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Exam 13: Measuring and Evaluating Financial Performance

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Question 1

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The times interest earned ratio is a measure of liquidity. BT: Comprehension

A) True
B) False

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Question 2

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A times interest earned ratio of 11 means that the company's:

A) net income is large enough to pay interest and taxes 11 times.
B) net cash flow from operations before taxes and interest is large enough to pay interest 11 times.
C) net cash flow from operations is large enough to pay interest and taxes 11 times.
D) net income before taxes and interest is large enough to pay interest 11 times.

E) C) and D)
F) A) and B)

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Question 3

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Solvency ratio data are primarily concerned with the ability of a company to:

Match the term and the definition.Not all definitions will be used. _____ Unit-of-measure assumption _____ Time-series analysis _____ Relevance _____ Extraordinary items _____ Gain _____ P/E ratio _____ Consistency _____ Comprehensive income _____ Discontinued operations _____ Separate entity assumption A.The concept that the activities of the business are separate from the activities of the owners of the business. B.The practice of reporting accounting data in the national monetary unit. C.A nonrecurring item associated with abandoning or selling an operation that does not appear in any financial statement but is covered in the notes. D.The earnings of a company before taxes. E.An increase in an asset or a decrease in a liability that results from peripheral activities. F.The ratio of a product's price to the net profit margin. G.Net income adjusted for gains and losses that may disappear before they are realized. H.The characteristic that the reported financial information is of value in making decisions. I.The concept that a company's financial data in any one year should be able to be compared with the company's same financial data in other years. J.The ratio of the price of a share to the earnings per share. K.Also known as ratio analysis. L.A nonrecurring item on the income statement that reflects gains and losses associated with abandoning or selling an operation. M.Another name for a trend analysis. N.The assumption that a business will separate financial results according to the type of activity that generated them. O.The concept that a company's financial data should be able to be compared with other companies' data. P.The practice of reporting information in percent terms rather than monetary ones. Q.A nonrecurring item on the income statement that reflects gains and losses associated with highly unusual events such as natural disasters.

It is usually better to compare the ratio data from one company with the average of the industry rather than to compare the data with specific competitors. BT: Comprehension

Changes brought about by new accounting standards have expanded the income statement reporting of extraordinary items. BT: Knowledge

During the current accounting period,revenue from credit sales is $671,000.The accounts receivable balance is $51,480 at the beginning of the period and $52,200 at the end of the period.Which of the following statements is true?

Calculate the company's inventory turnover ratio for the current year?

The elements of financial statements include concepts like assets and liabilities,and revenues and expenses. BT: Knowledge

Companies may deviate from general accounting practices by using industry specific procedures when these procedures are better suited to their industry. BT: Knowledge

A P/E ratio is calculated in the middle of the accounting year.For a given share price,the company could use the most recent annual EPS,or it could use the total of the most recent four quarterly EPS numbers.Which of the following statements is not true?

A high P/E ratio may mean that shareholders have pushed the price of the shares up in anticipation of higher future net income. BT: Comprehension

Which of the following measures would assist in assessing the liquidity of a company?

Which non-financial factor in the following list is most likely to be a cause of a going-concern problem?

For financial information to be useful it must possess the following characteristics:

The financial information below presents selected information from the financial statements of Pelican Company.Sales revenue in 2008 was $13,700,300. Calculate: A.Receivables turnover assuming all Pelican's sales are made on account. B.Receivables turnover assuming 20% of sales are made as cash sales. C.Current ratio as of December 31,2008. D.Debt-to-assets ratio as of December 31,2008.

An increase in the inventory turnover rate is indicative of:

A share sells for $20.The company has $64 million in earnings and 200 million outstanding shares.The P/E ratio for the company is:

Calculate the debt to equity ratio for the current year.

A company has a current ratio of 2.0 and current assets of $550,000.It has cash of $50,000,short term investments of $150,000,accounts receivables of $50,000 and inventory of $300,000.What would be the quick ratio?