible that when selling and administrative expense in dollars decrease, selling and administrative expenses as a percentage of sales will increase.

E) A) and D)
F) B) and C)

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Question 33

Multiple Choice

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Which of the following transactions will increase a current ratio, which is currently 2.5?

Which of the following transactions decreases earnings per share?

The journal entry to record depreciation expense decreases which of the following ratios?

The debt-to-equity ratio measures which of the following?

Which of the following statements is incorrect about fundamental business strategies?

Return on equity (ROE) is a function of three ratios: net profit margin, return on assets, and financial leverage.

MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2015 and 2014. MusicPod's stock was trading at $53.00 and $41.50 per share at the end of 2015 and 2014 respectively. The company paid cash dividends per share of $.85 in 2015 and $.63 in 2014. Total stockholders' equity was $13,572 million and $11,896 million in 2015 and 2014 respectively. The common shares outstanding were approximately 1,782,000 during both 2015 and 2014. MusicPod's dividend yield ratio for 2015 is closest to:

Teague Company's working capital was $40,000 and total current liabilities were 1/4 of that amount. What was the current ratio?

The fixed asset turnover ratio increases when net income increases.

The financial leverage percentage is positive when return on assets is greater than return on equity.

Which of the following transactions decreases the quality of income ratio?

Dividend yield is calculated by dividing dividends per share by earnings per share and measures the current dividend return to investors.

MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2015 and 2014. MusicPod's stock was trading at $53.00 and $41.50 per share at the end of 2015 and 2014 respectively. The company paid cash dividends per share of $.85 in 2015 and $.63 in 2014. Total stockholders' equity was $13,572 million and $11,896 million in 2015 and 2014 respectively. The common shares outstanding were approximately 1,782,000 in both 2015 and 2014. MusicPod's price/earnings ratio for 2015 is closest to:

Which of the following statements is false?

Which of the following ratios are not affected by issuing long-term bonds payable in exchange for cash?

Wildlife Co. reported net income of $8.3 million, interest expense of $.5 million and is are in a 30% tax rate bracket. Wildlife's average total assets are $65.8 million and average stockholders' equity is $48.6 million. Wildlife's financial leverage percentage is closest to:

Thomas Company had income before interest and taxes of $120,000. Interest expense for the period was $17,000 and income taxes amounted to $28,500. The average stockholders' equity was $680,000. Thomas' return on equity (ROE) is closest to:

Main Street Company paid out $2.30 in dividends per share of common stock and had earnings per share of $5.00 during 2014. The market price of the stock on December 31, 2014 was $21.00 per share. There were 15,000 shares of stock outstanding for the entire year. The dividend yield as of December 31, 2014 is closest to: