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TI BAII+ Tutorial
Finance Around the
World
Formula Card
FAST Problems Your Results:
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1INCORRECT Profitability ratios measure:
A)the speed at which the firm is turning over
its assets
B the ability of the firm to earn an adequate
) return on sales, total assets, and invested
capital
C)the firm's ability to pay off short term
obligations as they are due
D)the debt position of the firm in light of its
assets and earning power
Feedback: Many problems related to profitability can
be explained by the firm's ability to effectively
employ its resources. Refer to text page 65.

2INCORRECT Asset utilization ratios measure:

A)the speed at which the firm is turning over
its assets
B the ability of the firm to earn on adequate
) return on sales, total assets, and invested
capital
C)the firm's ability to pay off short term
obligations as they are due
D)the debt position of the firm in light of its
assets and earning power
Feedback: Asset utilization ratios measure how many
times per year a company sells its inventory or
recollects its entire accounts receivable. Refer to text
page 65.

3CORRECT Liquidity ratios measure:

 A)the speed at which the firm is turning over
its assets
B the ability of the firm to earn an adequate
) return on sales, total assets, and invested
capital
C)the firm's ability to pay off short term
obligations as they are due
D)the debt position of the firm in light of its
assets and earning power.
Feedback: Liquidity ratios examine the firm's ability
to generate cash quickly. Refer to text page 65.

4CORRECT Debt utilization ratios measure:

A)the speed at which the firm is turning over
its assets
B the ability of the firm to earn an adequate
) return on sales, total assets, and invested
capital
C)the firm's ability to pay off short term
obligations as they are due
D)the debt position of the firm in light of its
assets and earning power
Feedback: Debt utilization ratios examine the
effectiveness of using borrowed capital and the
potential for outside pressures on the firm. Refer to
text page 65.

5CORRECT Return on assets is computed:

A)net income/sales
B net income/total assets
)
C)net income/current assets
D)income before interest and taxes
(EBIT)/total assets
Feedback: Return on assets (investments) can be
computed a few ways: net income dividend total
assets; net income divided by sales multiplied by the
quantity sales divided by total assets. Refer to text
page 68.

Under the Du Pont method of analysis, return on total

6INCORRECT
assets is:
 A)profit margin times assets turnover
B net income/total assets
)
C)income before interest and taxes
(EBIT)/total assets
D)net income/sales
Feedback: The Du Pont system of analysis breaks
corporate returns down into its component parts.
Refer to text page 69.

7INCORRECT Receivables turnover is:

A)a profitability ratio
B a debt utilization ratio
)
C)an asset utilization ratio
D)a liquidity ratio
Feedback: Receivables turnover is an asset utilization
ratio calculated by taking sales (credit) divided by
receivables. Refer to text page 71.

8CORRECT Among the liquidity ratios, one would include:

A)receivables turnover and inventory
turnover
B current ratio and quick
) ratio
C)capital asset turnover and total asset
turnover
D)receivables turnover and total asset
turnover
Feedback: There are two liquidity ratios utilized by
firms: current ratio and quick ratio. Refer to text page
73.

A firm's equity multiplier is an indication of its

9INCORRECT
________ position:
A)liquidity
B inventory
)
C)Asset utilization
D)debt
 Feedback: The equity multiplier increases return to
shareholders through the use of debt. Refer to text
page 69.

1 Analyzing the performance of the firm through ratios

INCORRECT
0 over a number of years is referred to as:
A)financial analysis
B ratio analysis
)
C)trend analysis
D)operations analysis
Feedback: Trend analysis examines ratio changes
over time. Refer to text page 75.

1 Which of the following does not cause a distortion in

INCORRECT
1 the reporting of income?
A)The reporting of revenue.
B The treatment of non-recurring items.
)
C)The tax-write off policy.
D)The firm's dividend policy.
Feedback: Historical based accounting and
management discretion in accounting practices and
policies can cause distortion. Refer to text page 81.

1 Financial ratios are used to:

INCORRECT
2
A)weigh and evaluate the operating
performance of the firm
B provide an absolute benchmark of
) industry performance
C)determine which firm will provide the
highest return to investors
D)None of the above are correct
Feedback: Financial ratios are used to weigh and
evaluate the operating performance of the firm. Refer
to text page 64.

1 To the securities analyst, the most important ratio

CORRECT
3 group is:
A)asset utilization
 B profitability
)
C)liquidity
D)debt utilization
Feedback: Profitability ratios are a critical
consideration to investors and securities analysts.
Refer to text page 65.

1 To the banker/creditor, the most important ratio

INCORRECT
4 group is:
A)asset utilization
B profitability
)
C)liquidity
D)debt utilization
Feedback: The banker is most concerned with the
firm being able to meet its debt obligations. Refer to
text page 65.

1 To the bondholder, the most important ratio is:

INCORRECT
5
A)profit margin
B quick ratio
)
C)times interest earned
D)debt to total assets
Feedback: The bondholder is most concerned with
the firm's debt to total assets ratio. Refer to text page
65.

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1INCORRECT The income statement measures:

A)what the firm owns and how those assets are financed
B the profitability of the firm at a given point in time
)
C)the profitability of the firm over a period of time
D)how changes in the balance sheet are financed over time
Feedback: The income statement expresses flows of financial benefits. Refer to
text page 27.

2INCORRECT The three primary sources of capital to the firm are:

A)net income, retained earnings, and bank loans
B bondholders, preferred shareholders, and common
) shareholders
C)operating profits, extraordinary gains, dividends
D)amortization cash flow, net income, and retained earnings
Feedback: Bondholders, preferred shareholders and common shareholders are
the three primary sources of capital to the firm. Refer to text page 28.

3INCORRECT Which of the following is not true regarding the P/E ratio?
A)It is the multiplier applied to earnings per share to determine current
value
B P/E ratios allow comparison of the relative market values of many
) companies based on $1 of earnings per share.
C)It indicates expectations about the future of a company.
D)Firms expected to provide returns greater than those of the market
with equal or less risk normally have P/E ratios lower than the
market P/E.
Feedback: Firms expected to provide returns greater than those for the market
in general with equal or less risk often have P/E ratios higher than the market
P/E ratio. Refer to text page 30.

4INCORRECT The balance sheet of the firm shows:

A)the profitability of the firm over
time
B the holdings and obligations of the firm
)
C)the assets of the firm on a current cost basis
 D)the receipt and disbursement of corporate funds
Feedback: The balance sheet is a stock concept. Refer to page 32.

Which of the following properly lists balance sheet items in order of liquidity,
5INCORRECT
from most liquid to least liquid?
A)Accounts receivable, inventory, marketable securities, cash.
B Cash, marketable securities, accounts receivable, inventory.
)
C)Inventory, marketable securities, cash, accounts receivable.
D)Cash, inventory, accounts receivable, marketable securities.
Feedback: Asset accounts are listed in the order of liquidity or convertibility to
cash. Refer to text page 32.

6INCORRECT All of the following are true of shareholders' equity except:

A)it represents the combined total of the firm's current and long term
assets
B it represents the total contribution and ownership interest of preferred
) and common shareholders
C)the three basic components are preferred stock, common stock, and
retained earnings
D)it represents the difference between the firm's assets and liabilities
Feedback: Shareholders' equity equals assets less liabilities. Refer to text page
34.

7INCORRECT Net worth or the book value of the firm is computed:

A)total assets minus shareholders' equity
B total assets minus the firm's liabilities
)
C)preferred stock plus common stock plus retained earnings
D)shareholders equity minus preferred stock
Feedback: Net worth or book value is based on the historical cost of the
shareholder's investment in the firm. Refer to text page 34.

The current cost method of financial reporting takes inflation into account and
8INCORRECT
has the greatest impact on:
A)the valuation of accounts receivable and marketable securities
B inventory and plant and equipment
)
C)current assets
D)the determination of dividend policy
 Feedback: Most items on the balance sheet are reported on an original cost
basis. This creates problems for balance sheet items such as plant and
equipment, which might have to be replaced at 2 or 3 times more than the
original cost. Refer to text page 36.

9INCORRECT The statement of cash flows:

A)measures changes in net income over time
B the receipt and disbursement of funds of the
) firm
C)the assets of the firm and the means by which they are financed
D)emphasizes the critical nature of the firm's cash flows
Feedback: The statement of cash flows is an essential statement. Refer to text
page 37.

1 All of the following areas of cash flows are analyzed except:

INCORRECT
0
A)operations activities
B uses of funds
)
C)investing activities
D)financing activities
Feedback: The primary sections of the statement of cash flows are: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Refer to text page 38.

1 Amortization is considered a source of funds to the firm because:

INCORRECT
1
A)it is purely an accounting entry and doesn't involve a direct
disbursement of funds, freeing up these funds for other investments
B it represents a reduction in asset holdings
)
C)it represents an increase in an asset account
D)amortization is not a source of funds
Feedback: Amortization is subtracted because it is a noncash expense to arrive
at the net income figure. It is then added back in to determine the actual funds
on hand. Refer to text page 45.

1 All of the following are decisions heavily impacted by federal income tax
INCORRECT
2 considerations except:
A)lease versus purchase decisions
 B the issuance of common shares versus debt
)
C)cash budgeting and dividend policy decisions
D)the decision to replace on asset
Feedback: Primary examples of financial decisions influenced by federal
income tax considerations are lease versus purchase, debt versus the issuance of
common stock, and replacement of assets. Refer to text page 46.

1 All of the following are examples of tax deductible expenses, except:

INCORRECT
3
A)dividends on common shares
B interest payments
)
C)amortization charges
D)sales and administrative expenses
Feedback: Dividends on common shares are not tax-deductible. Refer to text
page 50

1 The aftertax cost of a tax deductible expense is:

INCORRECT
4
A)cost times the tax rate
B cost times (1-tax rate)
)
C)the cost of the expense
D)the cost divided by the tax rate
Feedback: The aftertax cost of a tax-deductible item is the actual amount of the
expense multiplied by one minus the tax rate. Refer to the text page 50.

1 To an economist, the term income means:

INCORRECT
5
A)sales - cost of goods sold
B change in real worth taking place between the beginning and each of
) a period
C)operating profit - interest expense
D)earnings aftertaxes
Feedback: To an economist, the elimination of a competitor might increase the
firm's value and generate income in an economic sense. Accountants use values
that are from actual transactions and are verifiable. Refer to text page 31.