Answer = b. A company must run through a conversion cycle which for retail businesses would consist of the company’s time to take cash invest the cash into inventory and then sell the inventory on account, turning inventory into accounts receivable and then finally, converting the receivable back into cash where we first started. So the number of days in receivables + inventory would be the time we tied up our cash and this time period should cover the normal operating cycle of the business and depending upon the business, this may or may not fit within a 12-month annual period.

If Operating Income (Earnings Before Interest Taxes) is $ 63,000 and Net Sales are $ 900,000, then Operating Income to Sales is:

18%

12%

7%

4%

Answer = c: This is simply dividing your operating income of $ 63,000 by the total net sales of $ 900,000 = 7%. This gives us some idea of the operating return the company generates; i.e. before taxes and non-operating expenses, for every $ 1.00 of sales we generate a return of $ .07.

If the price of the stock is $ 45.00 and the Earnings per Share is $ 9.00, then the P / E Ratio is:

2

5

9

15

Answer = b: Simply divide the price of the stock of $ 45.00 by the Earning per Share of $ 9.00 = 5. The company is selling for 5 times earnings. This is a ratio commonly used by investors to quickly evaluate if a company is possibly under or over valued on the stock market.

Net Income for 1996 was $ 400,000 and Net Income for 1997 was $ 420,000. The percentage change in Net Income is:

1%

3%

5%

10%

Answer = c: The percentage increase in net income is 5%. Simply divide the incremental change of $ 20,000 ($ 420,000 - $ 400,000) by the base period amount of $ 400,000.