Question

Section 1:

Which of the following ratios must include data from both the income statement and balance sheet in order to be accurate?

Group of answer choices

Debt-equity ratio

Current ratio

Inventory turnover

Profit margin

From the lecture video series: Which set of ratios does the management of the company, if they are concerned about efficiency in their operations, probably care about more than any other?

Group of answer choices

None of the above

Asset utilization

Market value

Long-term solvency

A company has long term debt totaling $100 million in market value, payables and short term debt totaling $50 million, and a market value for all of its equity totaling $200 million. What is the likely market value of all of its assets?

Group of answer choices

$350 million

$250 million

$150 million

$50 million

A company's sales amount increases. Which of the following statements is most correct?

Group of answer choices

If there is no change in total assets, then total asset turnover decreases

If there is no change in net income, then profit margin decreases

If there is no change in accounts receivable, then receivables turnover decreases

If there is no change in total assets, then capital intensity increases

Answer 1

1. Option (c) is correct

Inventory turnover ratio include data from both the income statement and balance sheet in order to be accurate. Formula for inventory turnover ratio is:

Inventory turnover ratio = Cost of goods sold / Average inventory

In the above formula, Cost of goods sold is income statement item while average inventory is a balance sheet item.

Option (a) is incorrect as in debt equity ratio, both debt and equity are part of balance sheet

Option (b) is incorrect as in current ratio, both current assets and current liabilities are part of balance sheet.

Option (d) is incorrect as in profit margin, both net income and sales are part of income statement.

2. Option (b) is correct

In asset utilization ratios, management of the company is more concerned about efficiency in their operations.

3. Option (a) is correct

Market value of assets = Value of long term debt + Value of short term debt + Value of equity

Market value of assets = $100 + $50 + $200 = $350

4. Option (b) is correct

As a company's sales amount increases, if there is no change in net income, then profit margin decreases. Profit margin is given by:

Profit margin = Net income / Sales * 100

In the above formula, when sales in denominator increases with no effect on numerator, then profit margin ratio will decrease.