Question

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9. The DuPont method return on assets uses two compone method return on assets uses two component ratios. What are they? a. Inventory turnover x gross profit margin b. Profit margin x asset turnover c. Return on equity x dividend payout D. Net profit margin x total liability turnover e. Return on investment x total investment turnover 10. Which of the following is not a type of operating asset? a. Treasury stock b. Cash c. Inventory d. Land e. Equipment 11. Which of the following circumstances will cause sales to fixed assets to be abnormally low? a. Land that was purchased decades ago. b. A labor-intensive industry. c. A highly mechanized facility. d. The use of straight-line depreciation. e. There is not enough information to tell. 12. Which of the following ratios will usually have the lowest percent? a. Return on total assets b. Return on securities c. Return on total debts d. Return on total equity e. Return on investment 13. Which suppliers of funds bear the greatest risk and should therefore earn the greatest return? a. Bondholders b. Common shareholders c. Common investors d. Preferred shareholders e. Common creditors

Answer 1

9. Dupont method return uses the formula profit margin * asset turnover * financial leverage, out of the given options answer will profit margin*asset turnover.

10. Long term investments are the assets which considered as non operating assets, out of the given options Land, is a long term investment and thus non operating.

11. Sales to fixed assets will be abnormally low when the fixed assets are more, there will be more usage of fixed assets in A highly mechanised facility, therefore the answer will be the same. As a highly mechanised company uses a lot of assets, fixed assets value will be more resulting in the low ratio of Sales to fixed assets.

12. Out of the given options the ratio will be low in case the denominator is high, the value of fixed assets will be high compared to all other given items, therefore the answer will be, Return on total assets.

13. The Common shareholders of the company are the real owners of the company who will bear the maximum risk of the business without aiming at a fixed return. Therefore they should be given the greater return.