1. (CMA adapted, Jun 88 #21) The relationship of the total debt to the total equity of a corporation is a measure of

a. liquidity
b. profitability
c. creditor risk
d. corporate equity value

2. (CMA adapted, Jun 90 #14) Accounts receivable turnover will normally decrease as a result of

a. a change in credit policy to lengthen the period for cash discounts
b. the write-off of an uncollectible account under the allowance method
c. an increase in cash sales in proportion to credit sales
d. a significant sales volume decrease near the end of the accounting period

3. (CMA adapted, Dec 95 #13) All of the following financial indicators are measures of liquidity and activity except the

a. average collection period in days
b. merchandise inventory turnover
c. accounts receivable turnover
d. times interest earned ratio

4. (CMA adapted, Dec 95 #21)In assessing the financial prospects for a firm, financial analysts use various techniques. An example of vertical, common-size analysis is

a. an assessment of the relative stability of a firm's level of vertical integration
b. a comparison in financial ratio form between two or more firms in the same industry
c. advertising expense in Year 5 is 2 percent greater than it was in Year 4
d. advertising expense in Year 5 is 2 percent of sales

5. If the rate of return on assets for the year is 15%, a general interpretation of the ratio would be

a. the assets generated $0.15 cash per dollar of cash invested
b. 15% of the assets produced income while the remainder were at break?even for the year
c. before payment for use of capital, $0.15 was earned for each dollar of assets used by the company
d. dividends of $0.15 per share were paid

6. The accounts payable turnover ratio can reveal

a. the result of sales divided by average working capital
b. the number of days in the operating cycle
c. the length of the operating cycle in order to compare it with industry averages
d. the number of days that a firm's accounts payable remain outstanding

7. During Year 4, Franklin Corporation purchased $1,200,000 of merchandise inventory. The cost of sales for year 4 was $1,320,000 and the ending merchandise inventory at December 31, Year 4 was $240,000. What was the inventory turnover for Year 4?

a. 4.0
b. 4.4
c. 5.0
d. 5.5

8. Earnings per share is a measure of

a. cash income earned by the common shareholder
b. profitability
c. the financial viability of a firm
d. the amount of dividends that will be paid by the firm

9. (CMA adapted, Jun 90 #18) If a company is profitable and is effectively using leverage, which one of the following ratios is likely to be the largest?

a. return on total assets
b. return on operating assets
c. return on common equity
d. return on investment

10. (CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in computing a ratio,

a. the balance sheet amount should be converted to an average for the year
b. the income statement amount should be converted to an average for the year
c. both amounts should be converted to market value
d. the ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amount

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