Exam 2

Question 1

Return on Equity (ROE)

Answer 1

Net Income / Average Stockholder’s Equity
Return on Assets (ROA) X Financial Leverage (FL)

Question 2

Return on Assets (ROA)

Answer 2

Net Income / Average total assets
Profit Margin (PM) X Asset Turnover (AT)
Profitability X Productivity

Question 3

Financial Leverage (FL)

Answer 3

Average total assets / Average stockholder’s equity

Question 4

Profit Margin

Answer 4

Net income / Sales

Question 5

Asset Turnover (AT)

Answer 5

Sales / Average total assets

Question 6

Accounts Receivable Turnover

Answer 6

Sales / Average Accounts Receivable

Question 7

Inventory Turnover

Answer 7

Cost of Goods Sold / Average Inventory

Question 8

Accounts Payable Turnover

Answer 8

Cost of Goods Sold (COGS) / Average Accounts Payable

Question 9

Cash Conversion Cycle
(Definition)

Answer 9

Average number of days to:
1. Buy inventory on credit (accounts payable)
2. Sell inventory on credit (accounts receivable)
3. Collect the receivables
4. Pay the accounts payable

Question 10

Cash Conversion Cycle
Formula

Answer 10

Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) - Days Payable Outstanding (DPO)

Question 11

Days Sales Outstanding (DSO)

Answer 11

365 / Accounts Receivable Turnover

Question 12

Days Inventory Outstanding (DIO)

Answer 12

365 / Inventory Turnover

Question 13

Days Payable Outstanding (DPO)

Answer 13

365 / Accounts Payable Turnover

Question 14

Plant Property Equipment (PPE) Turnover

Answer 14

Sales / Average PPE (net)

Question 15

Current Ratio

Answer 15

Current assets / Current liabilities