Fin 335 CH 4 - CHAPTER 4 ANALYSIS OF FINANCIAL...

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(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard) PART I – New and Revised Carryover Problems and Questions Multiple Choice: Problems Notes to Professors: A good bit of relatively simple arithmetic is involved in some of these problems, and although the calculations are simple, it will take students time to set up the problems and do the arithmetic. Please allow for this when assigning problems for a timed test. Also, note that students must know the definitions of a number of ratios to answer the questions. We recommend allowing them to use a formula sheet on exams, and we use the relevant sections of Appendix D at the end of the text. The difficulty of the problems depends significantly on (1) whether or not students are provided with a formula sheet and (2) the amount of time they have to work the problems. Our difficulty assessments assume that they have a formula sheet and a "reasonable" amount of time for the test. Note that problems designated EASY are really trivially easy if students have formula sheets, and we use them for in-class quizzes but only on real exams if we want to give out some easy points. To work many of the problems, students must transpose equations and solve for items that are normally inputs. For example, the equation for the profit margin is given as Profit margin = Net income / Sales . We might have a problem where sales and the profit margin are given and then require students to find the firm's net income. Please explain to students in class before the exam that they will have to transpose terms in the formulas to work some of the exam problems. This should be obvious, but it doesn't hurt to point it out before the first exam. Note too that problems 1 to 30 are all stand-alone problems with individualized data, but problem 31 has parts a through w, where students are required to calculate ratios based on a given set of financial statements. The statements can be changed algorithmically, and this changes the calculated ratios. Total assets turnover Answer: a EASY 1 . Ramala Corp's sales last year were $48,000, and its total assets were $25,500. What was its total assets turnover ratio (TATO)? a. 1.88 b. 1.99 c. 1.10 d. 1.21 e. 1.32 Chapter 4: Analysis of Financial Statements Page 199 CHAPTER 4 ANALYSIS OF FINANCIAL STATEMENTS
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Times interest earned Answer: c EASY 2 . Ruby Corp's sales last year were $435,500, its operating costs were $350,000, and its interest charges were $10,000. What was the firm's times interest earned (TIE) ratio? a. 8.29 b. 8.42 c. 8.55 d. 8.68 e. 8.81 Profit margin on sales Answer: e EASY 3 . Roberts Corp's sales last year were $300,000, and its net income after taxes was $25,000. What was its profit margin on sales? a. 7.65% b. 7.82% c. 7.99% d. 8.16% e. 8.33% Return on total assets (ROA) Answer: b EASY 4 . Reynolds Corp's total assets at the end of last year were $300,000 and its net income after taxes was $25,000. What was its return on total assets?
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