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Exam 3: Analysis of financial statements

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Question 31

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Ziebart Corp.'s EBITDA last year was $390, 000 ( = EBIT + depreciation + amortization) , its interest charges were $9, 500, it had to repay $26, 000 of long-term debt, and it had to make a payment of $17, 400 under a long-term lease.The firm had no amortization charges.What was the EBITDA coverage ratio?

A) 7.32
B) 7.70
C) 8.09
D) 8.49
E) 8.92

F) A) and E)
G) D) and E)

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Question 32

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Chambliss Corp.'s total assets at the end of last year were $305, 000 and its EBIT was 62, 500.What was its basic earning power (BEP) ?

A) 18.49%
B) 19.47%
C) 20.49%
D) 21.52%
E) 22.59%

F) A) and D)
G) C) and D)

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Question 33

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Companies Heidee and Leaudy have the same total assets, sales, operating costs, and tax rates, and they pay the same interest rate on their debt.However, company Heidee has a higher debt ratio.Which of the following statements is CORRECT?

Exhibit 3.1 The balance sheet and income statement shown below are for Pettijohn Inc.Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -Refer to Exhibit 3.1.What is the firm's book value per share?

Firms A and B have the same current ratio, 0.75, the same amount of sales and cost of goods sold, and the same amount of current liabilities.However, Firm A has a higher inventory turnover ratio than B.Therefore, we can conclude that A's quick ratio must be smaller than B's.

Suppose firms follow similar financing policies, face similar risks, have equal access to capital, and operate in competitive product and capital markets.Under these conditions, then firms that have high profit margins will tend to have high asset turnover ratios, and firms with low profit margins will tend to have low turnover ratios.

Aziz Industries has sales of $100, 000 and accounts receivable of $11, 500, and it gives its customers 30 days to pay.The industry average DSO is 27 days, based on a 365-day year.If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant?

Which of the following statements is CORRECT?

Which of the following would indicate an improvement in a company's financial position, holding other things constant?

Other things held constant, which of the following alternatives would increase a company's cash flow for the current year?

The times-interest-earned ratio is one, but not the only, indication of a firm's ability to meet its long-term and short-term debt obligations.

One problem with ratio analysis is that relationships can be manipulated.For example, we know that if our current ratio is less than 1.0, then using some of our cash to pay off some of our current liabilities would cause the current ratio to increase and thus make the firm look stronger.

LeCompte Corp.has $312, 900 of assets, and it uses only common equity capital (zero debt) .Its sales for the last year were $620, 000, and its net income after taxes was $24, 655.Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%.What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?

Since the ROA measures the firm's effective utilization of assets (without considering how these assets are financed), two firms with the same EBIT must have the same ROA.

Vang Corp.'s stock price at the end of last year was $33.50 and its earnings per share for the year were $2.30.What was its P/E ratio?

Last year Rosenberg Corp.had $195, 000 of assets, $18, 775 of net income, and a debt-to-total-assets ratio of 32%.Now suppose the new CFO convinces the president to increase the debt ratio to 48%.Sales and total assets will not be affected, but interest expenses would increase.However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged.By how much would the change in the capital structure improve the ROE?

Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8.What was the firm's ROE?

Last year Altman Corp.had $205, 000 of assets, $303, 500 of sales, $18, 250 of net income, and a debt-to-total-assets ratio of 41%.The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152, 500.Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio.By how much would the reduction in assets improve the ROE?

Exhibit 3.1 The balance sheet and income statement shown below are for Pettijohn Inc.Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -Refer to Exhibit 3.1.What is the firm's days sales outstanding? Assume a 360-day year for this calculation.

Exhibit 3.1 The balance sheet and income statement shown below are for Pettijohn Inc.Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over. -Refer to Exhibit 3.1.What is the firm's EBITDA coverage?