Financial Statements Analysis and Financial Models

What is the primary purpose of standardizing financial statements by creating common-size statements?

Prufrock Corporation has current assets of $708 million and current liabilities of $540 million. What is its current ratio?

A firm has total assets of $3,588 million and total equity of $2,591 million. What is its total debt ratio?

The DuPont identity shows that Return on Equity (ROE) is affected by three things. Which of the following correctly lists these three components?

A company has a dividend payout ratio of 33 1/3 percent. What is its retention ratio (or plowback ratio)?

The Hoffman Company has a Return on Assets (ROA) of 13.2 percent and a plowback ratio (b) of 2/3. What is its internal growth rate?

Which ratio measures the number of times a company's inventory is sold and replaced over a period?

Prufrock Corporation has sales of $2,311 million and total assets of $3,588 million. What is its total asset turnover ratio?

Which measure of profitability is defined as 'EBIT + depreciation and amortization'?

The Hoffman Company has a Return on Equity (ROE) of 26.4 percent and a plowback ratio (b) of 2/3. What is its sustainable growth rate?

What does a Price-Earnings (PE) ratio measure?

If a firm has sales of $2,311 million, cost of goods sold of $1,344 million, and depreciation of $276 million, what is its EBIT?

The percentage of sales approach to financial planning assumes that which of the following is constant?

Prufrock Corporation has an EBIT of $691 million and an interest expense of $141 million. What is its Times Interest Earned (TIE) ratio?

A firm has an inventory turnover of 3.2 times. How many days, on average, does its inventory sit before it is sold?

According to the analysis of enterprise value multiples, which of the following is a key advantage of the EV/EBITDA ratio over the PE ratio?

If a firm has a profit margin of 15.7 percent, a total asset turnover of 0.64, and an equity multiplier of 1.39, what is its Return on Equity (ROE) according to the DuPont identity?

What is the term for the maximum growth rate a firm can achieve without any external financing of any kind?

In the percentage of sales approach, the amount of financing required to support a projected increase in sales is known as what?

A firm has current assets of $708 million, inventory of $422 million, and current liabilities of $540 million. What is its quick (acid-test) ratio?

Which of the following is NOT one of the traditional categories of financial ratios discussed in the chapter?

The Cooney Corporation has net working capital with a book value of $400 and a liquidation value of $600. Its net fixed assets have a book value of $700 and a market value of $1,000. Long-term debt is $500 for both book and market value. What is the market value of the company's equity?

What is the relationship between the debt-equity ratio and the equity multiplier?

A firm has a receivables turnover of 12.3 times. What is its average collection period (ACP)?

In a simple financial planning model where all variables are tied to sales, if a company projects a 20 percent increase in sales and decides to pay out dividends of $190 from a net income of $240, what must be the plug variable to balance the pro forma balance sheet?

What does the capital intensity ratio measure?

A firm's ability to sustain growth depends on four factors. Which of these factors relates to its operating efficiency?

What is a major limitation of financial planning models as discussed in the text?

If a firm's profit margin is 3 percent, its total asset turnover is 1 (capital intensity ratio of 1), its debt-equity ratio is 0.5, and its dividend payout ratio is 40 percent, what is its sustainable growth rate?

When comparing two firms, what is a problem with using financial ratios that an analyst must be aware of?

What does a market-to-book ratio of less than 1 potentially signify?

Prufrock Corporation had a net income of $363 million and sales of $2,311 million. What was its profit margin?

Which of the following would NOT be a reason for two companies in the same industry to have different PE ratios?

A simple financial planning model projects that a firm will need $100 in new assets to support a 20 percent growth rate. If the projected addition to retained earnings is $52.8, what is the External Financing Needed (EFN)?

What is the cash coverage ratio for a firm with EBIT of $691 million, depreciation of $276 million, and interest expense of $141 million?

If an increase in a firm's debt increases its interest expense, which in turn reduces its profit margins, what is the effect on its Return on Equity (ROE) according to the DuPont identity?

Which ratio would be most useful for a short-term creditor to assess a firm's ability to pay its bills over the short run?

A firm has an EPS of $11 and 33 million shares outstanding. The stock sells for $88 per share. What is the firm's Price-Earnings (PE) ratio?

What is the sustainable growth rate for a company with an ROE of 7.3 percent and a plowback ratio of 67 percent?

If a firm has a total asset turnover ratio of 0.64 times, what is its capital intensity ratio?

A common-size balance sheet expresses each account as a percentage of what total figure?

A common-size income statement expresses each account as a percentage of what total figure?

If a firm has a debt-equity ratio of 0.39, what is its equity multiplier?

Which of these commonly used measures of earnings is also referred to as the 'bottom line'?

In the percentage of sales approach, if a firm needs $565 in external financing to support its growth plan, which of the following is NOT a potential source for these funds?

A firm's Return on Assets (ROA) is 10.12 percent and its Equity Multiplier is 1.39. What is its Return on Equity (ROE)?

Which of the following would increase a firm's sustainable growth rate, assuming all other factors remain constant?

If a company has 33 million shares outstanding and a stock price of $88 per share, what is its market capitalization?

Enterprise Value (EV) is calculated as Market Capitalization plus market value of interest-bearing debt, minus what other item?

What does a high accounts payable turnover period, such as Prufrock's 94 days, indicate?