Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
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Chapter 12, Problem 41MCQ
To determine
What does a higher net profit margin indicates.
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If Company A uses more debt than Company B and both companies have identical operations in terms of sales, operating costs, etc., which of the following statements is true?(a) Company B will definitely have a higher current ratio.(b) Company B has a higher profit margin on sales than Company A.(c) The two companies have an identical profit margin on sales.(d) Company B's return on total assets would be higher.
Which of the following statements is usually correct?
A low receivables turnover is good for the business
The lower the total debt-to-equity ratio, the lower the financial risk for a firm
The higher the tax rate for a firm, the lower the interest coverage ratio
An increase in net profit margin with no change in sales or assets means a poor ROI
Check all that apply.
Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company’s total assets turnover.
Decrease the amount of debt financing used by the company, which will decrease the total assets turnover ratio.
Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company’s net profit margin.
Use more debt financing in its capital structure and increase the equity multiplier.
Chapter 12 Solutions
Cornerstones of Financial Accounting
Ch. 12 - Describe how some of the primary groups of users...Ch. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 11DQCh. 12 - 12. Why are higher asset turnover ratios...Ch. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 16DQCh. 12 - Which of the following use financial statement...Ch. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQCh. 12 - Which type of analysis compares a single...Ch. 12 - Which of the following types of analysis compares...Ch. 12 - Which of the following types of analysis is...Ch. 12 - Prob. 11MCQCh. 12 - Prob. 12MCQCh. 12 - Prob. 13MCQCh. 12 - Partial information from Fabray Companys balance...Ch. 12 - Hummel Inc. has $30,000 in current assets and...Ch. 12 - Prob. 16MCQCh. 12 - A firms quick ratio is typically computed as: a....Ch. 12 - Prob. 18MCQCh. 12 - Prob. 19MCQCh. 12 - Prob. 20MCQCh. 12 - Prob. 21MCQCh. 12 - Prob. 22MCQCh. 12 - Prob. 23MCQCh. 12 - When analyzing a companys debt to equity ratio,...Ch. 12 - Prob. 25MCQCh. 12 - Prob. 26MCQCh. 12 - Prob. 27MCQCh. 12 - Prob. 28MCQCh. 12 - Prob. 29MCQCh. 12 - Prob. 30MCQCh. 12 - Which of the following ratios is used to measure...Ch. 12 - Prob. 32MCQCh. 12 - Selected information for Berry Company is as...Ch. 12 - Which of the following ratios is used to measure a...Ch. 12 - Prob. 35MCQCh. 12 - Prob. 36MCQCh. 12 - Prob. 37MCQCh. 12 - Prob. 38MCQCh. 12 - Which of the following are not part of common...Ch. 12 - Prob. 40MCQCh. 12 - Prob. 41MCQCh. 12 - Prob. 42MCQCh. 12 - Which of the following is not included in the...Ch. 12 - When a Dupont analysis reveals that a company has...Ch. 12 - Prob. 45MCQCh. 12 - Cross Sectional Analysis Cross sectional analysis...Ch. 12 - Prob. 47CECh. 12 - Prob. 48CECh. 12 - Short-Term Liquidity Ratios Three ratios...Ch. 12 - Debt Management Ratios Selected data from the...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Selected financial...Ch. 12 - Profitability Ratios The following data came from...Ch. 12 - Prob. 54CECh. 12 - Prob. 55CECh. 12 - Prob. 56CECh. 12 - Prob. 57BECh. 12 - Prob. 58BECh. 12 - Prob. 59BECh. 12 - Short-Term Liquidity Ratios Larry, Curly, and Moe...Ch. 12 - Debt Management Ratios Glow Corporation provides...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Rumsford Inc.s financial...Ch. 12 - Prob. 64BECh. 12 - Profitability Ratios Tinker Corporation operates...Ch. 12 - Profitability Ratios Katrina Corp. is a publicly...Ch. 12 - Prob. 67BECh. 12 - Prob. 68ECh. 12 - Prob. 69ECh. 12 - Prob. 70ECh. 12 - Prob. 71ECh. 12 - Horizontal Analysis of Income Statements...Ch. 12 - Prob. 73ECh. 12 - Prob. 74ECh. 12 - Prob. 75ECh. 12 - Prob. 76ECh. 12 - Prob. 77ECh. 12 - Prob. 78ECh. 12 - Prob. 79ECh. 12 - Asset Efficiency Ratios Refer to financial...Ch. 12 - Prob. 81ECh. 12 - Prob. 82ECh. 12 - Prob. 83ECh. 12 - Prob. 84PSACh. 12 - Prob. 85PSACh. 12 - Prob. 86PSACh. 12 - A Using Common Size Statements The following...Ch. 12 - Prob. 88PSACh. 12 - Prob. 89PSACh. 12 - Prob. 90PSACh. 12 - A Comparing Financial Ratios Presented below are...Ch. 12 - A Preparation of Ratios Refer to the financial...Ch. 12 - Accounting Alternatives and Financial Analysis...Ch. 12 - Prob. 84PSBCh. 12 - Prob. 85PSBCh. 12 - Prob. 86PSBCh. 12 - Prob. 87PSBCh. 12 - Prob. 88PSBCh. 12 - Prob. 89PSBCh. 12 - Prob. 90PSBCh. 12 - Comparing Financial Ratios Presented below are...Ch. 12 - Prob. 92PSBCh. 12 - Problem 1 2-93B Accounting Alternatives and...Ch. 12 - Prob. 94CCh. 12 - Prob. 95.1CCh. 12 - Prob. 95.2CCh. 12 - Prob. 96.1CCh. 12 - Prob. 96.2CCh. 12 - Prob. 97.1CCh. 12 - Prob. 97.2CCh. 12 - Prob. 97.3CCh. 12 - Prob. 97.4CCh. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Prob. 98.1CCh. 12 - Prob. 98.2CCh. 12 - Prob. 98.3CCh. 12 - CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT The...Ch. 12 - Prob. 99.2CCh. 12 - Prob. 99.3CCh. 12 - Prob. 99.4CCh. 12 - Prob. 99.5C
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- Suppose the firm makes the change but its competitors react by making similar changes to their own credit terms, with the net result being that gross sales remain at the current 1,000,000 level. What would be the impact on the firms after-tax profitability?arrow_forwardWhich of the following typically is true for profitability ratios? a. Growth stocks have lower price to earnings ratios.b. Companies in more competitive industries have higher profit margins.c. The gross profit ratio declines as competition increases.d. When a company has debt, its return on equity will be lower than its return on assets.arrow_forwardA high operating margin implies that ______________ . The company is in a better position to increase its finance cost The company is in a better position to absorb the finance cost The company is in a better position to reduce its overheads The company is in a better position to increase its pricesarrow_forward
- Which of the following statements is most correct? Select one: A. A company with a current ratio of 0.5, should purchase additional inventory on credit if it wants to improve this ratio. B. Return on assets is a function of two variables, the profit margin and current asset turnover. C. A company with a current ratio of 0. 5, should sell some of the existing inventory at cost if it wants to improve this ratio. D. Firms with low rates of return on stockholders’ equity tend to sell at relatively high ratios of market price to book value.arrow_forwardIn general, as a company increases the amount of short-term financing relative to long-term financing, the A)Greater the risk that it will be unable to meet principal and interest payments. B)Leverage of the firm increases. C)Likelihood of having idle liquid assets increases. D)Current ratio increases.arrow_forwardCompanies HD and LD are both profitable, and they have the same total assets (TA), total invested capital, sales (S), return on assets (ROA), and profit margin (PM). Both firms finance using only debt and common equity. However, Company HD has the higher total debt to total capital ratio. Which of the following statements is CORRECT? a. Company HD has a higher ROE than Company LD. b. Company HD has a lower total assets turnover than Company LD. c. Company HD has a lower equity multiplier than Company LD. d. Company HD has a lower operating income (EBIT) than Company LD. e. Company HD has a higher fixed assets turnover than Company LD.arrow_forward
- Questions: Does a low return on sales indicate a weak company? (Y/N). Explain your answer. Do greater Net sales always result in greater net income? (Y/N) Why? Examine the financial information above and comment on the item that you find interesting.arrow_forwardSuppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases? Explain your answer.arrow_forwardA firm's ROE is above the industry average, but its profit margin and equity multiplier are both below the industry average. Which of the following statements is correct? A. It's total assets turnover is above the industry average B. Its total asset turnover is below the industry average C. Its TIE ratio is below the industry average D. It's ROA equals the industry average E. Its total assets turnover equals the industry averagearrow_forward
- Which of the following statements is most correct?(a) Generally, firms with high profit margins have high asset turnover ratios.(b) Having a high current ratio and a high quick ratio is always a good indication a firm is managing its liquidity position well.(c) Knowing that return on assets {ROA) measures the firm's effective utilization of assets without considering how these assets are financed, two firms with the same EBIT must have the same ROA.(d) One way to improve the current ratio is to use cash to pay off currentliabilities.arrow_forwardA firm with a substandard return on total assets can improve its return on equity, all else remaining the same, but A. decreasing its total asset turnover. B. increasing its total asset turnover. C. increasing its debt ratio. D. decreasing its debt ratio.arrow_forwardThe P/E ratio is most useful in .... : Comparing the premium that the market places on the total dollar value of earnings among competitors. Comparing the premium that the market places on the total dollar value of earnings per share among competitors. Comparing the return on earnings among competitors. Forecasting the future earnings of a company.arrow_forward
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