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Exam 4: Profitability Analysis

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Question 31

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Firms with high levels of operating leverage experience which of the following in comparison to firms with low levels of operating leverage

A) Higher levels of risk in operations.
B) Lower expected rates of return.
C) Lower variability in returns on assets.
D) Higher sales.

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Question 32

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Which of the following might an analyst not want to eliminate from past earnings when using past earnings to forecast future earnings?

A) nonrecurring gains from the sale of assets.
B) unusual asset impairment charges.
C) nonrecurring restructuring charges.
D) revenue from the sale of inventory.

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Question 33

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Firms with complex capital structures can use which of the following in calculating EPS

Carl Industries Carl Industries has condensed balance sheets as shown: -Refer to the information for Carl Industries.In a percentage change balance sheet over the period of 2009 to 2011,what is the change in current assets? 

Return on assets can be disaggregated into three components.Which of the following is not one of the components?

Use the following information about Sanibel Corporation to calculate the following ratios for 2011 (assume an effective tax rate of 35%):a.Return on Assets b.Profit margin for ROA c.Assets Turnover d.Return on Common Shareholders' Equity e.Profit Margin for ROCE f.Accounts Receivable Turnover g.Inventory Turnover h.Fixed Asset Turnover

Ramos Company Ramos Company included the following information in its annual report: $\begin{array}{|l|r|r|r}\hline & \mathbf{2 0 1 1} & \mathbf{2 0 1 0} & {\mathbf{2 0 0 9}} \\\hline \text { Sales } & \$ 178,400 & \$ 162,500 & \$ 155,500 \\\hline \text { Cost of goods sold } & 115,000 & 102,500 & 100,000 \\\hline \text { Operating expenses } & 50,000 & 50,000 & 45,000 \\\hline \text { Net income } & 13,400 & 10,000 & 10,500 \\\hline\end{array}$ -Refer to the information for Ramos Company.In a common size income statement for 2011,the cost of goods sold are expressed as: 

Below are three relationships that are important to the determination of profitability.Assume assets were $22,900,000 on Dec.31,2008.1.Operating leverage = Earnings before interest but after taxes Average assets. 2.Financial structure leverage = Net income available to common shareholders Earnings before interest but after taxes 3.ROCE = ROA × Common earnings leverage × Financial structure leverage

To reduce the risk inherent in ______________________________ a company should strive for a high proportion of variable costs in its cost structure.

Firms that have either convertible securities or stock options or warrants outstanding have __________________________________________________.

The rationale for adding back the _______________________________________________________ relates to attaining consistency in the numerator and denominator of ROA.

Discuss the economic characteristics of firms that have the following mix of profit margin and asset turnover.In addition provide an example of an industry that would have the relevant profit margin asset turnover mix: A.High profit margin and low asset turnover. B.Low profit margin and high asset turnover

Economic theory suggests that higher levels of ____________________ in any activity should lead to higher levels of ___________________________________.

Carl Industries Carl Industries has condensed balance sheets as shown: -Refer to the information for Carl Industries.In a common size balance sheet for 2009,total liabilities and equity are expressed as 

________________________________________ is the level of earnings and the growth in the levels of earnings expected to persist in the future.

The ___________________________________ of interest expense on net income equals one minus the marginal tax rate times interest expense.

Ramos Company Ramos Company included the following information in its annual report: $\begin{array}{|l|r|r|r}\hline & \mathbf{2 0 1 1} & \mathbf{2 0 1 0} & {\mathbf{2 0 0 9}} \\\hline \text { Sales } & \$ 178,400 & \$ 162,500 & \$ 155,500 \\\hline \text { Cost of goods sold } & 115,000 & 102,500 & 100,000 \\\hline \text { Operating expenses } & 50,000 & 50,000 & 45,000 \\\hline \text { Net income } & 13,400 & 10,000 & 10,500 \\\hline\end{array}$ -Refer to the information for Ramos Company.In a common size income statement for 2009,the cost of goods sold are expressed as: 

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%. Income Statement For the year ended December 31, 2011 -Refer to the information for Orca Industries.The profit margin for computing ROA for Orca Industries is

EPS is an ambiguous measure of profitability because it reflects operating performance in the numerator and ________________________________________ in the denominator.

Carl Industries Carl Industries has condensed balance sheets as shown: -Refer to the information for Carl Industries.In a percentage change balance sheet over the period of 2009 to 2011,what is the change in long-term liabilities?