FIMA QUIZ 1

1. Considered alone, which of the following would increase a company’s current

ratio?
>> AN INCREASE IN ACCOUNTS RECEIVABLE

2. Which of the following statements is CORRECT?

>> If a firm increases its sales while holding its inventories constant, then,
other things held constant, its inventory turnover ratio will increase.

3. Amram Company’s current ratio is 1.9. Considered alone, which of the following
actions would reduce the company’s current ratio?
>> Borrow using short-term notes payable and use the proceeds to reduce accruals

4. Which of the following statements is CORRECT?

>> If Firms X and Y have the same net income, number of shares outstanding, and
price per share, then their P/E ratios must also be the same.

5. Companies HD and LD are both profitable, and they have the same total assets
(TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company
HD has the higher debt ratio. Which of the following statements is CORRECT?
>> COMPANY HD HAS A HIGHER ROE THAN COMPANY LD

6. Short-term creditors would probably be most interested in which ratio?

>> CURRENT RATIO

7. On December 31, 2020, KREI Company collected a receivable due from a major
customer. Which of the following ratios would be increased by this transaction?
>> RECEIVABLE TURNOVER RATIO

8. GRX Inc. has a current ratio of 4:1. Which of the following transactions would
normally increase its current ratio?
>> SELLING INVENTORY ON ACCOUNT

9. Spurs Corporation has an acid test ratio of 1.5 to 1. Which of the following
will cause this ratio to deteriorate?
>> BORROWING SHORT TERM LOAN FROM A BANK

10. For a company that has only ordinary shares outstanding, total shareholder's
equity divided by the number of shares outstanding represents the
>> BOOK VALUE PER SHARE

11. Given a year's end profit of P1.5M and 500,000 ordinary shares outstanding
throughout the year with market price per share at year's being P120, the price-
earnings ratio is:
>> 4 TIMES

12. Selected information for Cory Company for the year ended December 31, 2020
follows:

Average day's sales in inventory 124

Average day's sales in accounts receivables 48

The average number of days in the operating cycle for 2020 was
>> 172

13. Branch Corp.'s total assets at the end of last year were 315,000 and its net
income after taxes was 22,750. What was its return on total assets?
>> 7.22%

14. Nikko Corp.'s total common equity at the end of last year was P305,000 and its
net income after taxes was P60,000. What was its ROE?
>> 19.67%

15. An investor is considering starting a new business. The company would require
P475,000 of assets, and it would be financed entirely with common stock. The
investor will go forward only if she thinks the firm can provide a 13.5% return on
the invested capital, which means that the firm must have an ROE of 13.5%. How
much net income must be expected to warrant starting the business?
>> 64,125

16. Lindley Corp.'s stock price at the end of last year was P33.50, and its book
value per share was P25.00. What was its market/book ratio?
>> 1.34

17. 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?
>> 14.18%

18. Rudy Inc.'s latest net income was P1,250,000, and it had 225,000 shares
outstanding. The company wants to pay out 45% of its income. What dividend per
share should it declare?
>> 2.50

19. Inventory turnover indicates

>> HOW MANY TIMES IN THE COURSE OF A YEAR A COMPANY IS ABLE TO SELL THE AMOUNT OF
ITS AVERAGE INVENTORY

20. Jack & Sons, Inc. has a 2 to 1 acid test (quick) ratio. This ratio would
decrease to less than 2 to 1 if
>> THE COMPANY PURCHASED INVENTORY ON OPEN ACCOUNT

21. Hot Corporation and Cold Corporation disclose the following data on their
December 31, 2020 statement of financial position (in thousands):

Hot Co.
Cold Co.

Debt P160,000
P640,000

Shareholder's Equity 640,000

160,000

Total Equity P800,000

P800,000

Earnings before interest and taxes P600,000

P600,000

Interest Expense 15,000

60,000

Required:

In the space provided, compute for the following ratios for each company:
a. Debt-Equity Ratio

b. Equity Multiplier

c. Times Interest Earned

>> a. Debt- Equity Ratio

Hot Co.: 160,000/640,000 = 0.25

Cold Co.: 640,000/160,000 = 4

b. Equity Multiplier

Hot Co.: 960,000/800,000 = 1.2 >> 1.25 (800K/640K)

Cold Co.: 1,440,000/800,000 = 1.8 >> 5 (800K/160K)

c. Time Interest Earned 

Hot Co.: 600,000/15,000 = 40

Cold Co.: 600,000/60,000 = 10