Multiple-Choice Questions
1. Which of the following ratios is used to measure a firm’s efficiency?
a. Net Income/Equity
b. Sales/Assets
c. Assets/Equity
d. Net Income/Sales
2. United Corporation has $65,000 of cost of goods sold and average inventory of $30,000. What is United Corporation’s inventory turnover ratio?
a. 0.46
b. 1.17
c. 1.46
d. 2.17
3. If a company has an inventory turnover of 7.3 and a receivables turnover of 9.6, approximately how long is its operating cycle?
a. 72 days
b. 88 days
c. 95 days
d. There is not enough information to calculate the operating cycle.
4. Which of the following ratios is used to measure the profit earned on each dollar invested in a firm?
a. Current ratio
b. Asset turnover ratio
c. Return on sales ratio
d. Return on equity
5. Which of the following is the formula to compute the net profit margin percentage?
a. Net Income/Net Sales
b. Operating Income/Net Sales
c. Net Income/Average Equity
d. Net Income + [Interest Expense A? (1 – Tax Rate)]/Average Total Assets
6. Selected information for Henry Company is as follows:
Average common stock …………………………………$600,000
Average additional paid-in capital ……………………… 250,000
Average retained earnings ……………………………… 370,000
Sales revenue for year ………………………………….. 915,000
Net income for year ……………………………………. 240,000
Henry’s return on equity, rounded to the nearest percentage point, is
a. 20 percent
b. 21 percent
c. 28 percent
d. 40 percent
7. Which of the following ratios is used to measure a firm’s profitability?
a. Liabilities/Equity
b. Sales/Assets
c. Assets/Equity
d. Net Income/Sales
8. Why might an industry group have higher five-year average returns on equity than do other industries?
a. It is a higher-risk industry.
b. It is a lower-risk industry.
c. It is a high-growth industry.
d. None of the above.
9. The dividend yield ratio measures:
a. The income available for common stockholders on a per-share basis
b. The rate at which dividends provide a return to stockholders
c. The proportion of a corporation’s profits that are returned to the stockholders immediately as dividends
d. The profit earned by a firm through the use of capital supplied by stockholder