ENTR 20000 Chapter Notes - Chapter 8: Financial Statement, Accounts Receivable, Accounts Payable
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QUESTION 1
Determine the cost of sales for a firm with the following financial ratios and data:
Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times
| a. | $6,000,000 | |
| b. | $3,000,000 | |
| c. | $2,000,000 | |
| d. | $1,000,000 |
8.3 points
QUESTION 2
What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.
| a. | 2.65 | |
| b. | 2.1 | |
| c. | 1.1 | |
| d. | 1.2 |
8.3 points
QUESTION 3
A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?
| a. | $20,000 | |
| b. | $ 5,000 | |
| c. | $10,000 | |
| d. | $15,000 |
8.3 points
QUESTION 4
If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must
| a. | increase its equity multiplier | |
| b. | increase sales and increase assets | |
| c. | decrease its equity multiplier | |
| d. | reduce sales and increase assets |
8.3 points
QUESTION 5
The sales-to-inventory ratio:
| a. | is technically inferior to other commonly used ratios. | |
| b. | is superior to the inventory turnover ratio. | |
| c. | as a determination of financial performance, is good comparison tool. | |
| d. | was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole. |
8.5 points
QUESTION 6
Primary sources of comparative financial data include
| a. | Dun and Bradstreet | |
| b. | Richard Moore, Inc. | |
| c. | Framingham Financial Library | |
| d. | New York Times |
8.3 points
QUESTION 7
____ indicate the ability of the firm to meet its short-term financial obligations
| a. | Leverage ratios | |
| b. | Profitability ratios | |
| c. | Activity ratios | |
| d. | Liquidity ratios |
8.3 points
QUESTION 8
If a firmâs common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:
| a. | on total assets as a percentage of long-term liabilities. | |
| b. | on cost of goods sold as a percentage of sales. | |
| c. | on taxes paid as a percentage of stockholdersâ equity. | |
| d. | on expenses as a percentage of current assets. |
8.3 points
QUESTION 9
The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.
| a. | payout | |
| b. | earnings | |
| c. | return on earnings | |
| d. | dividend yield |
8.3 points
QUESTION 10
The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:
| a. | based on the company's accounting information system (AIS) | |
| b. | constructed in conformity with generally accepted accounting principles | |
| c. | developed using management's choice of accounting enhancement techniques | |
| d. | an accurate picture of the company's market position |
8.3 points
QUESTION 11
The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.
| a. | liquidity | |
| b. | profitability | |
| c. | size | |
| d. | risk |
8.3 points
QUESTION 12
The type of ratio that indicates the firmâs ability to provide adequate returns in the form of dividends and share price appreciation is:
| a. | Profitability ratios | |
| b. | Asset management ratios | |
| c. | Financial leverage management ratios | |
| d. | Liquidity ratios |
8.5 points
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Evaluate the financial performance of Coca-Cola; (KO) and Pepsi (PEP) for the year ended December 31, 2016. Follow the instructions below to access each companyâs information and perform a financial analysis based on the financial measures we have learned in this course.
Select Http://www.yahoo.com/ and then select Finance. In the Search section at the top of the screen select KO for Coca-Cola and PEP for Pepsi
Select âFinancialsâ and select Income Statement when accessing the Income Statement
Select âFinancialsâ and select Balance Sheet when accessing the Balance Sheet
Do the following for KO and PEP for the year ended 12/31/16 only
Perform a vertical analysis of the Income Statement for KO and PEP for the year ended 12/31/16.
Include in your vertical analysis all of following as a % of total revenue:
Cost of Revenue as a % of Total Revenue
Gross Profit as a % of Total Revenue
Selling, gen and administrative expenses as a % of Total Revenue
Operating Income as a % of Total Revenue
Net Income as a % of Total Revenue
Current Ratio
Accounts Receivable turnover. Assume the total revenue on the income statement represents all sales on account for the year
Average collection period
Merchandise Inventory turnover. Assume the Cost of Revenue on the Income Statement is the same as the Cost of Goods Sold
Debt to Asset Ratio
Return on Assets Ratio
Asset Turnover
In preparing the vertical analysis and other financial analysis above; define each measure and identify the strengths and weaknesses of KO and PEP as related to each other. Below is an example of you should set it up.
| Working Capital | KO | PEP |
| Current Assets | $ 34,010,000 | $ 27,089,000 |
| - Current Liabilities | $ 26,532,000 | $ 21,135,000 |
| Net Working Capital = | $ 7,478,000 | $ 5,954,000 |
Strength or Weakness
Working Capital measures the ability of a company to meet its short-term obligations with current assets. Pepsi is and Coke are performing at about the same level. Cokes working capital is a little higher because they have higher current assets and current liabilities.
Requirements for Each Group
1.The vertical analysis prepared in 4 A above.
2.All of your computations for the financial analysis. (4 B through 4 H)
3.Identification of strengths and weaknesses. (Include a definition of each financial measure, a description of which company is doing better in each financial measure including the vertical analysis and explain why)
4.All group members must submit the Report Project Team Assessment
5.If the requirements above are not met, points will be deducted from Parts of the group projects.
Enter all requirements on the Group Project Problem 4 Tab.
Submit one set of answers per group for all four problems. Make sure to include each group members name at the top of each spreadsheet.
Each group member should download the Group Team Assessment and evaluate themselves and everyone else in their group. This evaluation should be submitted anonymously.
