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TsinghuaX: 80512073x Financial Analysis and Decision Making
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MULTIPLE CHOICE (30/50 points)

1. Which of the following financial ratio is the most commonly used in measuring corporate short-term solvency?
Current Ratio
Inventory Turnover
Gross profit margin
Liability-to-asset ratio
2. A company had 200,000 Dollars finished goods inventory (no goods in process) on December 31, 2010. The total cost of production
in 2011 was 300,000 Dollars, and the finished goods inventory (no goods in process) on December 31, 2011 was 100,000 Dollars. Then
what was the operating cost in 2011?
200,000 Dollars
300,000 Dollars
400,000 Dollars
Insufficient conditions, cannot be calculated
3. A company wrote off 100,000 Dollars damaged inventory on December 31st, 20XX. This write-off will reduce which of the following
ratios?
Both current and quick ratios reduced
Only current ratio reduced
Only quick ratio reduced
Both current and quick ratios were not reduced
4. A company collected accounts receivable from a large customer on December 31, 20XX. This will increase which of the following
ratios?
Inventory turnover ratio
Account receivable turnover
Current ratio
Quick ratio
5. The related accounting materials of a company on December 31, 20XX are as follows:
Current ratio 2.0
Quick ratio 1.5
Current liabilities 120,000 Dollars
Inventory Turnover 8.0 (calculated by using the ending balance of inventory)
Gross profit margin 40%

Besides, the balance of inventory remained unchanged during the year 20XX. Then how much was the operating income of this
company in 20XX?
240,000
480,000
800,000
1,200,000
6. If the debt to equity ratio increased, then which of the following ratios will also increase?
Times interest earned
Debt to total assets ratio
Return on equity
Current ratio
7. The total assets of a company were 500,000 Dollar and the liability-to-asset ratio was 25% on December 31, 2010. On December 31,
2011, although the total liabilities were unchanged, the liability-to-asset ratio reduced to 20%. The return on equity was 15% in 2011.
Then what is the net profit of this company in 2011.
23,437.5
75,000
60,000
93,750
8. The balance of cash of a company was 200,000 Dollars on December 31, 2010, while the balance of cash was 500,000 Dollars on
December 31, 2011. As we know the net cash flow from investment activities was 100,000 Dollars, and the net cash flow from financing
activities was 50,000 Dollars in 2011. Then what was the net cash flow from operating activities of this company in 2011?
150,000 Dollars
350,000 Dollars
50,000 Dollars
Insufficient conditions, cannot be calculated
9. The retained earnings of a company were 100,000 Dollars on December 31, 2010. The net profit was 50,000 Dollars in 2010 and
100,000 Dollars in 2011. In 2011, the company recorded 10,000 Dollars surplus reserves and distributed 30,000 Dollars profit. How
much was the retained earnings on December 31, 2011?
110,000 Dollars
160,000 Dollars
170,000 Dollars
120,000 Dollars

10. What does a too low accounts receivable turnover indicate?

The credit policy is too loose
The credit policy is too strict
The company may lose some good customers
Unrelated with the companys credit policy

11. Which of the following transactions will cause the increase of one asset item and the decrease of another asset item, while the
total amount of assets unchanged?
Repay borrowings by bank deposit
Receive cash investment from investors
Collect accounts receivable

Distribute profit to shareholders by bank deposit

12. The beginning balance of a companys accounts receivable was 4,000 Dollars. During this period, the company incurred 2,000
Dollars credit sales, and collected 1,000 Dollars accounts receivable. What is the ending balance of accounts receivable?
-3,000 Dollars
3,000 Dollars
-5,000 Dollars
5,000 Dollars
13. In balance sheet, which order do items in current assets follow generally?
According to alphabetical sequence
According to the liquidity, from the highest to the lowest
According to the amount, from the highest to the lowest
According to the acquired time, from the earliest to the latest
14. What item does franchises belong to in the balance sheet?
Fixed asset
Intangible asset
Current asset
Long-term investment
15. Parts of a companys balance sheet are as follows:
Equity (par value is $1) 30,000
Additional paid-in capital 700,000
Which of the following items is true?
Registered capital was 730,000
Stock issued were 30,000 shares
Shares outstanding were 730,000
The average price per share was 2.43 Dollars
16. The beginning balance of total assets and liabilities were 100,000 and 48,000 Dollars respectively, while the ending balances of total
assets and liabilities were 120,000 and 52,000 Dollars respectively. During the year, the company announced and distributed 10,000
Dollars dividends and issued 6,000 Dollars capital stock. Then what was the net profit of that year?
32,000
20,000
12,000
0
17. Which of the following item is non-operating expense?
The borrowing for purchasing and building fixed asset
Board meeting fees
Research and development expenses
None of the above
18. Which of the following cash flow belongs to operating cash flow?
The cash flow from selling fixed assets

The cash flow from bond interest income

The cash flow for paying advertising expense
The cash flow for paying debts
19. Which of the following transaction does not affect cash flow?
Receive bond investment interest
Accrued unpaid wages
Obtain bank mortgage loan
Collect accounts receivable that has already been written off as bad debt
20. Which of the following item can cause the difference between net cash flow and net profit?
Deposit cash into bank
Sell some inventories on credit
Repay debt by inventories
Pay bank loan interest by bank deposit

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Calculation and Analysis

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1. the following is an unfinished income statement of a company in 20XX. If the inventory turnover ratio is 5.0 (calculated using the
ending balance of inventory, which is 28,000 Dollars), the operating profit margin is 11% and the net profit margin is 7.5%. Please
calculate the figures in parentheses. Round figures to Dollars. Please dont add ., ,, or any marks in your answer. The correct format
is 12345 Dollars. 12,345 or 12.345 are not correct.
Operating income

248,000

Operating cost

(A)

Gross profit

(B)

Operating expense

60,000

Administrative expense

13,000

Interest Income

4,000

Interest expense

(C)

Operating profit

(D)

Non-operating income (expense)

(E)

Total profit

31,400

Income tax

(F)

Net profit

(G)

(14 points possible)

A

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2. Some relevant information of Jimlang Company is as follows. Please answer the following questions
2010

2011

Operating income

644,000

830,000

Net profit

38,600

43,200

Current assets

160,000

164,000

Fixed assets

156,000

168,000

Information about income statement:

Information about balance sheet:

Total assets

316,000

332,000

Current liabilities

92,000

80,000

Long-term liabilities

60,000

76,000

Total liabilities

152,000

156,000

Total liabilities and shareholders' equity

316,000

332,000

(12 points possible)

The net profit margin was ( )%

the total asset turnover ratio was ( ) times per year

the return on total asset was ( )%

the return on equity was ( )%

the liability-to-asset ratio was ( )%.

(Round answers to two decimal places under the given units). Pay attention to calculate the return on total asset by using the ending
balance of total asset.

If Jimlang Company cannot increase price and sales volume, nor change the capital structure. Then how can Jimlang increase the
return on equity?
Reduce costs and expenses
Increase total assets
Reduce shareholders' equity
Increase operating revenue

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3. The income statement and balance sheet of Cisco in 20XX are as follows:
Balance Sheet (In Million Dollars)
Asset

Liabilities

Current assets

Current liabilities

39,578

Cash

5,043

Long-term liabilities

14,124

Short-term investments

789

Other liabilities

13,282

Accounts receivable

32,455

Total liabilities

66,984

Inventory

4,868

Total current assets

43,155

Shareholders' equity

Fixed assets

39,616

Common stock

Depreciation

22,026

Retained earnings

Net fixed assets

17,590

Long-term investments

26,750

Total assets

87,495

12,009
8,502

Total shareholders' equity

20,511

Total liabilities and shareholders' equity

87,495

Income Statement (In Million Dollars)

Operating income

87,548

Operating costs

55,619

Gross profit

31,929

Operating and administrative expenses

20,002

Operating profit

11,927

Interest Income

557

Interest expense

(727)

Total profit

11,757

Income tax

4,045

Net profit

7,712

Please calculate the following financial ratios. Please use the ending balance of the specific asset item to calculate turnover ratio. All
answers should be round to two decimal places under the given units. Please pay attention to the unit of each ratio.

(18 points possible)

Liability-to-asset ratio is ( )%

Current assets as a percentage of total assets is ( )%;

Times interest earned is ( );

Current ratio is ( );

Accounts receivable turnover ratio is ( ) times per year

Inventory turnover ratio is ( ) times per year;

Net profit margin is ( )%;

Return on equity is ( )%;

Return on total assets is ( )%.

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4. The EBIT to total assets ratio (hereinafter referred to as return on total assets) of a company was 10%. Assume the company has no
debt currently, with total assets of 1 million Dollars, income tax rate of 20%. This company plans to borrow some debt to pay cash
dividends in order to reduce shareholders' equity. The bank pointed out that the loan interest rate will be determined by different
leverage level (liabilities-to-shareholders' equity) according to the following table.
The Relationship between a Companys Loan Interest Rate and the Leverage Level
Liabilities-to-shareholders' equity ratio

Loan interest rate

10.50

8%

21.00

10%

31.50

12%

42.00

15%

(2 points possible)
The current return on equity is ( )%. (Round to one decimal place)

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(4 points possible)
The quantitative relationship between return on equity and return on total assets is as follows.
Return on equity= Return on total assets+[( Return on total assets- Loan interest rate)liabilities-to-shareholders' equity]
According to the above quantitative relationship, under different levels of leverage, the return on equity is maximized when the
liabilities-to-shareholders' equity ratio equals the circumstance in item ( ) of the above table?
1
2
3
4

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