SOLVED

1) Financial ratios are used to assess a company’s statements because they A) Eliminate the difference of scale between companies B) Allow a comparison of companies from different industrial sectors C) Eliminate the effects of inflation from period to period D) Immediately identify problems that must be corrected in a business E) Provide a standard set of calculations to analyze any business 2) Analysts who make recommendations on credit policies, inventory levels and sales per employee would be most interested in ratios dealing with A) Profitability B) Efficiency C) Liquidity D) Financial Leverage E) Investment 3) A basis of comparison for financial ratios that is determined from an industrial sector, historical data, direct competitors or pro forma statements is called a A) Performance standard B) Financial trendline C) Comparable D) Benchmark E) Hurdle rate 4) Before undertaking ratio analysis, a prudent first step is to A) Select the specific ratios to be used B) Determine who the target user is and their needs C) Assemble the information required for the analysis D) Review the economic and competitive environment E) Select either a trend analysis or benchmark analysis 5) Rafters, Inc. has year-end retained earnings of $250,000, 100,000 cumulative preferred shares each with a dividend of $.80 each and $1,000,000 common shares. If Rafters Inc. achieved a net income after tax of $330,000 for the period, what is the company’s return on equity? A) 20% B) 22.8% C) 25.5% D) 27.5% E) 30.1% 6) Coronation Computers opened the fiscal year with a balance sheet showing retained earnings at $355,000, and common shares at $1.2 million. It added another $500,000 from the sale of 200,000 preferred shares, which paid $.35 a share in dividends in the last quarter of the fiscal year. If the Company’s net income for the year was a $412,100 and there were no dividends paid to common shareholders, what was its return on equity? A) 19.8% B) 22.0% C) 23.6% D) 28.5% E) 29.6% 7) The ratio that is the fundamental measure of business performance is A) EPS – earnings per share B) ROCE – return on capital employed C) ROE – return on equity D) Leverage ratio E) Gross profit margin ratio 8) A company’s statements provided the following data: sales revenue equals $4,482,000, gross margin equals $2,689,000, EBIT equals $538,000, net income equals $204,000, current liabilities equal $700,000, long-term liabilities equal $2,800,000, common shares equal $3 million, preferred shares equal $1 million, retained earnings equal $275,000. The return on capital employed (ROCE) for the company is A) 2.6% B) 3% C) 6.9% D) 7.6% E) 8.9% 9) The ratio that is the best measure of a company’s day-to-day operating performance is the A) Gross Profit Margin B) Return on Capital Employed (ROCE) C) Return on Sales D) Operating Profit Margin E) Return on Equity 10) Zeechan Landscaping Company Limited had sales revenues of $1,400,000 last year and $1,200,000 the year before. Cost of Goods Sold was $980,000 last year and $780,000 the year before. Operating expenses were $300,000 for both last year and the year before. Comparing gross profit and operating profit margins, it could be concluded that A) The operating profit margin remained unchanged over the previous two years as increases in cost of goods sold, CGOS, were offset by improvements in operating expenses B) The operating margin remained unchanged over the previous two years as cost of goods sold increases were approximately proportional to gains in sales revenue C) The operating margin declined last year over the year before due to increases in costs per unit sold. D) The operating margin declined last year over the year before as operating expenses did not respond to economies of scale E) The gross profit margin of the operating profit margin were unchanged resulting in no change in earnings before interest and taxes 1