An increase in financial leverage generally results in a higher return on equity (ROE).

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True

 

False

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A company’s return on assets should be greater than its return on equity.

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True

 

False

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An optimal current ratio should be greater than 1.0.

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True

 

False

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GoodTimes, Inc. has asset turnover of 0.5 times, a net profit margin of 10% and average total assets of $100, what is its net income (assuming no unusual items)?

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$50

 

$500

 

$5

 

The answer cannot be determined with the information provided

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Common-size financial statements are constructed in order to:

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Adjust for inflation and risk

 

Facilitate comparisons of different-sized companies

 

To comply with SEC requirements

 

All of the above

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A company builds a new plant and finances its construction by issuing stock. Which ratio is least likely to be affected, all else being equal?

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Current ratio

 

Debt to equity ratio

 

Debt to asset ratio

 

Net fixed assets to total assets

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A company has net working capital of $0, current liabilities of $25 and total assets equal to $100. What is its current ratio?

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0.0

 

1.0

 

0.5

 

4.0

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Analysis of a company’s financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer question 9.

Sales in 2003 were $10,000. Therefore, the compounded average growth rate is:

 

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8.6%

 

6.7%

 

6.3%

 

Not enough information available

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The cash cycle measures the days required to produce finished goods or delivered services.

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True

 

False

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In general, an increase in a liability is a source of funds.

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True

False

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