University of Perpetual Help System laguna – Isabela Campus

Minante 1, Cauayan City, Isabela

College of Business and Accountancy

Strategic Management
2 nd
Semester, A.Y. 2017 - 2018

Name: ________________________________________ Date: ___________

Course Year & Section: _____________________ Score: __________
Midterm Quiz 1

(Erasure/Alteration means wrong)

I. TRUE OR FALSE. Underline TRUE is the statement is correct and FALSE if wrong. 1 point
each.

1. Liquidity ratios measure the ability of a company to meet its current obligations.
TRUE FALSE

2. For meaningful analysis, ratios should be compared with a standard.

TRUE FALSE

3. The current ratio is a measure of the ability of a company to pay its short-term liabilities
out of short-term assets.
TRUE FALSE

4. The inventory turnover ratio measures the number of days the average balance of
accounts receivable is outstanding before being converted into cash.
TRUE FALSE

5. The quick ratio should be larger than the current ratio.

TRUE FALSE

6. All debt is considered in the computation of the quick ratio.

TRUE FALSE

7. ABC's Market has an inventory turnover of 120 times. DEF's Market has a turnover of
128 times. DEF is more effective in managing inventory.
TRUE FALSE

8. Profitability ratios assess the ability of a company to meets its long- and short-term
obligations.
TRUE FALSE

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 9. Dividing the market price of a share of stock by the earnings per share gives the price-
earnings ratio.
TRUE FALSE
10. When computing the quick ratio, a short-term note receivable would be included.
TRUE FALSE

II. MATCHING. Select the ratio that each statement below most properly satisfies. Write the letter
on the space provided before each number. Use CAPITAL letter only.

A. Current ratio
B. Debt ratio
C. Return on common stockholders' equity ratio
D. Times-interest-earned ratio
E. Quick ratio
F. Debt-to-equity ratio
G. . Price-earnings ratio

____ 1. A measure of the company's ability to pay its short-term liabilities out of short-term assets

____ 2. A measure that compares only the most liquid assets to current liabilities

____ 3. An income statement measure of the ability of a company to service its debts

____ 4. A measure of the degree of protection afforded creditors in case of insolvency

____ 5. A ratio that indicates what proportion of equity and debt the company is using to finance its
assets.

____ 6. A measure of the company's success in earning a return for the common stockholders

____ 7. The relationship between dividends and the market price of a company's stock

____ 8. A measure viewed by many investors as an important indicator of stock values. It is found by
dividing the market price per share by the earnings per share

____ 9. A measure that tells an investor the proportion of earnings that a company pays in dividends

III. MULTIPLE CHOICE. Choose the best answer. Encircle the letter of your choice. Show you
solutions for questions 11 to 20.

1. Ratios that measure the ability of the company to pay its short-term debts are called: (1 point)

A. debt ratios;
B. cover ratios;

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 C. liquidity ratios;
D. profitability ratios;
E. none of the above.

2. The quick ratio is defined as: (1 point)

A. current assets divided by current liabilities;

B. current assets divided by total debt;
C. current assets less inventory, divided by total liabilities;
D. current assets less inventory, divided by current liabilities;
E. none of the above.

3. Return on assets is defined as: (1 point)

A. operating income divided by owners’ equity;

B. operating income divided by sales;
C. operating income divided by total assets;
D. operating income divided by long-term assets plus debt;
E. none of the above.

4. Net income divided by average shareholders’ equity is the definition of: (1 point)

A. return on sales;
B. return on assets;
C. return on equity;
D. asset turnover;
E. none of the above.

5. The debt to equity ratio measures; (1 point)

A. the likelihood of the company going bankrupt in the short term;

B. the efficiency of the company;
C. the relative proportions of debt and equity in the capital structure;
D. liquidity;
E. none of the above.

6. The interest cover ratio measures: (1 point)

A. the leverage of the company;

B. the efficiency of debt;
C. the weighted average cost of capital;
D. the relationship between interest and profit;
E. none of the above.

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7. Total asset turnover, receivables turnover and inventory turnover ratios measure: (1 point)

A. liquidity;
B. profitability;
C. efficiency;
D. debt;
E. market related factors.

8. The receivables turnover ratio is defined as: (1 point)

A. sales divided by receivables;

B. receivables divided by sales;
C. receivables divided by one days’ sales;
D. receivables plus bad debt allowances.
E. none of the above.

9. To measure the efficiency with which inventory is used the following ratio should be used: (1
point)

A. inventory turnover ratio;

B. inventory holding period;
C. lower of cost or market valuation of inventory;
D. a or b, but not c;
E. a, b or c.

10. For meaningful analysis, ratios are best compared with (1 point)

A. historical company averages.

B. industrial averages.
C. historical and industrial averages.
D. no standard.

11. AAA Co has sales of P500,000, operating profit of P50,000, interest expense of P10,000, tax
expense of P20,000, total equity of P125,000 and total debt of P275,000. Their return on sales
is: (2 points)

A. 8.0%;
B. 10.0%;
C. 12.5%;
D. 16.0%;
E. 20.0%.

12. BBB Co has sales of P500,000, operating profit of P50,000, interest expense of P10,000, tax
expense of P20,000, total equity of P125,000 and total debt of P275,000. Their return on assets
is: (2 points)

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 A. 8.0%;
B. 10.0%;
C. 12.5%;
D. 16.0%;
E. 20.0%.

13. Minden Co has sales of P500,000, operating profit of P50,000, interest expense of P10,000, tax
expense of P20,000, total equity of P125,000 and total debt of P275,000. Their return on equity
is: (2 points)

A. 8.0%;
B. 10.0%;
C. 12.5%;
D. 16.0%;
E. 20.0%.

14. CCC Co has sales of P500,000, operating profit of P50,000, interest expense of P10,000, tax
expense of P20,000, total equity of P125,000 and total debt of P275,000. Their debt to assets
ratio is: (2 points)

A. 50.00%;
B. 65.00%;
C. 68.75%;
D. 220.00%;
E. none of the above.

15. DDD Co has sales of P500,000, operating profit of P50,000, interest expense of P10,000, tax
expense of P20,000, total equity of P125,000 and total debt of P275,000. The debt carries
interest @ 5% per annum. The interest cover ratio is: (2 points)

A. 5X;
B. 3X;
C. 2X;
D. 1.5X;
E. none of the above.

16. EEE Co has current assets of P180,000 (cash: P20,000, accounts receivable: P70,000, inventory:
P90,000), and long-term assets that had cost P400,000, with accumulated depreciation to date of
P180,000. Sales were P500,000, and operating profit was P50,000. Tax was P20,00 and interest
paid was P10,000. Their receivables turnover ratio was: (2 points)

A. 10.2X;
B. 9.4X;
C. 7.1X;
D. 5.6X;
E. none of the above.

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17. FFF Co has current assets of P180,000 (cash: P20,000, accounts receivable: P70,000, inventory:
P90,000), and long-term assets that had cost P400,000, with accumulated depreciation to date of
P180,000. Sales were P500,000, and operating profit was P50,000. Tax was P20,00 and interest
paid was P10,000. Their inventory holding period (to the nearest day) was: (2 points)

A. 66 days;
B. 51 days;
C. 46 days;
D. 32 days;
E. none of the above.

18. GGG Co has current assets of P180,000 (cash: P20,000, accounts receivable: P70,000, inventory:
P90,000), and long-term assets that had cost P400,000, with accumulated depreciation to date of
P180,000. Sales were P500,000, and operating profit was P50,000. Tax was P20,00 and interest
paid was P10,000. Their total asset turnover ratio is: (2 points)

A. 1.00X;
B. 1.25X;
C. 1.500X;
D. 2.3X;
E. none of the above.

19. HHH Co has current assets of P180,000 (cash: P20,000, accounts receivable: P70,000,
inventory: P90,000), and long-term assets that had cost P400,000, with accumulated depreciation
to date of P180,000. Sales were P500,000, and operating profit was P50,000. Tax was P20,00
and interest paid was P10,000. a dividend of P10,000 was paid to the common shareholders.
There are 1,000 shares in issue. Their earnings per share are: (2 points)

A. P1:
B. P2;
C. P10;
D. P20;
E. none of the above.

20. JJJ Co has current assets of P180,000 (cash: P20,000, accounts receivable: P70,000, inventory:
P90,000), and long-term assets that had cost P400,000, with accumulated depreciation to date of
P180,000. Sales were P500,000, and operating profit was P50,000. Tax was P20,00 and interest
paid was P10,000. a dividend of P10,000 was paid to the common shareholders. There are
1,000 shares in issue, and the share price is P240 per share. The price to earnings ratio is: (2
points)

A. 24X;
B. 12X;
C. 10X;
D. 8X;
E. none of the above.

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