Question Details

1.		Which of the following measures is most useful in analyzing a company's ability to control expenses? 
	A)	Debt-to-assets ratio. 
	B)	Asset turnover ratio. 
	C)	Net profit margin ratio.
	D)	Pro forma ratio. 


2..		A company has an asset turnover ratio of 0.82. Which of the following statements is true?
	A)	The company generates $0.18 of net income for every $1 in reported assets. 
	B)	The company buys assets more frequently than it sells them. 
	C)	The company generates $0.82 of sales revenue for every $1 in reported assets.
	D)	This is an improvement over the previous period when the asset turnover rate was 0.88. 

3.		Company A has a debt-to-assets ratio of 0.73 while Company B has a debt-to-assets ratio of 0.45.  Which of the following is true? 
	A)	Stockholders own a smaller proportion of Company A than Company B.
	B)	Company A must make less profit than Company B. 
	C)	Creditors own a smaller proportion of Company A than Company B. 
	D)	Company A must have fewer assets than Company B. 



4.		If a company's total liabilities decrease, its: 
	A)	net profit margin will increase. 
	B)	asset turnover ratio will increase. 
	C)	debt-to-assets ratio will decrease.
	D)	debt-to-assets ratio will remain unchanged. 


	
5.		On January 1, 2009, a company has assets of $18 billion and stockholders' equity of $8 billion.  On January 1, 2010, the same company has assets of $20 billion and stockholders' equity of $13 billion.  During 2009, the company had total sales revenue of $900 million and total expenses of $700 million.  The company's debt-to-assets ratio on January 1, 2010 is: 
	A)	0.55 
	B)	0.50
	C)	0.35
	D)	0.01 




6.		On January 1, 2009, a company has assets of $16 billion and stockholders' equity of $8 billion.  On January 1, 2010, the same company has assets of $20 billion and stockholders' equity of $9 billion.  During 2009, the company had total sales revenue of $900 million and total expenses of $700 million.  The company's asset turnover ratio for 2009 is: 
	A)	0.25 
	B)	0.05
	C)	0.045 
	D)	0.01 


7.		On January 1, 2009, a company has assets of $15 billion and stockholders' equity of $12 billion.  On January 1, 2010, the same company has assets of $16 billion and stockholders' equity of $13 billion.  During 2009, the company had total sales revenue of $700 million and total expenses of $380 million.  If the company doesn't have other sources of revenue, its net profit margin during 2009 is: 
	A)	0.012
	B)	0.013 
	C)	0.223
	D)	0.457


8.		All other things equal, in which of the following cases would an analyst rank the company most favorably? 
	A)	The company has the highest debt-to-assets ratio in the industry as well as the highest profit margin and asset turnover ratio. 
	B)	The company has the highest debt-to-assets ratio in the industry as well as the highest profit margin while its asset turnover ratio is the lowest. 
	C)	The company has the lowest debt-to-assets ratio in the industry as well as the lowest asset turnover ratio while its profit margin is the highest. 
	D)	The company has the lowest debt-to-assets ratio in the industry as well as the highest profit margin and asset turnover ratio.



9.		Using information in the income statement and balance sheets below, determine the missing amounts.  Calculate the debt-to-assets ratio as of December 31, 2009.  Calculate the asset turnover ratio and the net profit margin ratio for the year 2009.
		CINNAMON AND SPICE, INC.
Income Statement For the Year Ended December 31, 2009
(in thousands of dollars)
Revenues	
       Sales Revenue	$ 381,020
Expenses	
     Cost of Goods Sold	 214,900
     Advertising and Promotion Expenses	 12,200
     Other Selling and Administrative Expenses	 ?
     Interest Expense	 25,600
     Income Tax Expense	 17,700
     Other Expenses	    33,700
       Total Expenses	 332,600
Net Income	$             ?



	

CINNAMON AND SPICE, INC
Balance Sheets
At December 31, 2009 and 2008
(in thousands of dollars)
	12/31/09	12/31/08		
Assets				
Cash	 $   681,200	 $  543,800		
 Accounts Receivable	 356,400	 407,600		
 Inventories	 ?	 54,900		
 Property, Plant and Equipment	 126,900	 119,300		
 Other Assets	       75,600	      71,400		
     Total Assets	$1,304,500	$ 1197000            ?		
Liabilities				
Accounts Payable	 $              ?	 $             ?		
 Notes Payable	    235,800	   265,100		
     Total Liabilities	515100      ?	              ?		
				
Stockholders' Equity				
Contributed Capital	            ?	            ?		
 Retained Earnings	    168,400	     127,300		
Total Stockholders’ Equity	    789,400	     589,400		
				
TotalLiabilitiesandStockholders’Equity	

$1,304,500	

$1,197,000		



10.		Company A has liabilities of $4,233,000 and stockholders' equity of $3,098,000 at the end of the current year, and sales revenue of $12,300,000 and net income of $755,080 for the year.  Company B has assets of $1,480,000 and stockholders' equity of $780,750 at the end of the current year, and sales revenue of $2,950,000 and net income of $212,400 for the year. 
		
		A. Calculate the debt-to-assets and net profit margin ratios for each company.
		B. Which company has greater financing risk?
		C. Which company generates more profit per dollar of sales? 


Ans.

A) Debt to Asset Ratio 
		A Company  =  4233000/(4233000+3098000) =.5774
		B Company  = (1480000-780750)/ (1480000) = .4724

	Net Profit Margin Ratio
		A Company = 755080/12300000 = .061

		B Company = 212400/2950000 = .072

B) Company A has high financing risk.

C) Company B generates more profit per dollar sales.



11.		Marvel Enterprises, Inc. is one of the world's most prominent character-based entertainment companies, owning over 4,700 characters, including Spider-Man, The Incredible Hulk, X-Men, Daredevil, and The Fantastic Four. The company's stock is traded publicly on the New York Stock Exchange. 
		
		You have been asked three questions about the financial results in 2009 and 2008:
A.	Did the company increase or decrease its relative reliance on creditors for financing the purchase of assets? 
		Ans. Debt Asset Ratio
			2009  = 241870/517519 = 0.4673
			2008  = 267637 / 517570 =0 .5171
			2007  =  320376/553957 = 0.5783
	The lesser debt equity ratio increases credibility of company in front of creditors. In 2009, the debt equity ratio is less therefore the credibility of company increased in 2009. 

B.	Did the company become more successful or less successful in controlling its expenses while generating sales? 

	Ans. Operating Expenses Ratio
	2009  =  ( 299046- 22610)/299046 = 0.9243
	2008 =( 181224-5265)/ 181224  = 0.9794
	2007 =   (231651 - (-89858))/231651 = 1.38
The company became more successfully by controlling its operating expenses. By controlling expenses, the net profit of the company increased. The operating cost of company is less in 2009 as compared to 2008 and 2007. 

C.	Did the company become more efficient or less efficient in using its assets to generate sales?

	
 The company generated more revenue on per dollar asset as compared to 2008 and 2009. Therefore the company- efficiency increased in 2009. 

		For each question, (1) name the appropriate ratio for answering the question, (2) calculate the ratio for each of the two years (using the summary data below), and (3) use your calculations to prepare an answer.
		
	2009	2008	2007
Current Assets	$122,615	$100,227	$113,443
Total Assets	517,519	517,570	553,957
Current Liabilities	90,011	70,237	70,376
Total Liabilities	241,870	267,637	320,376
Total Stockholders’ Equity	275,649	249,933	233,581
Sales Revenues	299,046	181,224	231,651
Net Income (Loss)	22,610	5,265	(89,858)

Ans.

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