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Exam 13: Analyzing Financial Statements

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Question 31

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Which of the following statements is incorrect about fundamental business strategies?

A) A company implementing a cost differentiation strategy is attempting to increase operating efficiency of assets and improve the inventory turnover ratio.
B) A company implementing a product differentiation strategy is attempting to improve its net profit margin through charging higher prices.
C) A company will be more profitable because it will attract a higher volume of customers and sales revenue when it follows a product differentiation strategy versus a cost differentiation strategy.
D) In general,a cost differentiation strategy results in lower profit margins whereas a product differentiation strategy results in higher profit margins.

E) C) and D)
F) None of the above

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Question 32

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Which of the following statements is correct?

A) When cost of goods sold as a percentage of sales increases,the gross profit percentage will increase.
B) It is possible that when cost of goods sold in dollars increases,cost of goods sold as a percentage of sales decreases.
C) If gross profit percentage is the same for the current and past year,then sales and cost of goods sold in dollars did not change.
D) If gross profit percentage increases from one year to the next,then the net income percentage will also increase from one year to the next.

E) B) and C)
F) B) and D)

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Question 33

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Which of the following ratios is not part of the DuPont model?

The quality of income ratio increases when net income increases.

Cecilia Company reported net income of $1,200,000.The average total liabilities were $4,300,000 and average total stockholders' equity was $5,200,000.Interest expense was $100,000 and the tax rate was 40%.Cecilia's return on assets ratio (calculated using the modified method discussed in the text) is closest to:

MusicPod's earnings per share ratios were $2.47 and $2.07 respectively for 2019 and 2018.MusicPod's stock was trading at $53.00 and $41.50 per share at the end of 2019 and 2018 respectively.The company paid cash dividends per share of $0.85 in 2019 and $0.63 in 2018.Total stockholders' equity was $13,572 million and $11,896 million in 2019 and 2018 respectively.The common shares outstanding were approximately 1,782,000 in both 2019 and 2018. -MusicPod's price/earnings ratio for 2019 is closest to:

Which of the following ratios increases when a company switches from FIFO to LIFO during a period of increasing unit costs?

The following data were reported by Universe Company at year-end: Calculate each of the following ratios: A.Debt-to-equity B.Current ratio C.Quick ratio D.Which of the above ratios,if any,are liquidity ratios? E.Which of the above ratios,if any,are profitability ratios?

The inventory turnover ratio is significantly affected by the choice of inventory accounting method.

Wildlife Co.reported net income of $8.3 million,interest expense of $0.5 million and $0.2 million of income tax expense.Wildlife's average total assets are $65.8 million and average stockholders' equity is $48.6 million.Wildlife's times interest earned ratio is closest to:

Indicate the effect of each item on the particular ratio of that row of the schedule.In the last column of the schedule,place the answer of the effect of the item on the ratio.Use the letter I for increase in the ratio,D for decrease in the ratio,and N for no effect on the ratio.Each item is independent of the others.

Which of the following ratios will not increase when net income increases?

When comparing a fixed asset turnover ratio to a total asset turnover ratio,a company with a high amount of inventory will have a much lower fixed asset turnover ratio than total asset turnover ratio.

Lucas Company has provided the following information: • Cash flow from operating activities,$360,000 • Net income,$306,000 • Interest expense,$30,000 • Interest cash payments,$20,000 • Income tax payments,$240,000 • Income tax expense,$246,000 - Using the modified method discussed in the text,what was Lucas' cash coverage ratio?

If an investor is considering two different companies as an investment,the investor should choose to invest with the company that has the highest net profit margin.

The Apple Pie Company had net income of $47,500 and earnings per share of $3.17.Apple Pie declared dividends of $2 per share of common stock during 2019.On December 31,2019,the stock had a market price of $18.50 per share.Apple Pie's price/earnings ratio is closest to:

Trenton Company has provided the following information: • Net income,$240,000 • Preferred shares issued,6,000 • Weighted average number of shares of common stock issued,24,000 • Cash dividends declared and paid on common stock,$30,000 • Market price per share,$36 • Weighted average number of treasury shares of common stock,4,000 - What is Trenton's earnings per share?

Which of the following transactions would increase the current ratio of a company if the ratio is currently greater than 1?

The operating cycle includes the number of days it takes to:

Which of the following is false?