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Finance > Chapter 3 SmartBook > Flashcards

Chapter 3 SmartBook Flashcards

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1
Q

Because we are almost always unable to obtain all of the market information we want, we rely on ________ numbers for much of our financial information.

A

Accounting

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2
Q

At the most fundamental level, firms generate cash and:

A

Spend it

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3
Q

Which of the following are uses of cash?

A: Increases in property, plant and equipment

B: Increases in inventory

C: Decreases in accounts receivable

D: Decreases in property, plant and equipment

E: Decreases in accounts payable

A

A, B and C

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4
Q

True or false: There is only one method for preparing the statement of cash flows.

A

False

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5
Q

________ financial statements provide for comparison of firms that differ in size.

A

Standardized

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6
Q

Although Blank______ are often poor reflections of reality, they are often the best information available.

A

Accounting numbers

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7
Q

Common-size statements are used for comparing firms with differing ____.

A

Sizes

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8
Q

At the most fundamental level, firms generate ______ and spend it.

A

Cash

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9
Q

A useful way of standardizing financial statements is to choose a ____ and then express each item relative to the _____.

A

base year; base amount

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10
Q

Which of the following are sources of cash?

A: A decrease in accounts receivable

B: An increase in notes payable

C: Purchasing an asset

D: A decrease in notes payable

A

A and B

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11
Q

The statement of cash flows summarizes the sources and uses of cash, though which of the following is true of the statement?

A

There are different methods of preparing it

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12
Q

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the:

A

Common-size statements

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13
Q

An important accounting goal is to report financial information to users in a way that is useful for _____.

A

Decision making

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14
Q

The five categories of financial ratios include short-term solvency, long-term solvency, asset management, profitability, and _____
value ratios.

A

Market

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15
Q

Which one of the following is one way in which financial managers use a common-size balance sheet?

A

To track changes in a firm’s capital structure

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16
Q

Which of the following items are among the items used to compute the current ratio?

A: Accounts payable

B: Earnings

C: Cash

D: Equipment

A

A and C

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17
Q

A common-base year financial statement presents items relative to a certain base, which is the _____.

A

Dollar amount of each item during a common base year

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18
Q

What does a current ratio of 1.2 mean?

A

The firm has $1.20 in current assets for every $1 in current liabilites

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19
Q

By combining common-size and base year analysis, we eliminate the effect of the _____.

A

Overall growth

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20
Q

If a company has inventory, the quick ratio will always be ______ the current ratio.

A

Less than

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21
Q

Which of the following are traditional financial ratio categories?

A

Asset management ratios, Market value ratios and Profitability ratios

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22
Q

The cash ratio is found by dividing cash by:

A

Current liabilities

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23
Q

The current ratio shows the relationship between ____.

A

Current asset and current liabilities

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24
Q

Which of the following is the correct representation of the total debt ratio?

A

(Total assets - Total equity)/(Total assets)

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25
Q

What will happen to the current ratio if current assets increase, while everything else remains unchanged?

A

It will increase

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26
Q

Both the debt-equity ratio and the equity multiplier are calculated using _____ in the denominator.

A

Total equity

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27
Q

Total capitalization equals total equity plus total:

A

Long-term debt

28
Q

The quick ratio is computed just like the ______ ratio, except that inventory is omitted.

A

Current

29
Q

The times interest earned ratio equals EBIT divided by

A

Interest

30
Q

The cash ratio is found by dividing
by current liabilities.

A

Cash

31
Q

A firm has a total debt ratio of 0.30 times. This means the firm has ___ in total debt for every $1 in total assets.

A

$0.30

32
Q

The debt-equity ratio expresses the total debt divided by the total equity, while the _______ multiplier expresses the total assets divided by the total equity.

A

equity

33
Q

The inventory _____ is calculated as the COGS divided by the inventory.

A

Turnover

34
Q

The long-term debt ratio is equal to long-term debt divided by the sum of long-term debt and total ______.

A

equity

35
Q

A times interest earned (TIE) ratio of 3.5 times means a firm has _____ that is(are) 3.5 times greater than the firm’s interest expense.

A

earnings before interest and taxes

36
Q

The cash ratio is found by dividing cash by:

A

Current Liabilities

37
Q

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______.

A

Increase

38
Q

What is the impact on the total asset turnover ratio if sales increase significantly while there is no change in any of the other variables?

A

The total asset turnover ratio will increase

39
Q

How is the inventory turnover ratio computed?

A

Cost of goods sold/Inventory

40
Q

The profit margin is equal to net income divided by ______.

A

Sales

41
Q

Total capitalization equals total equity plus total:

A

Long-term debt

42
Q

How is the price-earnings (PE) ratio computed?

A

Market price per share/ Earnings per share

43
Q

A ______ PE ratio may indicate that investors believe a company has better prospects for future growth in earnings.

A

Higher

44
Q

Which of the following represents the receivables turnover ratio?

A

Sales/Accounts receivable

45
Q

Which one of the following equations defines the total asset turnover ratio?

A

Sales/Total assets

46
Q

If management has been unsuccessful at creating value for the company’s stockholders, the market-to-book ratio will be ____.

A

less than 1

47
Q

A firm with a profit margin of 6.8 percent generates ______ cents in net income for every one dollar in sales.

A

6.8

48
Q

What is the equation for enterprise value?

A

Market value of stock + book value of liabilities − cash

49
Q

The price-earnings (PE) ratio is a ______ ratio.

A

market

50
Q

Which one of the following does not affect ROE according to the DuPont identity?

A

Investor sentiment

51
Q

When the typical stock in the S&P 500 Index has a PE ratio 12, a company with a PE ratio of 15 may have ______ than average growth prospects, given similar earnings per share.

A

Higher

52
Q

A(n) Blank______ in net profit margin will increase ROE.

A

Increase

53
Q

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______.

A

Increase

54
Q

How is market-to-book ratio measured?

A

Market value per share/Book value per share

55
Q

_____ are the prime source of information about a firm’s financial health.

A

Financial statements

56
Q

True or false: Enterprise value equals total market value of the stock plus the book value of the liabilities plus cash.

A

False

57
Q

The _________ identity can help to explain why two firms with the same return on equity may not be operating in the same way.

A

DuPont

58
Q

True or false: A deteriorating time trend in a financial ratio is always a bad sign.

A

False

59
Q

The ROE equals the net profit margin multiplied by the total
_______ turnover multiplied by the equity multiplier.

A

Asset

60
Q

True or false: In one way or another, the basic problem with financial statement analysis is that there is no underlying theory to help us identify which quantities to look at and to use in establishing benchmarks.

A

True

61
Q

Which of the following represents the receivables turnover ratio?

A

Sales/Accounts receivable

62
Q

Whenever Blank______ information is available, it should be used instead of accounting data.

A

Market

63
Q

The inventory turnover ratios for Proctor and Gamble over the past three years are 5.09, 5.72, and 5.92 times, respectively. Explaining the upward trend in the inventory turnover ratio requires:

A

further investigation

64
Q

Which three of the following are most apt to create problems when comparing financial statements for multiple firms?

A: Differing fiscal years

B: Differing accounting methods

C: Differing levels of cash

D: Seasonality

A

A, B and D

65
Q

If sales increase while there is no change in accounts receivable, the receivables turnover ratio will ______.

A

Increase

Finance (7 decks)

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