Chapter 4 Measuring Financial Performance
Chapter 4 Measuring Financial Performance
Chapter 4 Measuring Financial Performance
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9. . The ________ ratio measures the extent to which a firm is able to cover its short-
termobligations (usually defined as obligations due within the next year) with its short-
term assets.
a. ROE
b. Current
c. inventory turnover
d. working capital
10. Spartacus Inc., has sales of $4,500,000, net income of $250,000, assets worth
$3,700,000,and total common stockholder equity of $2,500,000. The ROE for Spartacus
is:
a. 5.56%.
b. 6.76%.
c. 10.00%.
d. 55.56%
11. Modern Comics Inc., has sales of $2,500,000, net income of $50,000, assets
worth$1,700,000, and total common stockholder equity of $1,500,000. The ROE for the
firm is:
a. 68.00%.
b. 60.00%.
c. 2.94%.
d. 3.33%.
12. A few of the ratios for Quality Construction Inc., are presented here. Use this
informationto calculate the firm's ROE. Leverage ratio = 1.50, ROA is 12.00%,
profitability ratio is8.00%.
a. 1.44%
b. 12.00%
c. 18.00%
d. 8.00%
13. Use the following ratios for Crimson Industries Inc., to estimate the firm's ROE. Netprofit
margin = 8.62%, asset turnover = 1.68, return on assets = 14.48%, financialleverage =
1.35, debt to equity ratio = 35%.
a. 2.10%
b. 0.99%
c. 5.07%
d. 19.55%
14. Creative Productions Inc., has a tax rate of 30%, an EBIT of $400,000. NWC of
$80,000,fixed assets of $1,200,000, and current liabilities of $220,000 and a cost of
capital of12.35%. What is the firm's ROIC?
a. 33.33%
b. 12.35%
c. 21.88%
d. 26.92%
15. Pavillion Corp. has $6,000,000 in total assets, $1,500,000 in current assets,
and$4,000,000 in equity. Calculate the debt-to-equity ratio.
a. 0.33
b. 0.50
c. 0.25
d. 0.67
16. . Pavillion Corp. has $6,000,000 in total assets, $1,500,000 in current assets,
and$4,000,000 in equity. Calculate the debt-to-asset ratio.
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a. 0.33
b. 0.50
c. 0.25
d. 0.67
17. How many times can the Johnson Corporation cover their interest expenses if the firm
hassales of $3,000,000, total assets of $2,100,000, EBIT equal to $1,000,000, a tax rate
of40% and interest expense of $250,000?
a. 1.43
b. 2.10
c. 4.00
d. 12.0
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18. Use the information in Table 4.1 to determine the 2013 current ratio for Bacon Signs.
a. $3,908/$2,943 = 1.33
b. $3,527/$2,250 = 1.57
c. $3,170/$2,943 = 1.08
d. $713/$2,943 = 0.24
19. Use the information in Table 4.1 to determine the 2013 long term debt to equity ratio
forBacon Signs.
a. $5,500/$5,420 = 1.01
b. $5,500/$9,620 = 0.57
c. $6,678/ $5,420 = 1.23
d. $6,678/$9,620 = 0.69
20. Use the information in Table 4.1 to determine the 2013 dividend payout ratio for
BaconSigns.
a. This question cannot be answered from the information provided.
b. $250/$7418 = 0.03
c. $463/$713 = 0.65
d. $250/$713 = 0.35
Problems
1. Star Inc. has year 1 revenues of $80 million, net income of $9 million, assets of $65
million, and equity of $40 million, as well as year 2 revenues of $87 million, net
income of $22 million, assets of $70 million, and equity of $50 million. Calculate
Star’s return on equity (ROE) for each year based on the DuPont method and compare
it with a direct ROE measure. Next, explain why the firm’s ROE changed between
year 1 and year 2.
2. Nextime Ltd. has operating profits (EBIT) of $87 million, a tax rate of 35 percent,
networking capital of $129 million, and fixed assets of $285 million. Calculate
Nextime’sreturn on invested capital, or ROIC. Then describe three methods BE
Enterprises has fixedcosts of $50 million. ItsGross margin percentage is 18 percent.
What sales level must it achieve in order to breakeven? By which a firm can increase
its ROIC.
3. . Fixem Co. has revenue of $125 million, property and equipment of $42 million,
andaccumulated depreciation and amortization of $6 million. Estimate the fixed asset
turnoverratio
4. Wally Wholesale has revenue of $487,000, end-of year receivables of $112,000,
accountpayables of $70,000, and inventory of $91,000. Assume purchases equal cost
of sales of$372,000. Estimate Wally Wholesale’s age of inventory, age of receivables,
and age ofpayables
5. Quick-E Inc.’s current assets consist of cash of $5 million, account receivables of
$27million, inventory of $37 million, and it has current liabilities of $48 million.
CalculateQuick-E’s current ratio and quick ratio.
6. . Deb Co. has interest-bearing debt of $122 million, non–interest-bearing debt of $33
million,and equity of $76 million. Calculate Deb Co.’s debt-to-assets, debt-to-equity,
and long-term-debt-to-capital ratios.
7. IOU Inc. has EBIT of $58,000, depreciation and amortization of $12,000, interest
expensesof $21,000, principal repayments of $17,000, and a tax rate of 35 percent.
Calculate IOUInc.’s interest coverage ratio and debt service coverage ratio.