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Exam 12: Statement Cash Flows

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Question 71

True/False

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Since inventory is a significant current asset for most retail organizations, the inventory turnover ratio would be of significance to investors and analysts in terms of assessing liquidity.

A) True
B) False

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Question 72

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International financial reporting standards are currently developed by which entity

A) the IFRS Foundation
B) the International Accounting Standards Board
C) the International Organization of Securities Commissions
D) the Ontario Securities Commission

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

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Question 73

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$\begin{array}{l}\text { Antarctica Cruises Inc. provided the following data for } 20 \mathrm { X } 1 \text { : }\\\begin{array} { | l | r | } \hline \text { Sales } & \$ 1,250,000 \\\hline \text { Cost of sales } & 787,500 \\\hline \text { Selling \& Admin. expenses } & 252,300 \\\hline \text { Income tax expense and paid } & 27,400 \\\hline \text { Interest expense } & 41,000 \\\hline \text { Interest paid } & 44,000 \\\hline \text { Cash from operating activities } & 246,000 \\\hline \text { Tax rate } & 40 \% \\\hline\end{array}\end{array}$ -The times interest earned ratio for 20X1 is closest to

When are ratios most useful for analysis?

The following financial data are available for Schultz Company: $\begin{array} { | l | r | } \hline \text { Operating profit } & \$ 236,000 \\\hline \text { Profit } & 196,300 \\\hline \text { Earnings per share } & 2.45 \\\hline \text { Dividends paid per share } & 1.25 \\\hline \text { Average common shareholders' equity } & 985,000 \\\hline \text { Average total assets } & 1,870,000 \\\hline \text { Current market price per share } & 24.50 \\\hline \text { Book value per share } & 12.30 \\\hline\end{array}$ Compute the following ratios: 1. Return on equity 2. Price/earnings ratio 3. Dividend yield

The return on assets ratio will be greater than the rate of return on common shareholders' equity if the company has been successful in trading on the equity.

In 20X2, C Co's return on owners' equity (ROE) was 45.1%, and return on assets (ROA) was 19.6%. In 20X2, P Co's return on owners' equity (ROE) was 29.9% while return on assets was 9.3%. Which of the following statements is false?

Short-term creditors are usually most interested in assessing

-Calculate C Co's profit margin ratio for 20X2 and 20X1 respectively.

Management's success at containing the effects of uncontrollable risks and managing in the face of uncertainties plays a role in analysts' predictions of the future economic health of a specific company.

Both the profit margin ratio and the asset turnover ratio affect a company's return on assets.

When a company's ROE is greater than its ROA for a given time-period, it could be that

Indicate each ratio with its proper category.

Changes in the total asset turnover ratio may indicate changes in:

If trade receivables are collected quickly, it may indicate which of the following?

Net sales are $2,700,000, beginning total assets are $750,000, and the asset turnover is 3.0. What is the ending total asset balance?

The records of Twain Company include the following: $\begin{array} { | l | r | } \hline \text { Average total assets } & \$ 60,000 \\\hline \text { Average total liabilities } & 25,000 \\\hline \text { Total revenue } & 107,600 \\\hline \text { Total expense (including income tax) } & 104,000 \\\hline \text { Interest expense (included in total expenses) } & 2,000 \\\hline \text { Income tax rate 40\% } & \\\hline\end{array}$ What is the financial leverage percentage (rounded to the nearest percent) ?

If a firm is using financial leverage successfully what would be the impact of doubling operating earnings?

-Calculate C Co's debt to equity ratio for 20X2 and 20X1 respectively.

A company has a tax rate of 40%. Leverage would be beneficial for the company for each of the following combinations of interest rates and ROA except $\begin{array} { l rr } & \text { Interest } &\mathrm{ROA} \\ &\text { rate } \\\end{array}$ a) $\begin{array} { l rr } & 4 \% &&& 6 \% \\\end{array}$ b) $\begin{array} { l rr } & 6 \% &&& 6 \% \\\end{array}$ c) $\begin{array} { l rr } & 14 \% &&& 10 \% \\\end{array}$ d) $\begin{array} { l rr } & 16 \% &&& 10 \% \\\end{array}$