1) A firm with a Current Ratio of 2.0 is twice as profitable as a firm with a Current Ratio of 1.0. True or False
2.All other factors being equal, a company that
uses debt financing will have a higher return on equity (ROE) ratio than
one that does not True or False
3.In general, firms want their Times Interest Earned ratio to be as low as possible True or False
4. A company whose Total Asset Turnover ratio is
1.0 is using its assets more efficiently than one whose ratio is 2.0
True or False
5. A firm which has a relatively large amount of
cash, accounts receivable, and inventory on its books and a relatively
small amount of current liabilities would be considered liquid
profitable risky nuts
6. If a firm's current ratio is less than 1.0, it indicates that
The firm had negative net income for the year
The firm will be unable to pay its short term loans which come due this year
Current Assets are less than Current Liabilities
The firm is insolvent
A firm which has a relatively large amount of cash,
accounts receivable, and inventory on its books and a relatively small
amount of current liabilities would be considered:
liquid
profitable
risky
nuts
Refer to the following income statement for the Classic Cappuccino Corporation (CCC) to answer the question that follows:
Total Revenue $50,000
Operating Expenses 25,000
Depreciation 1,000
Operating Profit 24,000
Interest Expense 1,000
Before-Tax Profit 23,000
Taxes 6,900
After-Tax Profit $16,100
CCC’s Net Profit Margin is:
16.1%
23.0%
32.2%
$161,000
8. If a firm's PE ratio was 22, you would know that
Profits over Earnings = 22
The firm will probably not have any trouble meeting its debt obligations this year
The firm's stock price is expected to increase 22%
Investors are willing to pay 22 times the firm's EPS for a share of the firm's stock.
9.Which of the following ratios would a potential creditor be most interested in?
Times Interest Earned
Economic Value Added (EVA)
Return on Equity (ROE)
Net Profit Margin
10. The Du Pont equation allows you to gain additional insight into a firm’s
Liquidity
Sources of ROE
Sales potential
Sources of income
