Question: The return on invested capital measures the total return that a company has provided for its investors.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Which of the following statements is CORRECT?
Answer:
Options:
Question: Since the ROA measures the firm’s effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: If a firm’s fixed assets turnover ratio is significantly higher than its industry average, this could indicate that it uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: The time dimension is important in financial statement analysis. The balance sheet shows the firm’s financial position at a given point in time, the income statement shows results over a period of time, and the statement of cash flows reflects specific changes in accounts over that period of time.
Answer:
Options:
Question: Which of the following statements is CORRECT?
Answer:
Options:
Question: A firm’s ROE is equal to 9% and its ROA is equal to 6%. The firm finances only with short-term debt, long-term debt, and common equity, so assets equal total invested capital. The firm’s total debt to total capital ratio must be 50%.
Answer:
Options:
Question: Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used the same or similar accounting methods.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Klein Cosmetics has a profit margin of 5.0%, a total assets turnover ratio of 1.5 times, no debt and therefore an equity multiplier of 1.0, and an ROE of 7.5%. The CFO recommends that the firm borrow funds using long-term debt, use the proceeds to repurchase stock, and thereby increase leverage.
Answer:
Options:
Question: If a firm is reporting its income in accordance with generally accepted accounting principles, then its net income as reported on the income statement should be equal to its free cash flow.
Answer:
Options:
Question: The profit margin measures net income per dollar of sales.
Answer:
Options
Question: Which of the following statements is CORRECT?
Answer Choices:
a. Actions that increase reported net income will always increase cash flow.
b. One way to increase EVA is to generate the same level of operating income but with less total invested capital.
c. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
d. One way to increase EVA is to achieve the same level of operating income but with more total invested capital.
e. If a firm reports positive net income, its EVA must also be positive.
Answer:
b. One way to increase EVA is to generate the same level of operating income but with less total invested capital.
Question: It is appropriate to use the fixed assets turnover ratio to appraise firms’ effectiveness in managing their fixed assets if and only if the firms being compared have the same proportion of fixed assets to total assets.
Answer:
Options