Corporate Income Taxes - Brigham & Ehrhardt 15e

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What does a liquidity ratio measure?

A company's ability to pay off its maturing liabilities (correct)

A company's market value

A company's asset management

A company's ability to generate profits

What is the most commonly used measure of short-term solvency?

Profitability Ratio

Current Ratio (correct)

Quick Ratio

Debt Management Ratio

What is typically included in current assets?

Accounts payable and short-term notes payable

Accrued taxes and other accrued expenses

Long-term debt and accrued expenses

Cash, marketable securities, accounts receivable, and inventories (correct)

What happens to the current ratio if current liabilities are rising faster than current assets?

The current ratio will fall Signup and view all the answers

What do creditors like to see in a company's current ratio?

A high current ratio Signup and view all the answers

How is the current ratio assessed?

By comparing it to industry average Signup and view all the answers

What is the rate paid on the last dollar of income?

Marginal tax rate Signup and view all the answers

What happens when an asset is sold for more than its book value?

Corporate capital gain Signup and view all the answers

How many years can an ordinary corporate operating loss be carried back?

2 years Signup and view all the answers

What happens to shareholders' returns if a firm's assets generate a higher pre-tax return than the interest rate on debt?

Their returns are magnified Signup and view all the answers

What is the purpose of Section 43 of the Corporation Tax Code of the Philippines?

To prohibit excessive retained earnings Signup and view all the answers

What is the limit for carrying forward an ordinary corporate operating loss?

20 years Signup and view all the answers

What is the primary consequence of a company having high leverage?

Increased risk for creditors Signup and view all the answers

What happens to an operating loss in 2016 after carrying back to preceding 2 years?

It is carried forward to the next 20 years Signup and view all the answers

What is the main purpose of Leverage Ratios?

To measure a company's ability to meet its financial obligations Signup and view all the answers

What is the primary purpose of creating common size financial statements?

To analyze a company over time and compare it with its peers Signup and view all the answers

What does the Debt-to-Asset Ratio (Debt Ratio) represent?

The proportion of a company's assets that are financed by debt Signup and view all the answers

What is the result of a small decline in performance for a company with high leverage?

A significant decline in the firm's value Signup and view all the answers

What does a percentage change analysis show on a balance sheet?

How a balance sheet account changes from year to year, or quarter to quarter Signup and view all the answers

What is the term for the extent to which a firm uses debt financing?

Financial leverage Signup and view all the answers

What is the result of the DuPont equation?

An indication of how efficiently a company is converting stockholder investments into profits Signup and view all the answers

What is used in the DuPont equation as a measure of financial leverage?

The equity multiplier Signup and view all the answers

Which type of analysis displays line items as a percentage of one selected or common figure?

Common size analysis Signup and view all the answers

What are the two ratios used in the DuPont equation as measures of profitability and asset efficiency?

The profit margin and the total asset turnover ratio Signup and view all the answers

What is the formula for calculating interest?

Principal x Rate x Time Signup and view all the answers

What is the effect of compounding interest?

Interest is earned on both the principal and accrued interest Signup and view all the answers

If interest is compounded quarterly, what is the multiplier for time?

TIME x 4 Signup and view all the answers

What is an ordinary annuity?

A sequence of equal payments made at regular intervals Signup and view all the answers

What is the future value of an annuity due?

The sum of the accumulated values of the payments at the end of the term Signup and view all the answers

What is the main difference between the future value of an ordinary annuity and an annuity due?

The timing of the first payment Signup and view all the answers