Question

Which of the following statements is INCORRECT?

Select one:

a. A Common-size balance sheet is a balance sheet with each line item expressed as % of total assets.

b. Managers need to understand financial statement analysis to understand investment, financing, operating, and reporting decisions.

c. The ratios that you calculate when conducting ratio analysis are defined by the FASB.

d. Trend statements help you examine patterns of financial statement line items over time.

How do you interpret “Days inventory held”?

Select one:

a. The average number of days a company takes to collect on accounts receivables.

b. The average number of days a company takes to sell the inventory on hand.

c. The average number of days a company takes to purchase inventory and ship it to their facilities.

d. The average number of days a company takes to ship inventory to retailers.

All else equal, what is the main concern should you have about a firm with a high debt-to-equity ratio?

Select one:

a. Will this company have an efficient system of collecting on its accounts receivables?

b. Will this company be able to pay off its debt?

c. Will this company have enough assets to operate?

d. Will this company have too many shares outstanding?

Which of the following is a benefit for a company in having more debt?

Select one:

a. There is no benefit to using debt.

b. Shareholders have less funds to invest.

c. The interest payment acts as a tax shield, which means all else equal, using more debt reduces tax expenses.

d. Shareholders benefit from a lower debt-to-equity ratio.

The following information is available for firm A for 2020:

Net Sales	10,000,000
Cost of Goods Sold	7,000,000
Interest Expense	200,000
Income Tax Expense	500,000
Net Income	1,000,000
Preferred dividends	0
Total Assets (as of 12/31/20)	20,000,000	(as of 12/31/19:	19,000,00)
Accounts Receivables (as of 12/31/20)	300,000	(as of 12/31/19:	250,000)
Total Liabilities (as of 12/31/20)	4,000,000	(as of 12/31/19:	3,000,000)
Stockholders’ equity (as of 12/31/20)	16,000,000	(as of 12/31/19:	16,000,000)

What is this firm’s ROE, ROA, and Asset Turnover? (All numbers are rounded to third decimal point)

Select one:

a. 5%, 5%, 0.625

b. 6.25%, 5%, 0.5

c. 6.25%, 10%, 0.5

d. 5%, 10%, 0.625

Answer 1