Quiz Ch 04 – T/F Analyzing Profit Margin
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
True or false: The profit margin evaluates net income in relation to sales.
True or false: The profit margin evaluates net income in relation to sales.
True or false: When examining two firms in the same industry, with Firm A having a 10% profit margin compared to Firm B’s 8%, and Firm A’s total debt to total capital ratio at 70% versus Firm B’s 20%, it’s not possible to conclude that one firm is better managed. The difference in debt, rather than superior management, could potentially account for Firm A’s higher profit margin.
True or false: Debt management ratios reflect how much a firm’s managers aim to enhance returns on owners’ capital by employing financial leverage.
True or false: The times-interest-earned ratio evaluates how much operating income can decrease before the firm becomes incapable of covering its yearly interest expenses.
True or false: If a firm aims to sustain a particular TIE ratio, and possesses data on its debt, debt interest rate, tax rate, and operating expenses, it can compute the necessary sales volume to attain its desired TIE ratio.
True or false: Differences in accounting methods among firms create obstacles for meaningful ratio comparisons between firms, more so than if all firms adopted the same or similar accounting methods.
True or false: The basic earning power ratio (BEP) offers an advantage over the return on total assets in evaluating a company’s operational efficiency because the BEP excludes the impact of debt and taxes.
True or false: While Firm A may have a higher current ratio than Firm B, Firm B could still have a higher quick ratio than A. However, if A’s quick ratio surpasses B’s, it’s definite that A’s current ratio is also greater than B’s.
True or false: The return on common equity (ROE) is generally considered to be less crucial, from a stockholder’s perspective, in comparison to the return on total assets (ROA).
True or false: Greater managerial conservatism often correlates with a higher total debt to total capital ratio [(Short-term debt + Long-term debt)/(Debt + Preferred stock + Common equity)].