In constructing a common-size statement of financial position, the 100% amount is
Total assets
Total shareholders’ equity
Net sales
Net working capital
Total liabilities
Which of the following statements in true?
If a company’s return on equity ratio increases, the increase can be the result of decreased liquidity
If a company successfully applies financial leverage, its return on assets ratio will be greater than its return on equity
The return on capital employed ratio indicates whether a company can pay its current debt when it becomes due
The causes for an increase or decrease in the return on assets ratio can be examined by calculating its two components: net profit margin and total assets turnover
Which of the following phenomena is generally considered desirable?
A decrease in the ratio of EBITDA to current liabilities
An increase in sales along with a larger decrease in the gross operating margin
A decrease in the credit given ratio
A decrease in the credit obtained ratio
A large decrease in the receivables turnover ratio
Positive financial leverage implies that a company is earning an overall return that is higher than the cost of funds received from
Shareholders
Bondholders
Shareholders and bondholders
Shareholders and borrowed funds
Borrowed funds only
Operational gearing refers to
Volatility of profit as a function of changes in sales while taking into account the company’s gearing
Volatility of profit as a function of changes in the company’s cost structure while taking into account the company’s gearing
Volatility of profit as a function of changes in sales while taking into account the company’s cost structure
Volatility of profit as a function of changes in the cost of debt while taking into account the company’s gearing
Volatility of profit as a function of changes in the cost of debt while taking into account the company’s cost structure
At year-end Beta Company is considered “very solvent”. This means that Beta
Must decrease its solvency in order to appear favourable to shareholders
Is highly geared
Has a small debt-to-equity ratio
Uses financial leverage successfully
Has a positive net cash flow from operations
In constructing a common-size income statement, the 100% amount is
Total assets
Gross operating profit
Net sales
Net profit for the period
Cost of goods sold
Which ratio requires the use of earnings per share and a market price?
Dividend payout ratio
Price-earnings ratio
Dividend yield ratio
Return on equity
Return on capital employed
The degree to which assets are used to generate sales is referred to as