An increase in financial leverage generally results in a higher return on equity (ROE).

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True

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False

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A company’s return on assets should be greater than its return on equity.

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[removed]

True

[removed]

False

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An optimal current ratio should be greater than 1.0.

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True

[removed]

False

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GoodTimes, Inc. has asset turnover of 0.5 times, a net profit margin of 10% and average total assets of $100, what is its net income (assuming no unusual items)?

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$50

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$500

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$5

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The answer cannot be determined with the information provided

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Common-size financial statements are constructed in order to:

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Adjust for inflation and risk

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Facilitate comparisons of different-sized companies

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To comply with SEC requirements

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All of the above

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A company builds a new plant and finances its construction by issuing stock. Which ratio is least likely to be affected, all else being equal?

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Current ratio

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Debt to equity ratio

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Debt to asset ratio

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Net fixed assets to total assets

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A company has net working capital of $0, current liabilities of $25 and total assets equal to $100. What is its current ratio?

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0.0

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1.0

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0.5

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4.0

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Analysis of a company’s financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer question 9.

Sales in 2003 were $10,000. Therefore, the compounded average growth rate is:

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8.6%

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6.7%

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6.3%

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Not enough information available

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The cash cycle measures the days required to produce finished goods or delivered services.

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True

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False

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In general, an increase in a liability is a source of funds.

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True

False[removed]

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