AU60 - ASSIGNMENT 3 QUESTIONS
& ANSWERS CORRECT 100%
Accounts Receivable Turnover - ANSWERCredit Sales / Accounts Receivable -
Measures how quickly a business collects the funds it is owed. The longer the
amounts are outstanding, the greater the risk they will not be collected. The higher
the ratio, the more efficiently the company is performing.
Asset Turnover - ANSWERSales / Total Assets - Measures the use of assets. The
more a company sells in proportion to its assets, the higher its asset turnover will be.
An insurers comprehensive income includes - ANSWERUnrealized gains and losses
on securities.
Bob's Manufacturing has been in business for one year. Which one of the following is
true regarding Bob's year-end financial statements? - ANSWERThe beginning
balance on the statement of changes in shareholders equity will show as $0.
Which one of the following describes a section of the statement of cash flow? -
ANSWERCash flows from investing activities.
Which one of the following is a major purpose of the statement of cash flow? -
ANSWERIt is used to assess the ability to meet financial obligations
Which one of the following describes a section of the statement of cash flows? -
ANSWERCash flows from operating activities.
A company's common-size statement lists 2 years, 20X3 and 20X4. In 20X3, the
inventories line was 5%, and in 20X4 the inventories line was 7%. Which one of the
following could an underwriter infer from this information? - ANSWERThe
percentage of inventories total assets increased.
Inventory Turnover - ANSWERCost of Goods Sold / Inventory - Relates the amount
of cost of goods sold for a given period to the amount of inventory held at the end of
the period. A low inventory turnover rate may indicate inefficiency and that inventory
is not being sold quickly enough.
Net Profit Margin - ANSWERNet Income / Sales - Expressed as a percentage of
sales. The higher the percentage, the better the net profit margin.
Return on Assets (ROA) - ANSWERNet Income / Total Assets - Shows how well a
company has used its resources. The higher the ratio the more efficiently
management has used assets.
, Return on Equity (ROE) - ANSWERNet Income / Shareholders Equity - States the
rate of return that shareholders are earning on their equity in, shows the rate of
return that shareholders are earning their equity in the company's assets. Measure
the actual return to stockholders net of the effect of financial leverage.
DuPont Identity - Return on Equity - ANSWER(Net Income / Sales) x (Sales / Total
Assets) x (Total Assets / Shareholders Equity) - Analyzes ROA and ROE by
breaking them down into their component ratios.
Current Ratio - ANSWERCurrent Assets / Current Liabilities - Indicates the adequacy
of an organizations working capital to meet its current financial obligations.
Acid-Test, or Quick, Ratio - ANSWER(Cash + Marketable Securities + Accounts
Receivable) / Current Liabilities - Measures that include only cash, marketable
securities and accounts receivable in its numerator.
Debt-To-Equity Ratio - ANSWERLong-Term Debt / Shareholders Equity - used to
assess the relative extent of an organizations debt financing, compared with other
organizations in the same industry.
Debt-To-Assets Ratio - ANSWERTotal Liabilities / Total Assets - Shows the extent to
which an organizations assets are financed by debt. If the ratio is greater than 0.5,
then most of the organizations assets are financed this way.
Equity Multiplier - ANSWERTotal Assets / Shareholders Equity - Emphasizes the
efficiency of the company's use of debt to finance its assets.
Current Assets are Made Up Of - ANSWERCash, accounts receivable, inventory,
supplies, and marketable securities.
Noncurrent Assets are Made Up Of - ANSWERProperty, plant, land, buildings,
equipment MINUS depreciation, intangible assets, and goodwill.
Current Liabilities are Made Up Of - ANSWERAccounts payable, wages payable,
taxes payable, and short-term debt.
Noncurrent Liabilities are Made Up Of - ANSWERLong-term debt.
Shareholder Equity/ Owners Equity is Made Up Of - ANSWERAssets MINUS
liabilities.
Net Income - ANSWERBefore Taxes Net Income - Income Taxes.
Income Statements are Made Up Of - ANSWERRevenue, expenses, cost of goods
sold, gross profit, operating income, net income, and comprehensive income.
Statement of Changes in Shareholders Equity - ANSWERShares in Common Stock
x Par Value + Additional Paid in Capital = Total Paid Capital - Covers the entire
period for each major component of related capital.
& ANSWERS CORRECT 100%
Accounts Receivable Turnover - ANSWERCredit Sales / Accounts Receivable -
Measures how quickly a business collects the funds it is owed. The longer the
amounts are outstanding, the greater the risk they will not be collected. The higher
the ratio, the more efficiently the company is performing.
Asset Turnover - ANSWERSales / Total Assets - Measures the use of assets. The
more a company sells in proportion to its assets, the higher its asset turnover will be.
An insurers comprehensive income includes - ANSWERUnrealized gains and losses
on securities.
Bob's Manufacturing has been in business for one year. Which one of the following is
true regarding Bob's year-end financial statements? - ANSWERThe beginning
balance on the statement of changes in shareholders equity will show as $0.
Which one of the following describes a section of the statement of cash flow? -
ANSWERCash flows from investing activities.
Which one of the following is a major purpose of the statement of cash flow? -
ANSWERIt is used to assess the ability to meet financial obligations
Which one of the following describes a section of the statement of cash flows? -
ANSWERCash flows from operating activities.
A company's common-size statement lists 2 years, 20X3 and 20X4. In 20X3, the
inventories line was 5%, and in 20X4 the inventories line was 7%. Which one of the
following could an underwriter infer from this information? - ANSWERThe
percentage of inventories total assets increased.
Inventory Turnover - ANSWERCost of Goods Sold / Inventory - Relates the amount
of cost of goods sold for a given period to the amount of inventory held at the end of
the period. A low inventory turnover rate may indicate inefficiency and that inventory
is not being sold quickly enough.
Net Profit Margin - ANSWERNet Income / Sales - Expressed as a percentage of
sales. The higher the percentage, the better the net profit margin.
Return on Assets (ROA) - ANSWERNet Income / Total Assets - Shows how well a
company has used its resources. The higher the ratio the more efficiently
management has used assets.
, Return on Equity (ROE) - ANSWERNet Income / Shareholders Equity - States the
rate of return that shareholders are earning on their equity in, shows the rate of
return that shareholders are earning their equity in the company's assets. Measure
the actual return to stockholders net of the effect of financial leverage.
DuPont Identity - Return on Equity - ANSWER(Net Income / Sales) x (Sales / Total
Assets) x (Total Assets / Shareholders Equity) - Analyzes ROA and ROE by
breaking them down into their component ratios.
Current Ratio - ANSWERCurrent Assets / Current Liabilities - Indicates the adequacy
of an organizations working capital to meet its current financial obligations.
Acid-Test, or Quick, Ratio - ANSWER(Cash + Marketable Securities + Accounts
Receivable) / Current Liabilities - Measures that include only cash, marketable
securities and accounts receivable in its numerator.
Debt-To-Equity Ratio - ANSWERLong-Term Debt / Shareholders Equity - used to
assess the relative extent of an organizations debt financing, compared with other
organizations in the same industry.
Debt-To-Assets Ratio - ANSWERTotal Liabilities / Total Assets - Shows the extent to
which an organizations assets are financed by debt. If the ratio is greater than 0.5,
then most of the organizations assets are financed this way.
Equity Multiplier - ANSWERTotal Assets / Shareholders Equity - Emphasizes the
efficiency of the company's use of debt to finance its assets.
Current Assets are Made Up Of - ANSWERCash, accounts receivable, inventory,
supplies, and marketable securities.
Noncurrent Assets are Made Up Of - ANSWERProperty, plant, land, buildings,
equipment MINUS depreciation, intangible assets, and goodwill.
Current Liabilities are Made Up Of - ANSWERAccounts payable, wages payable,
taxes payable, and short-term debt.
Noncurrent Liabilities are Made Up Of - ANSWERLong-term debt.
Shareholder Equity/ Owners Equity is Made Up Of - ANSWERAssets MINUS
liabilities.
Net Income - ANSWERBefore Taxes Net Income - Income Taxes.
Income Statements are Made Up Of - ANSWERRevenue, expenses, cost of goods
sold, gross profit, operating income, net income, and comprehensive income.
Statement of Changes in Shareholders Equity - ANSWERShares in Common Stock
x Par Value + Additional Paid in Capital = Total Paid Capital - Covers the entire
period for each major component of related capital.
