131. A firm desires to increase its ratio of cash flow from operations divided by average current liabilities from its anticipated level of 30 percent for the coming year to a more desirable level of 40 percent. Which of the following actions is consistent with this increase?
A. increase short-term bank borrowing
B. decrease the number of days that accounts receivable are outstanding
C. decrease the number of days accounts payable are outstanding
D. increase the number of days inventories are held
E. none of the above
132. A steel manufacturer experienced a decrease in its fixed asset turnover from .9 in Year 5 to .7 in Year 6. This change is consistent with which of the following explanations?
A. The firm sold a fully-depreciated factory on January 1, Year 6 that had been closed in Year 4 and held for sale since then
B. The steel industry operated at capacity during Year 6, permitting all firms to raise selling prices
C. The firm recognized an impairment loss on a factory that became obsolete during Year 6 because of new environmental regulations
D. The firm decreased the number of units produced and sold because of an inability to obtain needed raw materials
E. none of the above
133. Inventory turnover ratio
A. indicates how fast firms sell their inventory items
B. measured in terms of the rate of movement of goods into and out of the firm
C. equals cost of goods sold divided by the average inventory during the period
D. all of the above
E. none of the above
134. The numerator of the rate of return on common shareholders’ equity
A. is the amount of earnings assignable to common shareholders’ equity after subtracting all amounts required to compensate other providers of financing for the use of their funds
B. subtracts from net income any earnings allocable to preferred stock equity, usually the dividends on preferred stock declared during the period
C. does not subtract the dividends on common stock because such dividends represent distributions to common shareholders of a portion of the returns generated for them during the period
D. all of the above
E. none of the above
135. The rate of return on common shareholders’ equity
A. will exceed the rate of return on assets whenever the rate of return on assets exceeds the after-tax cost of borrowing and any dividends required for preferred shareholders
B. will not exceed the rate of return on assets whenever the rate of return on assets exceeds the after-tax cost of borrowing and any dividends required for preferred shareholders
C. will always exceed the rate of return on assets
D. will never exceed the rate of return on assets
E. none of the above
136. Using lower cost borrowed funds and earning a higher rate of return on those funds than their cost
A. increases the return to the common shareholders
B. is a phenomenon called financial leverage
C. requires the common shareholders to take on more risk in their investment
D. all of the above
E. none of the above
137. Financial leverage
A. increases the return to the common shareholders
B. uses lower cost borrowed funds and earns a higher rate of return on those funds than their cost
C. requires the common shareholders to take on more risk in their investment
D. all of the above
E. none of the above
138. Financial leverage
A. increases the return to the common shareholders during good earnings years
B. uses lower cost borrowed funds to earn a higher rate of return on those funds than their cost
C. decreases the return to the common shareholders during bad earnings years
D. all of the above
E. none of the above
139. The capital structure leverage ratio
A. indicates the portion of total assets, or total financing, provided by common shareholders contrasted with the financing provided by creditors and preferred shareholders
B. is larger when there is more financial leverage
C. is smaller when there is less financial leverage
D. all of the above
E. none of the above
140. Earnings per share of common stock (assuming no convertible or other potentially dilutive securities outstanding)
A. equals net income attributable to common stock divided by the average number of common shares outstanding during the period
B. equals net income attributable to common stock divided by the number of common shares outstanding at the beginning of the period
C. equals net income attributable to common stock divided by the number of common shares outstanding at the end of the period
D. all of the above
E. none of the above
141. Firms with convertible preferred stock or other potentially dilutive securities outstanding
A. must present dual earnings-per-share amounts
B. calculate basic earnings per share by taking net income attributable to common stock and dividing by the average number of common shares outstanding during the period
C. calculate diluted earnings per share when a firm has securities outstanding that, if exchanged for common stock would decrease basic earnings per share by 3 percent or more
D. all of the above
E. none of the above
142. Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of data presented and to evaluate the position of the firm. These techniques include
A. ratio analysis
B. common-size analysis
C. examination of relative size among firms
D. all of the above
E. none of the above
143. Concerning the analysis of financial data to emphasize the comparative and relative importance of data presented and to evaluate the position of the firm, it is important to take into consideration
A. the nature of the general business environment
B. direct competition in a company’s geographical area
C. special situations not encountered throughout the industry
D. all of the above
E. none of the above
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