©JUSTTRACY EXAM SOLUTIONS
19/11/2024 1:10pm
Finance 3101 Keen Final Exam
Modified Questions And Responses
What is meant by "benchmarking"? - answers✔✔comparing a companies financial data to
another companies data or to its own previous data
What is the difference between Trend (time-series) and cross-section analysis? -
answers✔✔trend: one company, multiple time periods
cross section: multiple companies, multiple time periods
How do we common-size the BS and IS and for what purpose? - answers✔✔divide
everything by revenue or sales
What are some synonyms for "ratio" and what does EVERY ratio tell us? - answers✔✔ratio =
fraction, proportion, percentage
Tells us "how many times the top is of the bottom"
What is the DuPont framework and what is it used for? - answers✔✔A way of calculating
ROE using 3 different ratios.
The Dupont Framework is used to explain how companies can increase their return for
investors.
What does the Equity Multiplier represent? - answers✔✔The use of debt (financial leverage)
How does increased use of debt affect the cash coverage ratio and, ceteris paribus, a firm's
ROE (through the DuPont framework) - answers✔✔More debit = Increase in ROE
True or False: Every ratio tells us for every one of what's on top, here's how many we have of
what's on the bottom - answers✔✔False
, ©JUSTTRACY EXAM SOLUTIONS
19/11/2024 1:10pm
True or False: Ratio, proportion, fraction, and percent all mean the same thing -
answers✔✔True
True or False: if the debt-equity ratio is 1.25, the equity multiplier would be 2.50 -
answers✔✔False
True or False: the higher the equity multiplier, the greater is the proportion of a firm's assets
that are financed with equity - answers✔✔False
True or False: Common-size values on the balance sheet show each item as a percent of total
equity - answers✔✔False
True or False: if sales increase by 5% and total assets fall by 1%, the TAT ratio would down
by approximately 6% - answers✔✔False
True or False: a decrease in the current ratio indicates improvement in a firm's liquidity -
answers✔✔False
True or False: an increase in the cash coverage ratio means that a firm is likely to default on
its outstanding debt - answers✔✔True
True or False: Ceteris paribus, according to the DuPont framework, an increase in the use of
debt would increase a firm's ROE - answers✔✔True
True or False: For firms with lower P/E ratios, investors are valuing each dollar of earnings
less than for firms with higher P/E ratios - answers✔✔True
True or False: Corporate managers who are doing a better job of serving owners would see
the market-book ratio their firm exceed the ratio for managers who are not doing as good a
job - answers✔✔True
What is meant by the "cost of capital" and why is the "cost of capital" important? -
answers✔✔cost of capital represents a hurdle rate that a company must overcome before it
19/11/2024 1:10pm
Finance 3101 Keen Final Exam
Modified Questions And Responses
What is meant by "benchmarking"? - answers✔✔comparing a companies financial data to
another companies data or to its own previous data
What is the difference between Trend (time-series) and cross-section analysis? -
answers✔✔trend: one company, multiple time periods
cross section: multiple companies, multiple time periods
How do we common-size the BS and IS and for what purpose? - answers✔✔divide
everything by revenue or sales
What are some synonyms for "ratio" and what does EVERY ratio tell us? - answers✔✔ratio =
fraction, proportion, percentage
Tells us "how many times the top is of the bottom"
What is the DuPont framework and what is it used for? - answers✔✔A way of calculating
ROE using 3 different ratios.
The Dupont Framework is used to explain how companies can increase their return for
investors.
What does the Equity Multiplier represent? - answers✔✔The use of debt (financial leverage)
How does increased use of debt affect the cash coverage ratio and, ceteris paribus, a firm's
ROE (through the DuPont framework) - answers✔✔More debit = Increase in ROE
True or False: Every ratio tells us for every one of what's on top, here's how many we have of
what's on the bottom - answers✔✔False
, ©JUSTTRACY EXAM SOLUTIONS
19/11/2024 1:10pm
True or False: Ratio, proportion, fraction, and percent all mean the same thing -
answers✔✔True
True or False: if the debt-equity ratio is 1.25, the equity multiplier would be 2.50 -
answers✔✔False
True or False: the higher the equity multiplier, the greater is the proportion of a firm's assets
that are financed with equity - answers✔✔False
True or False: Common-size values on the balance sheet show each item as a percent of total
equity - answers✔✔False
True or False: if sales increase by 5% and total assets fall by 1%, the TAT ratio would down
by approximately 6% - answers✔✔False
True or False: a decrease in the current ratio indicates improvement in a firm's liquidity -
answers✔✔False
True or False: an increase in the cash coverage ratio means that a firm is likely to default on
its outstanding debt - answers✔✔True
True or False: Ceteris paribus, according to the DuPont framework, an increase in the use of
debt would increase a firm's ROE - answers✔✔True
True or False: For firms with lower P/E ratios, investors are valuing each dollar of earnings
less than for firms with higher P/E ratios - answers✔✔True
True or False: Corporate managers who are doing a better job of serving owners would see
the market-book ratio their firm exceed the ratio for managers who are not doing as good a
job - answers✔✔True
What is meant by the "cost of capital" and why is the "cost of capital" important? -
answers✔✔cost of capital represents a hurdle rate that a company must overcome before it
