21.Profit margin is the ratio of
a.operating income to sales
b.income before tax to sales
c.gross profit to sales
d.net income to sales
22.A firm has a profit margin of 6% and an asset turnover of 2. What is its return on assets?
a.3%
b.0.667
c.12%
d.cannot be determined from the information given
23.A firm has a profit margin of 5% and a return on assets of 15%. What is its asset turnover?
a.75
b.3
c..33
d.cannot be determined from the information given
24.Blue Company has a higher ratio of accumulated depreciation to plant assets than Purple Company. This may suggest that
a.Purple Company's assets are older than Blue Company's
b.Purple Company has higher operating leverage than Blue Company
c.Blue Company's assets are older than Purple Company's
d.Blue Company has higher operating leverage than Purple Company
25.A primary difference between return on assets and return on equity is that return on assets
a.requires that interest expense be added back to net income (net-of-tax) but return on equity does not
b.is affected by how a company chooses to finance investments
c.is a clearer measure of the quality of investment decisions than is return on equity
d.requires that preferred dividends be subtracted from net income but not interest expense
26.A clear distinction between return on assets and return on equity is that return on assets
a.must always be a smaller percentage than is return on equity
b.is a measure of management's investment decisions that excludes any consideration of how the investments were financed
c.is of greater interest to investors than is return on equity
d.measures operating leverage while return on equity measures financial leverage
27.The following information is available for a company:
Total Assets: Net sales revenue $1,656,000
Beginning$640,000Interest expense160,000
Ending640,000Wages payable52,000
Net income48,000Income tax rate40%
The firm's return on assets for the year was
a.2.6%
b.6.8%
c.12.4%
d.7.5%
28.Canyon Record Company had a higher return on assets this year than it did return on equity. This means that, during the year, the
a.balance in the deferred taxes account decreased
b.firm reduced its interest expense
c.firm experienced negative financial leverage
d.cash flow from operations exceeded income from operations
29.You know a firm's debt to equity ratio and its return on assets. From this information you can determine whether the firm is
a.using financial leverage
b.using financial leverage AND whether the financial leverage is positive or negative
c.earning a greater return on assets than it is on equity
d.earning a greater return on assets than it is paying on liabilities
30.Which of the following is TRUE about a firm that has a decreasing return on assets (ROA) each year?
a.its cost of capital is increasing
b.the firm is taking on more and more operating leverage
c.its executives may be making poor investment decisions
d.the cash flow from operating activities is also decreasing