FIN 571 Week 2 Exam Questions with Verified Solutions Latest Version 2025 Already Passed
Financial Statement Analysis (82) - Answers which involves the use of financial ratios to analyze a firm's
performance
Trend Analysis (83) - Answers which involves looking at historical financial statements to see how
various ratios are increasing, decreasing, or staying constant over time
Benchmark (83) - Answers involves comparing a firm's performance
with the performance of similar firms that are relevant competitors.
Common Size Financial Statement (84) - Answers one in which each number is expressed as a
percentage of some base number, such as total assets or total revenues
Financial Ratio (86) - Answers one number from a fi nancial statement that has been divided by another
financial number.
Insolvency (88) - Answers The inability to pay debts when they are due
Financial Leverage (93) - Answers refers to the use of debt in a firm's capital structure. occurs because
the interest payments associated with debt are fi xed, regardless of the level of the firm's operating
profits.
Default Risk (94) - Answers the risk that it will not be able to pay its debt as it comes due.
Total Debt Ratio (94) - Answers measures the extent to which the firm finances its assets from sources
other than the stockholders. The higher the total debt ratio, the more debt
the firm has in its capital structure.
Debt to Equity Ratio (94) - Answers tells us the amount of debt for each dollar of total assets. The debt-
to-equity ratio tells us the amount of debt for each dollar of equity
Times Interest Earned (96) - Answers type of coverage ratio, which measures the extent to which
operating profits (earnings before interest and taxes, or EBIT) cover the
firm's interest expenses.
Cash Coverage (96) - Answers depreciation is a noncash expense, and as a result, no cash goes out the
door when depreciation is deducted on the income statement.
Net Profit Margin (102) - Answers can be viewed as the product of three ratios: (1) the operating profit
margin (EBIT/Net sales), which is Equation 4.15, (2) a ratio that measures the impact of interest
expenses on profi ts (EBT/EBIT), and (3) a ratio that measures the impact of taxes on profi ts (Net
income/EBT). Thus, the net profi t margin focuses on management's ability to generate profi ts from
, sales by effi ciently managing the firm's (1) operating expenses, (2) interest expenses, and (3) tax
expenses.
Total Asset Turnover (102) - Answers which is defined as Net sales/Total assets, measures how
efficiently management uses the assets under its command—that is, how much output management can
generate with a given asset base.
Standard Industrial Classification System (SIC) (106) - Answers The SIC codes are four-digit numbers
established by the federal government for statistical reporting purposes. The first two digits describe the
type of business in a broad sense (for example,
firms engaged in building construction, mining of metals, manufacturing of machinery, food stores, or
banking). Diaz's two-digit code is 35, "Industrial and commercial machinery and computer equipment.
North American Industry Classification System (NAICS) (106) - Answers It was intended to refine and
replace the older SIC codes, but it has been slow to catch on. Industry databases still allow you to sort
data by either SIC or NAICS classifications.
Equity Multiplier (95) - Answers The equity multiplier tells us the amount of assets that the firm has for
every dollar of equity.
Equations 4.1-4.11 (112) - Answers Current Ratio
Quick Ratio
Inventory turnover
Days Sales in inventory
Accounts receivable turnover
Total Asset Turnover
Fixed Asset Turnover
Total Debt Ratio
Debt-to-equity ratio
Equity Multiplier
rest on page 113
Chapter 8 : Business Plan (578) - Answers It presents the results from a strategic
planning process that focuses on how the business will be developed over time. It describes where the
company is going and what steps the company will follow to get there.
Financial Statement Analysis (82) - Answers which involves the use of financial ratios to analyze a firm's
performance
Trend Analysis (83) - Answers which involves looking at historical financial statements to see how
various ratios are increasing, decreasing, or staying constant over time
Benchmark (83) - Answers involves comparing a firm's performance
with the performance of similar firms that are relevant competitors.
Common Size Financial Statement (84) - Answers one in which each number is expressed as a
percentage of some base number, such as total assets or total revenues
Financial Ratio (86) - Answers one number from a fi nancial statement that has been divided by another
financial number.
Insolvency (88) - Answers The inability to pay debts when they are due
Financial Leverage (93) - Answers refers to the use of debt in a firm's capital structure. occurs because
the interest payments associated with debt are fi xed, regardless of the level of the firm's operating
profits.
Default Risk (94) - Answers the risk that it will not be able to pay its debt as it comes due.
Total Debt Ratio (94) - Answers measures the extent to which the firm finances its assets from sources
other than the stockholders. The higher the total debt ratio, the more debt
the firm has in its capital structure.
Debt to Equity Ratio (94) - Answers tells us the amount of debt for each dollar of total assets. The debt-
to-equity ratio tells us the amount of debt for each dollar of equity
Times Interest Earned (96) - Answers type of coverage ratio, which measures the extent to which
operating profits (earnings before interest and taxes, or EBIT) cover the
firm's interest expenses.
Cash Coverage (96) - Answers depreciation is a noncash expense, and as a result, no cash goes out the
door when depreciation is deducted on the income statement.
Net Profit Margin (102) - Answers can be viewed as the product of three ratios: (1) the operating profit
margin (EBIT/Net sales), which is Equation 4.15, (2) a ratio that measures the impact of interest
expenses on profi ts (EBT/EBIT), and (3) a ratio that measures the impact of taxes on profi ts (Net
income/EBT). Thus, the net profi t margin focuses on management's ability to generate profi ts from
, sales by effi ciently managing the firm's (1) operating expenses, (2) interest expenses, and (3) tax
expenses.
Total Asset Turnover (102) - Answers which is defined as Net sales/Total assets, measures how
efficiently management uses the assets under its command—that is, how much output management can
generate with a given asset base.
Standard Industrial Classification System (SIC) (106) - Answers The SIC codes are four-digit numbers
established by the federal government for statistical reporting purposes. The first two digits describe the
type of business in a broad sense (for example,
firms engaged in building construction, mining of metals, manufacturing of machinery, food stores, or
banking). Diaz's two-digit code is 35, "Industrial and commercial machinery and computer equipment.
North American Industry Classification System (NAICS) (106) - Answers It was intended to refine and
replace the older SIC codes, but it has been slow to catch on. Industry databases still allow you to sort
data by either SIC or NAICS classifications.
Equity Multiplier (95) - Answers The equity multiplier tells us the amount of assets that the firm has for
every dollar of equity.
Equations 4.1-4.11 (112) - Answers Current Ratio
Quick Ratio
Inventory turnover
Days Sales in inventory
Accounts receivable turnover
Total Asset Turnover
Fixed Asset Turnover
Total Debt Ratio
Debt-to-equity ratio
Equity Multiplier
rest on page 113
Chapter 8 : Business Plan (578) - Answers It presents the results from a strategic
planning process that focuses on how the business will be developed over time. It describes where the
company is going and what steps the company will follow to get there.
