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Exam 4: Profitability Analysis

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Question 41

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Time-series analysis helps answer all of the following questions except:

A) Is the firm becoming more or less profitable over time?
B) Is the firm becoming more or less risky?
C) How is management of the firm responding to external economic forces?
D) What is the amount of assets or capital required to generate a particular level of earnings?

E) B) and D)
F) None of the above

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Question 42

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Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%. Income Statement For the year ended December 31, 2011 -Refer to the information for Orca Industries.Orca's basic earnings per share is

A) .22
B) .13
C) .25
D) .30

E) A) and B)
F) None of the above

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Question 43

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Sensitron and Douglas Tools manufacture and market power tools and accessories.Sensitron targets customers in the professional contractor market,while Douglas Tools focuses on home users and professionals.Both firms use the same cost flow assumption for valuing inventories and cost of goods sold.Selected financial data for the companies appears below. Required: 1. Calculate the irventary turnover ratid far each firm far year 2010, 2009, 2008. 2. Supeest reasans far the hifferences in the Inventary turnever ratios far these twa firms.

Which factor does not explain differences or changes in ROA?

Adjustments for dilutive securities and the adjustment to weighted average number of shares outstanding presumes that the dilutive securities are converted to common shares

Linda's Clothing is a retailer of contemporary women's clothing.Selected financial information for Linda's appears below: Required:a.Compute the rate of return on assets for the years 2009-2011.Linda's has an effective tax rate of 35%. b.Compute the rate of return on common shareholders' equity for the years 2009-2011. c.Compute basic earnings per share for the years 2009-2011. d.Interpret the changes in ROA versus ROCE and EPS over the three-year period.

When the financial analysts multiplies the profit margin for ROA with the assets turnover ratio the result is called______________

The ability of a firm to generate income from operations given a particular level of sales is measured by the ______________________________.

Which of the following scenarios is consistent with an increasing cost of goods sold to sales percentage and increasing inventory turnover?

The following balance sheets and income statements are for Net Devices Inc.,a manufacturer of small electronic devices,including calculators,personal digital assistants and mp3 players.Use the information to calculate the following information:a.Compute the rate of return on assets for Net Devices for both 2011 and 2010.Disaggregate the rate of return on assets into the profit margin on ROA and asset turnover components.The income tax rate is 35%. b.Calculate the accounts receivable turnover ratio for Net Devices for 2011 and 2010.All of the company's sales were made on account. c.Calculate the inventory turnover ratio for Net Devices for 2011 and 2010. d.Calculate the fixed assets turnover ratio for Net Devices for 2011 and 2010. e.Calculate the rate of return on common shareholders' equity for Net Devices for 2011 and 2010.The amount of preferred dividends paid each year appear after the income statement.Calculate profit margin for ROCE. f.Determine Net Devices capital structure leverage for 2011 and 2010. g.Calculate Net Devices earnings per share for 2011 and 2010.

Which of the following are better indicated by percentage change statements than common-size statements?

Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.

Ramos Company Ramos Company included the following information in its annual report: $\begin{array}{|l|r|r|r}\hline & \mathbf{2 0 1 1} & \mathbf{2 0 1 0} & {\mathbf{2 0 0 9}} \\\hline \text { Sales } & \$ 178,400 & \$ 162,500 & \$ 155,500 \\\hline \text { Cost of goods sold } & 115,000 & 102,500 & 100,000 \\\hline \text { Operating expenses } & 50,000 & 50,000 & 45,000 \\\hline \text { Net income } & 13,400 & 10,000 & 10,500 \\\hline\end{array}$ -Refer to the information for Ramos Company.In a percentage change income statement over the period of 2009 to 2011,what is the change in sales? 

Which of the following industries would you expect to have,on average,high asset turnover and low profit margin?

One problem with using EPS as a measure of profitability is that it does not consider the amount of ____________________ or ____________________ required to generate a particular level of earnings.

Below is financial information for two sporting goods retailers.Extreme Sports Company operates a retail business and franchising business.At the end 2011,Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores.Extreme's stores are located in suburban,strip mall and regional mall locations,the company operates in 32 states.All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores. Selected Data for All Sports and Extreme Sports (amounts in millions) Calculate the following ratios for All Sports and Extreme Sports:a.Return on assets b.Profit margin for ROA c.Assets turnover d.Accounts receivable turnover e.Inventory turnover f.Fixed asset turnover

The computation of the additional shares to be issued on the exercise of stock options assumes that the firm would repurchase common shares on the open market using an Amount equal to the sum of all the following except:

Extreme Sports Company and All Sports Corporation Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores. Selected Data for All Sports and Extreme Sports (amounts in millions) -Refer to the information for Extreme Sports Company and All Sports Corporation. What is the return on assets for All Sports?

Multiples of EPS to value firms are referred to as.

Ramos Company Ramos Company included the following information in its annual report: $\begin{array}{|l|r|r|r}\hline & \mathbf{2 0 1 1} & \mathbf{2 0 1 0} & {\mathbf{2 0 0 9}} \\\hline \text { Sales } & \$ 178,400 & \$ 162,500 & \$ 155,500 \\\hline \text { Cost of goods sold } & 115,000 & 102,500 & 100,000 \\\hline \text { Operating expenses } & 50,000 & 50,000 & 45,000 \\\hline \text { Net income } & 13,400 & 10,000 & 10,500 \\\hline\end{array}$ -Refer to the information for Ramos Company.In a percentage change income statement over the period of 2009 to 2011,what is the change in net income?