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| 1.
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The purpose of financial statement analysis is to help users make better business decisions, therefore the only parties interested in financial statement analysis are external to the company. |
| | A) | True |
| | B) | False |
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| 2.
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Liquidity and efficiency, solvency, profitability, and market are called the building blocks of analysis. |
| | A) | True |
| | B) | False |
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| 3.
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Financial reporting is not narrow in scope but broadly refers to useful information for decision makers. |
| | A) | True |
| | B) | False |
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| 4.
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Financial statement analysis requires no standards or very loose standards for comparisons. |
| | A) | True |
| | B) | False |
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| 5.
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Should a business have no interest income in one year, and have $1,000 of interest income the following year, the percentage of change in the interest income between the two years is 100%. |
| | A) | True |
| | B) | False |
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| 6.
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Generally, trend percentages are not adjusted for the effects of inflation or deflation. |
| | A) | True |
| | B) | False |
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| 7.
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Common-size comparative statements show items appearing on them in percentage form and in dollar form. |
| | A) | True |
| | B) | False |
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| 8.
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If net sales increase by 10%, from $200,000 to $220,000, and the cost of goods sold increases 10%, from $110,000 to $121,000, the gross profit from sales will increase by 10%. |
| | A) | True |
| | B) | False |
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| 9.
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A ratio expresses a mathematical relation between two quantities. |
| | A) | True |
| | B) | False |
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| 10.
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Liquidity and efficiency are used synonymously in ratio analysis. |
| | A) | True |
| | B) | False |
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| 11.
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The excess of current assets over current liabilities is known as working capital. |
| | A) | True |
| | B) | False |
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| 12.
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A high current ratio suggests a strong liquidity position, however the makeup of the type of business, the composition of the current assets, and the turnover rate of assets need to be considered before passing judgment on the current ratio. |
| | A) | True |
| | B) | False |
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| 13.
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When a company records a credit sale, the acid-test ratio will increase. |
| | A) | True |
| | B) | False |
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| 14.
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A firm can have a positive current ratio and a negative acid-test ratio. |
| | A) | True |
| | B) | False |
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| 15.
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The accounts receivable turnover for 2001 was 3.56 times. In 2002 it was 3.87 times. This type of change would generally be considered a positive change. |
| | A) | True |
| | B) | False |
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| 16.
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The write off of an account receivable through an allowance for doubtful accounts will increase the current ratio. |
| | A) | True |
| | B) | False |
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| 17.
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An increase in the accounts receivable turnover is always a favorable trend. |
| | A) | True |
| | B) | False |
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| 18.
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An increase in the merchandise inventory turnover is always a favourable trend. |
| | A) | True |
| | B) | False |
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| 19.
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Merchandise inventory turnover is calculated by dividing the cost of goods sold by the average of merchandise inventory balances. |
| | A) | True |
| | B) | False |
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| 20.
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Day's Sales Uncollected = (Accounts Receivable / Net Sales) x 365. |
| | A) | True |
| | B) | False |
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| 21.
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Day's Sales in Inventory = Ending Inventory / Cost of Goods Sold. |
| | A) | True |
| | B) | False |
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| 22.
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The debt ratio is calculated by dividing total liabilities by total shareholders' equity. |
| | A) | True |
| | B) | False |
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| 23.
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When a company records a credit sale, the debt ratio will decrease. |
| | A) | True |
| | B) | False |
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| 24.
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The times fixed interest charges earned provides a measurement for evaluating the operating efficiency and profitability of a business. |
| | A) | True |
| | B) | False |
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| 25.
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The profit margin indicates the amount of net income each dollar of sales generates. |
| | A) | True |
| | B) | False |
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| 26.
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If a company has a return on total assets of 18.0%, and net income of $36,000, its average total assets are $180,000. |
| | A) | True |
| | B) | False |
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| 27.
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The market price per share of stock decreased 4.0%, or $1.00. The earnings per share decreased 10%, or $.15. The price earnings ratio will have increased. |
| | A) | True |
| | B) | False |
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| 28.
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The relationship between the market price of a share of stock and the current earnings of the stock is known as the dividend yield. |
| | A) | True |
| | B) | False |
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| 29.
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The dividend yield is determined by dividing the annual dividends declared per share by the market price per share. |
| | A) | True |
| | B) | False |
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| 30.
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An investor need only use the dividend yield as a measure to evaluate the profitability of alternative share investments. |
| | A) | True |
| | B) | False |
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| 31.
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When a negative amount appears in the base period and a positive amount in the analysis period, we cannot calculate a meaningful percentage. |
| | A) | True |
| | B) | False |
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| 32.
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When a base year is 0, and the analysis period amount is positive, the change is 100%. |
| | A) | True |
| | B) | False |
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| 33.
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When a base year is a positive amount and the analysis year is 0, the change is –100%. |
| | A) | True |
| | B) | False |
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| 34.
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The change in the horizontal analysis cannot be more than 100%. |
| | A) | True |
| | B) | False |
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