Fundamentals of Business Finance Smart Book

Which firm is a borrower of funds in the financial markets? Ken's has a new product that it is ready to market to the public as soon as financing can be arranged. What are two primary sources of friction that decrease cash flows from companies to their investors? The two primary sources of friction are retained earnings and taxes. You should expect firms to decrease their level of output. You should expect the wealth of individuals to increase in the future. The subarea of finance known as financial management addresses which of these decisions? Select all that apply. How can corporate taxes be minimized? How can a firm attract more capital financing? How might foreign political risk affect the value of a new project? Should a firm issue debt (bonds) or equity (stocks)? Which group has individual investors as participants and is a lender of funds to the financial markets? People with both money and ideas lend funds to the financial markets. People with money and no ideas lend funds to the financial markets. Financial institutions contribute to the dynamics of which one of the following rates? Interest rates True : Money that firms either retain or pay to the government are sources of friction that reduce cash flows to investors in the financial markets How is risk defined? Risk is a potential future negative impact to value and/or cash flows. The overall goal of the financial manager is to Investment Which of the following is the firm's highest-level financial manager? Chief financial officer Which of the following statements is correct? Accountants are focused on what happened in the past. Which of the following statements is incorrect? It is easy for sole proprietors to raise money by borrowing from banks, since the proprietor's credit history is not considered during the process. An advantage of sole proprietorships is that the owner has complete control S corporations are considered a hybrid organization. As individual legal entities, corporations assume liability for their own debts, so the shareholders hold Only limited liabilities From the perspective of control, the best form of business organization is the The sole proportenership When determining a form of business organization, all of the following are considered EXCEPT The physical location of the business Which of the following do not ensure firm viability over the long run? maximizing employment choices are correct. market share profits all of these This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run. Maximizing shareholder value These individuals follow a firm, conduct their own evaluations of the company's business activities, and report to the investment community. Investment analyst The agency relationship in corporate finance occurs When shareholders hire a manager to run their company Outside parties that monitor the firm include all of the following EXCEPT Newyork stock exchange An employee stock option plan is a way to align the interests of employees with those of the owners. Restricted stock is a special type of stock that is not transferable from the current holder to others until specific conditions are satisfied. Which of these correctly defines a role of investments? Investments address the timing of cash flows most desired by investors. Financial decision-making compares which of the following factors? Compare rewards with risks Financial management relates to which one of the following?Financial management relates to a firm's decisions regarding the acquisition and use of funds. The current value of a financial asset is determined by which of the following cash flows? Determined by the asset expected future cash flow Which one of the following statements correctly identifies a group that supplies money to the financial markets? Individuals saving for retirement provide money to the financial markets. How is the time value of money (TVM) theory best defined? TVM is the theory and application of valuing cash flows at various points in time. What is the primary function of a financial institution? A financial institution facilitates cash flows between investors and companies. A discussion of risk in which of the following terms best serves as an overall definition of risk? Risk is best defined in terms of the probability of a loss and the expected magnitude of that loss. Which one of these functions is a treasury function? Managing the firm's pension plan Which one of these is NOT a financial decision made within a firm? The president decides to fire the company treasurer for ethical violations. ou are comparing four stocks of equal risk. Which stock should have the highest price in today's market? Stock A currently pays $2 a year in dividends and increases that amount by $.50 annually. Which of these are personal financial decisions? Kendyll moved money from her checking account to her savings account to earn interest. Samantha financed her mortgage for 20 rather than 30 years to save on interest. Marie decided that leasing a car was cheaper for her than buying a car Which one of these examples best illustrates the definition of time value of money? A gift of $10,000 to be received in two years is worth $8,900 today. Which one of the following best illustrates the definition of a sole proprietorship? Ted was forced to sell his personal home in order to pay the debts of a business he owned in entirety. Which one of these features is an advantage of a sole proprietorship? Less regulation than other business forms Which of the following are finance functions that fall under the supervision of the treasurer? Managing cash,capital spending interest rate helding What is the definition of a general partnership? A general partnership involves multiple business wners who are each personally responsible for all of the partnership's debts. Which of these is an example of how finance is used throughout a firm? Finance are used for cost benefit analysis Which one of these features would be considered the most advantageous benefit of a general partnership? Increased capital financing as compared to a sole proprietorship Which of these is an example of a personal financial decision? sue opted to increase her company retirement plan contribution to 6 percent of her salary. What is definition of public corporation? A public corporation is a firm owned by a large number of stockholders from the general public. What is the definition of a sole proprietorship? A sole proprietorship is a business entity that is not legally separate from its owner. Which one of the following is an advantage of a sole proprietorship? Ease of formation Which aspect of a corporation is viewed as a disadvantage? Taxation Which one of these is an advantage of a general partnership? Single taxation Which one of these best defines a general partnership? A brother and sister form a business. Both share jointly unlimited personal liability for the debts of the firm. Which of these features could accurately be included in the definition of a corporation? Select all that apply. Double taxation, separate legal entity, Division of ownership and control What are the two key characteristics of a hybrid organization? Single taxation and limited liability Which one of the following best illustrates the definition of a sole proprietorship? Ted was forced to sell his personal home in order to pay the debts of a business he owned in entirety. Which one of the following is an advantage offered by a hybrid organization? Single taxation Which one of the following is a disadvantage of the corporate form of business? Separation of ownership and management Which of the following are the well-developed viewpoints that have arisen regarding the goal of a firm? Maximize shareholder wealth Emphasize shareholder responsibilities Travis owns a bakery and Mia is a baker. How could an agency relationship exist between these two individuals? Travis could hire Mia to work for him. Travis would be the principal and Mia would be the agent. Which is the best definition of a hybrid organization? A hybrid organization is a business form that has some attributes of a corporation and some of proprietorships/partnerships. What is the definition of an agency problem? An agency problem is defined as the difficulties that arise when a principal hires an agent and cannot fully monitor the agent's actions. Which characteristic is an advantage of a hybrid organization? Owner;s liability Which one of these best defines corporate governance? Corporate governance is the ongoing process of monitoring managers and aligning their incentives with shareholder goals. Which aspect of a corporation is viewed as a disadvantage? Taxations Which of these parties monitor corporate activities from outside as part of corporate governance? Select all that apply. Credit anaylist auditor, investment analyst Putting the interests of which party first should be the primary goal of a corporation? Shareholders True or false: Ethics is the study of values, morals, and business judgments. A person who works for a firm, but is not necessarily an owner, is called Agent Which one of these relationships best fits the definition of a fiduciary relationship? Al's retirement funds are managed by the trust department at the local bank. An agency problem is defined as a situation where a firm's managers fail to put the interests of which one of these parties first when making decisions? Shareholders The profitability of financial market intermediaries depends upon which of these? Successful execution of unique professional services Corporate governance is the set of laws, policies, incentives, and monitors designed to handle issues arising from which one of these? Separate owner ship and control Which of these is a monitor of corporate governance? Select all that apply. Securities and Exchange Commission Board of directors The TCJA established a flat corporate tax rate of: 21% Which of these best defines ethics? Ethics is the study of values, morals, and morality. What is the definition of a fiduciary relationship? A fiduciary relationship is a legal duty between two parties where one party must act in the interest of the other party. Which of these factors are credited for providing financial institutions with high profit margins? Expertise and unique assets The net impact of the lower individual income tax rates brought by TCJA is expected to be (choose all that apply): More potential savings on the part of investors Downward pressure on housing sales in the high-value market More free cash for consumers to spend True After TCJA, U.S. companies are more likely to "bring home" foreign profits due to the new flat tax rate. Chapter 2 A financial statement provides an Blank______-based picture of a firm's financial condition. Accounting Which one of these statements correctly applies to a balance sheet? A balance sheet shows what a firm owns, what it owes, and what it is worth. Which of these accounts are included in net working capital? Cash, account receivable and account payable Which of these assets are generally converted into cash within one year? Account receivable and inventory Which one of these reports the amount of money a firm owes its creditors within the next year? Current liability Which one of these is not one of the four basic financial statements? Statement of ration What does balance sheet do Reports a firm's assets, liabilities, and equity at a particular point in time What is current liability Current liabilities are obligations of the firm that are due within one year. Which of these accounts are included in net working capital? . Note payable and inventory Which of these accounts are current liabilities? Select all that apply. Account payable, note payable accrued wages Which of these assets have useful lives exceeding one year and are classified as fixed assets? Select all that apply. Machinery land building Which one of these statements correctly applies to straight-line depreciation? Straight-line depreciation is commonly used when compiling financial statements. Which of these are equity accounts? Select all that apply. Common stock, preferred stock and retained earnings What is the definition of net working capital? Net working capital is the difference between a firm's current assets and current liabilities. What is the definition of liabilities? Fund provided by lender to a firm Which one of these relationships regarding liquidity is correct? As the liquidity of assets increases, both the firm's probability of financial distress and its profits on those assets decrease. Which one of the following best illustrates a highly liquid asset? Sale of a $100 asset by tomorrow at a price of $100. Balance sheets list assets in declining order of liquidity. Which of these orders best illustrates this? Cash, accounts receivable, inventory, plant and equipment Which type of depreciation offers the greatest tax deferral benefit in the early years of an asset's life? MACRS depreciation A change in financial leverage does which one of the following? A decrease in financial leverage decreases the risks faced by the firm. True : Net working capital is a measure of a firm's ability to pay its bills within a year. An income statement is best defined by which one of these statements? An income statement reflects the total revenues that a firm earns over a period of time and the total expenses incurred to generate those sales. Which relationship of liquidity is correct? The liquidity of an asset is inversely related to the profitability of that asset. Which one of these assets is considered to be the most liquid? Accounts recevable A firm has gross profits of $3,200, depreciation of $300, dividends of $200, interest of $500, and addition to retained earnings of $400, What is the net income? 400+500=900-300=600 Which account is the least liquid of the current asset accounts? Inventory the incorrect options are patent, cash, and account receivable rue or false: An increase in the financial leverage of a firm reduces both the firm's profits and its losses. A firm has net income of $2,200, depreciation of $500, taxes of $600, other operating expenses of $800, interest of $200, and sales of $5,900. What is the value of EBT? 2800 What is the definition of an income statement? An income statement reports total revenues and expenses over a specific period of time. The operating profit is equal to earnings before interest and taxes. True Which one of these formulas is a correct computation of EBIT? EBIT = Gross profits - Depreciation - Other operating expenses A firm has EBIT of $700, depreciation of $100, taxes of $200, and interest of $300. What is the net income?netincome= ebit-tax-interest 700-200-300=200 bond holders have first claim to the cash flows of the firm. Which one of these formulas correctly computes the value of EBT? EBT= netincom+taxes Which of one of these statements best illustrates the definition of a marginal tax rate? Antonio will pay $0.28 more in taxes if his taxable income increases by $1, or 28 percent. Which of these statements regarding the structure of an income statement is (are) correct? Select all that apply. EBT = Dividends paid + Addition to retained earnings + Taxes EBIT= Gross profit - Depreciation - Other operating expenses Gross profit = Net sales - Cost of goods sold Explain why following GAAP to record sales on an income statement may differ from the cash flows generated by those sales. GAAP requires the revenue from a sale be recorded at the time of sale, which may not coincide with the cash flow from the sale. A firm has sales of $8,900, depreciation of $200, cost of goods sold of $3,700, other operating expenses of $4,200, and interest of $600. What is the firm's EBIT? Sales – cost of goods sold- depreciation-other operating expenses 8900-200-3700-4200=800 Which one of these accounts is a noncash expense? Depreciation and amortization Gross profit is equal to net sales minus cost of goods sold. How else can gross profit be defined? Gross profit = EBIT + Other operating expenses + Depreciation Which one of the following is a use of cash? Increase in a fixed asset Which party has a residual claim to a firm's cash flows? Stockholders What is the definition of a marginal tax rate? The marginal tax rate is the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns. Which one of these is a cash flow from an investing activity? Increase/decrease in fixed assets Which one of these statements related to the recording of financial statement items based on GAAP is (are) correct? Expenses related to the production of a product are recorded on the income statement when that product is sold, not when the expenses are paid. Which one of these is an addition to the cash flows from investing activities? Decrease in other long-term assets Which of these are cash flows from financing activities? Select all that apply. Preferred stock dividend Decrease in long-term debt Increase in common stock Which of these is (are) a source of cash? Select all that apply. Increase in long-term debt Decrease in inventory Which of these are additions to the cash flows from financing activities? Select all that apply. Increase in common stock Increase in long-term debt True or false: The cash flows directly resulting from a firm's sales and production activities are classified as cash flows from investing activities. OCF = Operating cash flow, IOC = Investment in operating capital, and EBIT = Earnings before interest and taxes Which one of these formulas defines free cash flow (FCF)? FCF = OCF – IOC Which one of these is a subtraction from the cash flows from investing activities? Increase in a fixed asset Which one of these formulas depicts the definition of the statement of retained earnings? Net income = Dividends paid + Change in retained earnings Which one of these is a cash flow from a financing activity? Decrease in loan payable Which one of these is a subtraction from the cash flows from financing activities? Buying back common stock Earnings management is the process of controlling which of these for a firm? Profits What is the definition of cash flows from operations? Cash flow from operations is defined as the cash flows that are the direct result of the production and sale of the firm's products. How is free cash flows (FCF) defined? FCF is the cash available for distribution to the investors of the firm after the investments are made to sustain the firm's ongoing operations. The statement of retained earnings reconciles the dividends paid and the change in retained earnings to which one of these? Net income Which of these actions fits the definition of earnings management? A major sale to a customer was purposely delayed one day so it would be recorded in a later accounting period. Which one of these formulas depicts the definition of the statement of retained earnings? Net income = Dividends paid + Change in retained earnings Cash flow financing activity Decrease loan payable Which of these are cash flows from financing activities? Select all that apply. Preferred stock dividend Increase in common stock Decrease in long-term debt Chapter 3 The Shoe Store has cash of $300, accounts receivable of $700, accounts payable of $800, inventory of $1,300, long-term debt of $1,900, and notes payable in three months of $500. What is the current ratio? 300+700+1300=2300 current asset =2300 800+500=1300 current liability =1300 2300 divided by 1300=1.77 Assume cash = $500, notes payable in six months = $600, accounts receivable = $900, inventory = $1,500, and accounts payable = $1,100. What is the quick ratio? 0.82 use formula 500+900+1500-1500=1400 600+1100=1700 1400/1700=0.82 JJ's has a cash ratio of 0.25. How do you interpret this value? JJ's has sufficient cash and marketable securities to pay 25 percent of its current liabilities. The Bakery has a quick ratio of 1. This means the firm can pay it short-term debts without doing which one of the following? Selling any inventory Lester's has a current ratio of 0.86. What does this indicate? The firm has $0.86 in current assets for every $1 it must pay in obligations within the next year. Martin's has current assets of $600 and total assets of $2,900. The firm has total debt of $1,500 and long-term debt of $1,100. What is the current ratio? 600/2900-1500=1.5 Valley Markets has an inventory turnover of 3.2 and a capital intensity ratio of 1.9. What are the days in inventory for Valley Markets? 365 days/inventory turnover= 365/3.2=114 daysJen's has current assets of $2,200, cash of $400, and inventory of $1,300. The firm has accounts payable of $300, longterm debt of $3,100, and accrued wages and taxes of $400. What is the quick ratio? 2200-1300=900/300+400=1.29 Jen's has current assets of $2,200, cash of $400, and inventory of $1,300. The firm has accounts payable of $300, long-term debt of $3,100, and accrued wages and taxes of $400. What is the quick ratio? 2200-1300=900 400+300=700 900/700=1.29 True or false: To reduce the number of days' sales held in inventory, a firm needs to decrease the inventory turnover rate. Orr's Hardware had a cash ratio of 0.12 last year as compared to 0.22 this year. How do you interpret this change? Orr's is less dependent now on its receivables and inventory to pay its current debt than it was one year ago. Kelso's has an average collection period of 49 days. How do you interpret this? On average, Kelso's receives cash for a sale 49 days after a credit sale occurs. Al's Services has a current ratio of exactly 1.2 and a quick ratio of exactly 1.2. What can you infer from these ratios? Al's has no inventory. The suppliers of Denver Press offer the firm 30 days credit on all its purchases. Denver Press has an average payment period of 84 days as compared to its industry average of 43 days. Which of these statements applies to Denver Press? Denver Press is most likely abusing its credit terms. Last year, a firm had a current ratio of 1.14. This year, the ratio is 0.98. Assuming everything else equal, what do these values imply? The firm is less liquid this year than it was last year. Russell's has a fixed asset turnover of 3.1. How do you interpret this information? Russell's generates $3.10 in sales for every dollar of fixed assets. Valley Markets has an inventory turnover of 3.2 versus an industry average of 3.5 and a capital intensity ratio of 1.9 versus an industry average of 1.8. What can you determine about the efficiency of Valley Markets? Valley Markets uses its assets less efficiently than the average firm in its industry. What must the capital intensity ratio be if the total asset turnover rate is 2? It is receprical of total asset turnover rate so it is ½=0.5 How is inventory turnover related to days' sales in inventory? Select all that apply. The lower the turnover rate, the more days' sales that are held in inventory. The shorter the inventory period, the higher the turnover rate PJ's has an average collection period of 42 days as compared to the industry average of 40 days. Which of these statements is supported by this information? The industry, on average, turns over its accounts receivables more times a year than PJ's does. True : The greater the debt the greater the financial leverage Oyster Fields has an average payment period of 21 days as compared to its industry average of 33 days. Suppliers in the industry have a 30-day credit policy. Which one of these statements most applies to Oyster Fields? Oyster Fields is not maximizing its use of free financing. What does a debt-to-equity ratio of 0.8 mean? A debt-to-equity ratio of 0.8 means the firm has $0.80 of debt for every $1 of equity. Petty's has a fixed asset turnover of 2 and a sales to working capital ratio of 4. The industry averages are 1.5 and 3, respectively. Assume all firms in the industry use the same depreciation method and have equipment of similar age. Which one of these statements is correct? Petty's has twice the amount of net fixed assets as it does net working capital. How is a debt ratio of 0.45 interpreted? A debt ratio of 0.45 means that for every dollar of assets, a firm has $0.45 of debt. Abel's has a total asset turnover rate of 2.2 as compared to its industry average of 1.8. Which one of these might be the cause of Abel's higher rate? Inventory stockouts ABE Co. has a times interest earned ratio of 3.2. How is this value interpreted? The earnings before interest and taxes is 3.2 times greater than the firm's interest expense for the period. True or false: To reduce the number of days' sales held in inventory, a firm needs to decrease the inventory turnover rate. Which one of these is a correct interpretation of a cash coverage ratio of 1.4? A cash coverage ratio of 1.4 indicates a firm generates $1.40 of operating cash for every dollar of interest and fixed charges that the firm owes. Debt management ratios are used to do which of the following? Select all that apply. Debt management ratios determine the amount of financial leverage used by a firm. Debt management ratios measure the capital structure of a firm. Debt management ratios determine whether or not a firm can meet its debt obligations. Over the past three years, Art's Bakery has increased its debt and lowered its equity. Which one of these statements is most apt to apply to this firm? The firm's safety cushion that helps absorb earnings fluctuations is diminishing. A firm has taxes of $2,000, interest expense of $1,000, EBIT of $7,500, common stock dividends of $1,500, and preferred dividends of $1,200. What is the profit margin if sales are $22,000? 15.00 percent on cheeg Buster's has a debt-to-equity ratio of 1.2. What does this imply? A debt ratio of 1.2 means a firm uses 20 percent more debt financing than equity financing. Last year, Delta's times interest earned ratio was 1.8. This year the ratio is 0.8. How should this change in value be interpreted? The decrease in the ratio to a value less than 1 indicates the firm's debt load may have become too large for the firm. Treeline Resorts has a basic earnings power ratio of 1.6 compared to 1.8 for Outer Limits Resorts. Which one of these statements is correct based on this information? Outer Limits is generating more operating profit per dollar of assets than Treeline. Northern Goods and Southern Goods have similar levels of EBIT and depreciation. However, Northern Goods has a much higher cash coverage ratio. Given this, which of these statements is correct? Northern Goods is diluting its return to stockholders more than its competitors are. The return on assets reflects which value as a percentage of total assets? Net income available to common stockholders True : The greater the debt the greater the financial leverage Assume you are given the values for sales, taxable income, preferred and common stock dividends, interest, and the tax rate. How would you calculate the profit margin? {(Taxableincome×(1−Taxrate)) −Preferreddividends}Taxableincome×1-Taxrate-Preferreddividends/Sales Profit margin = Which one of these is a correct assumption given a firm with an increasing return on equity (ROE) for each of the past five years? Assume the firm's ROE currently equals the industry ROE. The firm is lowering its level of financial leverage each year. How is a debt ratio of 0.45 interpreted? A debt ratio of 0.45 means that for every dollar of assets, a firm has $0.45 of debt. What does a dividend payout of 30 percent indicate if a firm has no preferred stock outstanding? A dividend payout of 30 percent for a firm with no preferred stock indicates that common stock dividends equal 30 percent of net income. If you want to compare the operations of similar firms without the firm's capital structure or tax status affecting that comparison, which ratio should you use? Basic earnings power Two firms have the same amount of assets and equity. Firm A has a market-to-book value of 3.6 compared to 2.9 for Firm B. Which one of these statements is generally correct given this information? Firm A is expected to outperform Firm B in the future. Dee's had a return on assets (ROA) of 14.4 percent last year as compared to 14.7 percent this year. What do these ratio values imply? Dee's earned more income for its common shareholders per dollar of assets than it did last year. NY News has net earnings per share of $3.24, a book value per share of $22, and a market-to-book ratio of 2.5. What is the price-earnings (PE)ratio? 16.98 2.5=market to book ratio/22=2.5x22=55 55/3.24=16.98 Debt management ratios are used to do which of the following? Select all that apply. Debt management ratios measure the capital structure of a firm. Debt management ratios determine whether or not a firm can meet its debt obligations. Debt management ratios determine the amount of financial leverage used by a firm. A firm currently has no preferred stock. Assume the firm issues some preferred stock while its taxable income and tax rate remain constant. How will the return on equity be affected? Issuing preferred stock under these conditions will decrease the return on equity. What does a dividend payout of 45 percent indicate? 45 percent dividend payout indicates a firm pays 45 percent of its net income available to common stockholders out in common dividends. Walker's has a price-earnings (PE) ratio of 16 compared to its industry average of 17. Generally speaking, which one of these statements applies to this situation? The average firm in the industry outperforms Walker's. The Eatery has a market-to-book ratio of 3.2. What does this ratio indicate? A market-to-book ratio of 3.2 means shareholders are willing to pay $3.20 per dollar of book equity to buy the firm's stock. Which of the following are considered Asset Management ratios? Average Collection Period Capital Intensity A firm has net income of $38,000, preferred stock dividends of $10,000, and common stock dividends of $8,000. The firm has 10,000 shares of common stock outstanding that sells for $46 a share. What is the price-earnings (PE) ratio? 16.43 True or false: The DuPont system of analysis shows how the return on equity is dependent upon the return on assets. Which of these are correct versions of the return on equity? Select all that apply. ROE = Profit margin × (1/Capitalintensityratio)1/Capitalintensityratio × (1+Debt−to−equity) 1+Debt-to-equity ROE = Profit margin × Total asset turnover × Equity multiplier ROE = ROA × (1+Debt−to−equity) The common-size values of both net income and costs of goods sold increased this year over last year. What does this mean? As a percentage of sales, the cost of goods sold increased while the sum of total expenses, interest, and taxes decreased for the year. Generally speaking, a high price-earnings (PE) ratio indicates which one of the following as compared to a low PE ratio? Greater risk Managers and investors use DuPont analysis to perform detailed analysis of return on asset and: Return on equity How do you interpret an internal growth rate of 3 percent? The firm can grow by a maximum of 3 percent if it only uses internally generated financing. Which one of these is the best definition of the DuPont system of analysis? The DuPont system is an analytical method of breaking the ROA and ROE down into their component pieces. What is the retention ratio? The retention ratio is the percentage of net income available to common stockholders that is added to retained earnings Which one of these is the correct fully deconstructed version of the return on assets? ROA= NetincomeavailabletocommonstockholdersSalesNetincomeavailabletocommonstock holdersSales×SalesTotalassets. The common-size balance sheet value of current assets was 0.21 last year and 0.23 this year. How do you interpret this? Current assets as a percentage of total assets increased. A levered firm's sustainable growth rate increased this year. Which one of these might have caused that increase, all else equal? Select all that apply. Increase in financial leverage Increase in operating efficiency True or false: The Corner Store graphs its return on equity by quarter for a running 5-year period. This is time series analysis. Assume a firm has an equity multiplier of 1.2. Given this, what is the relationship between the internal growth rate and the sustainable growth rate? Sustainable growth rate > Internal growth rate Which of these is (are) a factor which requires caution when using ratios to evaluate firm performance? Select all that apply. Ratios may be calculated differently by different firms. The future may differ from the past. Firms may use different accounting methods to value inventory. Which one of these formulas correctly defines the retention ratio (RR) for a levered firm with both preferred and common stock? RR = 1 - Dividend payout ratio Which one of these statements correctly interprets a sustainable growth rate of 4 percent? A firm can grow by 4 percent annually without increasing its probability of incurring financial distress. Which one of these best illustrates time series analysis? A firm's profit margin has been 4.6 percent, 4.9 percent, and 4.7 percent over the past three years. Which of these is (are) a factor which requires caution when using ratios to evaluate firm performance? Select all that apply. Comparing firms with varying fiscal years Window dressing of annual financial statements by some firms