Accounting Decision Makers Final Exam

Which of the following ratios will usually have the lowest percentage? - correct answer return on Investment Total asset turnover measures the ability of a firm to: - correct answer generate sales through the use of assets In the formula for return on investment, interest expense is multiplied by (1 ? tax rate). Why is this adjustment made? - correct answer net income in the formula is after tax Which of the following is not a type of operating asset? - correct answer long-term investments Which of the following expresses DuPont analysis? - correct answer Return on assets = net profit margin times total asset turnover Which of the following is not a base against which profits are measured? - correct answer intangibles Which of the following would most likely cause a rise in net profit margin? - correct answer decreased operating expenses Net profit margin measures return on - correct answer sales Operating income is - correct answer gross profit less operating expenses Gross profit margin is an important ratio of merchandising firms because - correct answer cost of goods sold is usually the largest expense The DuPont method return on assets uses two component ratios. What are they? - correct answer net profit margin and total asset turnover Which suppliers of funds bear the greatest risk and should therefore earn the greatest return? - correct answer Common shareholders A reason that equity earnings create a problem in analyzing profitability is that equity earnings are - correct answer usually greater than the related cash flow Which of the following circumstances will cause sales to fixed assets to be abnormally high? - correct answer a labor-intensive industry Which of the following ratios usually reflects investors opinions of the future prospects for the firm? - correct answer Price/earnings ratio The price/earnings ratio: - correct answer is a gauge of future earning power as seem by investors The earnings per share is computed for: - correct answer common stock Book value per share may not approximate market value per share because - correct answer book value is related to book figures and market value is related to the future potential as seen by investors The best dividend payout ratio - correct answer does not follow any rule of thumb for dividend payout. What is the effect of the exercise of stock options? - correct answer they increase the number of shares outstanding Which of the following rations represents dividends per common share in relation to market price per common share? - correct answer dividend yield Which of the follow is not a reason to interpret book value with caution? - correct answer all of the answers are correct Using financial leverage is a good financial strategy from the viewpoint of stockholders of companies having: - correct answer steady or rising profits