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Exam 12: Statement Cash Flows

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Question 1

True/False

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Liquidity ratios measure the ability of the company to survive over an extended time period.

A) True
B) False

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Question 2

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In 20X2, C Co's total liabilities were $10,742 million and shareholders' equity was $8,403 million. In 20X2, P Co's total liabilities were $16,259 million and their shareholders' equity was $6,401 million. Which of the following statements is false?

A) C Co's debt to equity ratio was 1.28 and P Co's was 2.54.
B) C Co has only about 56.1% of its assets financed by debt while P Co has about 71.8% of assets financed by debt.
C) P Co is a much higher leveraged company providing greater financial risk for investors but potential higher return on owners' investment to its shareholders.
D) C Co is more profitable than P Co.

E) C) and D)
F) A) and C)

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Question 3

Multiple Choice

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Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company?

P Co's earnings per share ratios were $1.31 and $1.36 respectively for 20X2 and 20X1. P Co's share was trading at $40 7/16 in 20X2 and $34 11/16 in 20X1. They paid cash dividends of $.515 per share in 20X2 and $.46 per share in 20X1. Total shareholders' equity was $6,401 million and $6,936 million in 20X2 and 20011 respectively. The common shares outstanding were approximately 1,519,000,000 and 1,570,000,000 in 20X2 and 20X1 respectively. -Calculate P Co's price earnings ratios for 20X2 and 20X1 respectively.

-Calculate C Co's return on assets (ROA) for 20X2.

Whether by implementing a strategy of differentiation or one of cost advantage, the common objective of a company is

Dividend yield measures earnings generated by each share, based on the market price per share.

Indicate the proper category for each ratio. Primary Category Test of: A. Profitability B. Liquidity C. Solvency D. Market E. Miscellaneous ratio Ratio ____ 1. Earnings per share ____ 2.Current ratio ____ 3.Debt/equity ratio ____ 4.Dividend yield ratio ____ 5.Receivables turnover ratio ____ 6. Return on equity ____ 7. Price/earnings ratio ____ 8.Creditors' equity to total equities ____ 9.Profit margin ___ 10.Inventory turnover ratio ___ 11.Owners' equity to total equities ___ 12.Quick ratio ___ 13. Return on assets ___ 14. Financial leverage ___ 15.Book value per common share ___ 16.Quality of earnings ___ 17.Fixed asset turnover ratio ___ 18.Cash coverage ___ 19.Cash ratio ___ 20. Times interest earned

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?

Match the characteristic that is reflected best by the indicators. Characteristic A. Solvency B. Global performance C. Market performance D. Profitability E. Liquidity Indicator ____ 1. Working capital ____ 2.Debt/equity ratio ____ 3.Earnings per share ____ 4. Return on assets ____ 5. Current ratio ____ 6.Price/earnings ratio ____ 7. Financial leverage

$\begin{array}{l}\text { Antarctica Cruises Inc. provided the following data for } 20 \mathrm { X } 1 \text { : }\\\begin{array} { | l | r | } \hline \text { Sales } & \$ 1,250,000 \\\hline \text { Cost of sales } & 787,500 \\\hline \text { Selling \& Admin. expenses } & 252,300 \\\hline \text { Income tax expense and paid } & 27,400 \\\hline \text { Interest expense } & 41,000 \\\hline \text { Interest paid } & 44,000 \\\hline \text { Cash from operating activities } & 246,000 \\\hline \text { Tax rate } & 40 \% \\\hline\end{array}\end{array}$ -If Antarctica has average total assets of $750,000, what is their total asset turnover?

The primary responsibility for the information in a company's financial statements and related disclosures lies with:

Ricon Company had the following data available from the statements of financial position and income statements: $\begin{array}{l}\begin{array} { | l | r | r | } \hline \text { Current assets: } &20X2&20X3 \\\hline \text { Trade receivables } & \$ 4 , 0 0 0 & 6 , 0 0 0 \\\hline \text { Cash } & 7,000 & 8,000 \\\hline \text { Inventory } & 10,000 & 12,000 \\\hline \text { Total assets } & 50,000 & 60,000 \\\hline \text { Current liabilities } & 15,000 & 20,000 \\\hline \text { Shareholders' equity: } & & \\\hline \text { Common stock, par \$5 } & 20,000 & 20,000 \\\hline \text { Retained earnings (including profit for 20X2 and } & 6,000 & 11,000 \\ \text { 20X3, respectively) } & & \\\hline \text { Total sales revenue } & 80,000 &100,000 \\\hline \text { Credit sales } & 26,000 & 30,000 \\\hline \text { Cost of goods sold } & 60,000 & 80,000 \\\hline \text { Income (before taxes) } & 5,000 & 7,000 \\\hline \text { Income tax (20\%) } &1,000 &1,400 \\\hline\end{array}\\\\\begin{array} { | l | l | l | l | } \hline & \text { Ratio } & 20X2 & 20X3 \\\hline \text { a. } & \text { Current ratio } & & \\\hline \text { b. } & \text { Quick ratio } & & \\\hline \text { c. } & \text { Earnings per share of common stock } & & \\\hline\end{array}\end{array}$

The records of ZZZZ Better Corporation include the following: $\begin{array} { | l | r | } \hline \text { Average total assets } & \$ 60,000 \\\hline \text { Average total liabilities } & 45,000 \\\hline \text { Total revenue } & 107,600 \\\hline \text { Total expense (including income tax) } & 104,000 \\\hline\end{array}$ What is the return on equity?

A current ratio of 1.2 to 1 indicates that a company's assets exceed its current liabilities.

A quality of earnings ratio higher than one is an indicator of which of the following?

Indicate the effect of each item on the ratios given below in the following manner: if an item would cause an increase in the ratio, place a check in the + column; if a decrease, place a check in - column; and if no change, check the 0 column. Each item is independent of the others.

A successful grocery store would probably have

Proitt margin is calculated by dividing

Which of the following accounting ratios considers the importance of cash flows relating to required interest payments?