Cornerstones of Financial Accounting - With CengageNow
4th Edition
ISBN: 9781337760959
Author: Rich
Publisher: CENGAGE L
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Chapter 12, Problem 41MCQ
To determine
What does a higher net profit margin indicates.
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Which of the following is true regarding a company assuming more debt?
Select one:
a. Assuming more debt is always bad for the company
b. Assuming more debt reduces leverage
c. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds
d. Assuming more debt is always good for the company
Assume BGL Enterprises increases its operating efficiency by lowering its costs while holding its sales constant. As a result, given all else constant, the: I HAVE THE ANSWER BUT NEED AN EXPLANATION AS TO WHY THIS IS THE CORRECT ANSWER
A. return on assets will decrease.
B. profit margin will decline.
C. equity multiplier will decrease.
D. return on equity will increase.
E. price-earnings ratio will increase.
Check all that apply.
Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company’s total assets turnover.
Decrease the amount of debt financing used by the company, which will decrease the total assets turnover ratio.
Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company’s net profit margin.
Use more debt financing in its capital structure and increase the equity multiplier.
Chapter 12 Solutions
Cornerstones of Financial Accounting - With CengageNow
Ch. 12 - Describe how some of the primary groups of users...Ch. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 11DQCh. 12 - 12. Why are higher asset turnover ratios...Ch. 12 - Prob. 13DQCh. 12 - Prob. 14DQCh. 12 - Prob. 15DQCh. 12 - Prob. 16DQCh. 12 - Which of the following use financial statement...Ch. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQCh. 12 - Which type of analysis compares a single...Ch. 12 - Which of the following types of analysis compares...Ch. 12 - Which of the following types of analysis is...Ch. 12 - Prob. 11MCQCh. 12 - Prob. 12MCQCh. 12 - Prob. 13MCQCh. 12 - Partial information from Fabray Companys balance...Ch. 12 - Hummel Inc. has $30,000 in current assets and...Ch. 12 - Prob. 16MCQCh. 12 - A firms quick ratio is typically computed as: a....Ch. 12 - Prob. 18MCQCh. 12 - Prob. 19MCQCh. 12 - Prob. 20MCQCh. 12 - Prob. 21MCQCh. 12 - Prob. 22MCQCh. 12 - Prob. 23MCQCh. 12 - When analyzing a companys debt to equity ratio,...Ch. 12 - Prob. 25MCQCh. 12 - Prob. 26MCQCh. 12 - Prob. 27MCQCh. 12 - Prob. 28MCQCh. 12 - Prob. 29MCQCh. 12 - Prob. 30MCQCh. 12 - Which of the following ratios is used to measure...Ch. 12 - Prob. 32MCQCh. 12 - Selected information for Berry Company is as...Ch. 12 - Which of the following ratios is used to measure a...Ch. 12 - Prob. 35MCQCh. 12 - Prob. 36MCQCh. 12 - Prob. 37MCQCh. 12 - Prob. 38MCQCh. 12 - Which of the following are not part of common...Ch. 12 - Prob. 40MCQCh. 12 - Prob. 41MCQCh. 12 - Prob. 42MCQCh. 12 - Which of the following is not included in the...Ch. 12 - When a Dupont analysis reveals that a company has...Ch. 12 - Prob. 45MCQCh. 12 - Cross Sectional Analysis Cross sectional analysis...Ch. 12 - Prob. 47CECh. 12 - Prob. 48CECh. 12 - Short-Term Liquidity Ratios Three ratios...Ch. 12 - Debt Management Ratios Selected data from the...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Selected financial...Ch. 12 - Profitability Ratios The following data came from...Ch. 12 - Prob. 54CECh. 12 - Prob. 55CECh. 12 - Prob. 56CECh. 12 - Prob. 57BECh. 12 - Prob. 58BECh. 12 - Prob. 59BECh. 12 - Short-Term Liquidity Ratios Larry, Curly, and Moe...Ch. 12 - Debt Management Ratios Glow Corporation provides...Ch. 12 - Debt Management and Short-Term Liquidity Ratios...Ch. 12 - Asset Efficiency Ratios Rumsford Inc.s financial...Ch. 12 - Prob. 64BECh. 12 - Profitability Ratios Tinker Corporation operates...Ch. 12 - Profitability Ratios Katrina Corp. is a publicly...Ch. 12 - Prob. 67BECh. 12 - Prob. 68ECh. 12 - Prob. 69ECh. 12 - Prob. 70ECh. 12 - Prob. 71ECh. 12 - Horizontal Analysis of Income Statements...Ch. 12 - Prob. 73ECh. 12 - Prob. 74ECh. 12 - Prob. 75ECh. 12 - Prob. 76ECh. 12 - Prob. 77ECh. 12 - Prob. 78ECh. 12 - Prob. 79ECh. 12 - Asset Efficiency Ratios Refer to financial...Ch. 12 - Prob. 81ECh. 12 - Prob. 82ECh. 12 - Prob. 83ECh. 12 - Prob. 84PSACh. 12 - Prob. 85PSACh. 12 - Prob. 86PSACh. 12 - A Using Common Size Statements The following...Ch. 12 - Prob. 88PSACh. 12 - Prob. 89PSACh. 12 - Prob. 90PSACh. 12 - A Comparing Financial Ratios Presented below are...Ch. 12 - A Preparation of Ratios Refer to the financial...Ch. 12 - Accounting Alternatives and Financial Analysis...Ch. 12 - Prob. 84PSBCh. 12 - Prob. 85PSBCh. 12 - Prob. 86PSBCh. 12 - Prob. 87PSBCh. 12 - Prob. 88PSBCh. 12 - Prob. 89PSBCh. 12 - Prob. 90PSBCh. 12 - Comparing Financial Ratios Presented below are...Ch. 12 - Prob. 92PSBCh. 12 - Problem 1 2-93B Accounting Alternatives and...Ch. 12 - Prob. 94CCh. 12 - Prob. 95.1CCh. 12 - Prob. 95.2CCh. 12 - Prob. 96.1CCh. 12 - Prob. 96.2CCh. 12 - Prob. 97.1CCh. 12 - Prob. 97.2CCh. 12 - Prob. 97.3CCh. 12 - Prob. 97.4CCh. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Analyzing Growth Consolidated financial statements...Ch. 12 - Prob. 98.1CCh. 12 - Prob. 98.2CCh. 12 - Prob. 98.3CCh. 12 - CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT The...Ch. 12 - Prob. 99.2CCh. 12 - Prob. 99.3CCh. 12 - Prob. 99.4CCh. 12 - Prob. 99.5C
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- You observe that a firm?s profit margin is below the industry average, while its return on equity and debt ratio exceed the industry average. What can you conclude?arrow_forwardCheck all that apply. Use more debt financing in its capital structure and increase the equity multiplier. Use more equity financing in its capital structure, which will increase the equity multiplier. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total assets turnover.arrow_forward13. A short-term creditor would be interested in A. profitability ratio. B. efficiency ratio. C. liquidity ratio. D. leverage ratio. The quick ratio of a firm would be unaffected by which of the following? 14. A. Land held for investment is sold for cash. B. Equipment is purchased, financed by a long-term debt issue. C. Inventories are sold for cash D. Inventories are sold on a credit basis.arrow_forward
- If a firm decreases its operating costs, all else constant, then the: A. profit margin will decrease.B. return on assets will decrease.C. total asset turnover rate will increase.D. cash coverage ratio will decrease.E. price-earnings ratio will decrease Can you give me detailed explanation?arrow_forwardCompany X is competing with company Y. These are their ratios: x y Profit Margin .144 .172 ROA .066 .062 ROE .118 .154 Based on Profitability, which company is doing better when compared to the other?arrow_forwardGross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for such behavior could be: A. Increase in Costs of Goods Sold, B. If Increase in Expense, C. Increase in Dividend, D. Decrease in Sales.arrow_forward
- By modifying the break-even equation, a company is able to determine the sales required to earn a ________________ profit. a.banker's b.working capital c.target d. contributionarrow_forwardWhich of the following would indicate an improvement in a company's financial position, holding other things constant? The profit margin declines. O The MV/BV ratio increases. The ROA decreases. The TIE increases. O The liability-to-asset ratio increases.arrow_forwardA firm with a substandard return on total assets can improve its return on equity, all else remaining the same, but A. decreasing its total asset turnover. B. increasing its total asset turnover. C. increasing its debt ratio. D. decreasing its debt ratio.arrow_forward
- (39). Subject :- Finance Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, total assets, and basic earningpower. Both companies have positive net incomes. Company Heidee has a higher debt ratio and, therefore, a higher interestexpense. Which of the following statements is CORRECT?O a. Company Heidee has a lower equity multiplier.O b. Company Heidee has a higher ROA.O c. Company Heidee pays less in taxes.d. Company Heidee has a higher times interest earned (TIE) ratio.O e. Company Heidee has more net income.arrow_forwardSuppose a firm wants to maintain a specific TIE ratio. It knows the amount of its debt, the interest rate on that debt, the applicable tax rate, and its operating costs. With this information, the firm can calculate the amount of sales required to achieve its target TIE ratio. a. True b. Falsearrow_forwardIncome taxes have the effect of A. increasing the cost of debt for a firm. B. decreasing the cost of debt for a firm. C. decreasing the cost of equity for a firm. D. Both B and C are correct.arrow_forward
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