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| 1 | |
Financial statement analysis reduces the reliance on hunches, guesses, and intuition as well as uncertainty in decision making. |
| | A) | True |
| | B) | False |
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| 2 | |
Liquidity is the ability to generate future revenues and meet long-term obligations. |
| | A) | True |
| | B) | False |
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| 3 | |
Financial statement analysis requires no standards for comparison. |
| | A) | True |
| | B) | False |
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| 4 | |
The tools for analysis include horizontal analysis, vertical analysis, and ratio analysis. |
| | A) | True |
| | B) | False |
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| 5 | |
A good analysis report usually consists of five sections. |
| | A) | True |
| | B) | False |
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| 6 | |
If total assets increased from $60,000 to $90,000 during one year, the percent change would be 33.33%. |
| | A) | True |
| | B) | False |
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| 7 | |
A vertical analysis is also called a common-size analysis. |
| | A) | True |
| | B) | False |
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| 8 | |
A high current ratio suggests a strong liquidity position and an ability to meet current obligations; however, a company can have a current ratio that is too high. |
| | A) | True |
| | B) | False |
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| 9 | |
Cash, short-term investments, accounts receivable, and inventory are all considered to be quick assets. |
| | A) | True |
| | B) | False |
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| 10 | |
The accounts receivable turnover ratios is most accurate when the total amount of credit sales are used as the numerator. |
| | A) | True |
| | B) | False |
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| 11 | |
Inventory turnover is calculated by dividing the cost of goods sold by the average inventory. |
| | A) | True |
| | B) | False |
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| 12 | |
Day's sales in inventory is calculated by dividing ending inventory by net sales and multiplying by 365. |
| | A) | True |
| | B) | False |
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| 13 | |
The debt ratio is calculated by dividing total liabilities by total equity. |
| | A) | True |
| | B) | False |
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| 14 | |
If a firm's times interest earned increased from 15.1 in one year to 20.5 in the next, analysts would view this as a favorable trend. |
| | A) | True |
| | B) | False |
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| 15 | |
The profit margin indicates the amount of net income each dollar of sales generates. |
| | A) | True |
| | B) | False |
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| 16 | |
Which of the following would be considered an external user of accounting information? |
| | A) | Shareholder (or stockholder) |
| | B) | Budget manager |
| | C) | Internal auditor |
| | D) | All of the above |
| | E) | None of the above |
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| 17 | |
Financial statement analysis focuses on one or more elements of a company's financial condition or performance. Our textbook emphasizes four areas of inquiry with varying degrees of importance. Which area of inquiry relates to the company's ability to provide financial rewards sufficient to attract and retain financing? |
| | A) | Solvency |
| | B) | Liquidity |
| | C) | Profitability |
| | D) | Market prospects |
| | E) | All of the above |
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| 18 | |
Which of the following is the measurement of key relationships between financial statements? |
| | A) | Horizontal analysis |
| | B) | Vertical analysis |
| | C) | Ratio analysis |
| | D) | Upward analysis |
| | E) | Downward analysis |
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| 19 | |
Which type of analysis is a comparison of a company's financial condition and performance across time? |
| | A) | Horizontal analysis |
| | B) | Vertical analysis |
| | C) | Ratio analysis |
| | D) | Upward analysis |
| | E) | Downward analysis |
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| 20 | |
Which of the six sections of a good analysis report involves forecasts, estimates, interpretations, and conclusions? |
| | A) | Executive summary |
| | B) | Key factors |
| | C) | Evidential matter |
| | D) | Assumptions |
| | E) | None of the above |
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| 21 | |
A change in an account balance from $100 in year one to $250 in year five can be expressed in which way? |
| | A) | 150% |
| | B) | 25 times |
| | C) | 2.5:1 |
| | D) | 25% |
| | E) | None of the above |
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| 22 | |
Which is not true of common-size comparative statements? |
| | A) | Each item is shown as a percentage of some total of which it is a part. |
| | B) | Dollar amounts are generally not shown. |
| | C) | The net change in each item, on a year-to-year basis, is not shown. |
| | D) | Total assets are used as a total against which all assets are measured. |
| | E) | Retained earnings are shown as a percentage of total equity. |
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| 23 | |
A company has the following data: sales $500,000, cost of goods sold $200,000, operating expenses $100,000, average inventory $8,000, and accounts receivable $10,000. What is its number of days' sales uncollected? |
| | A) | 18.25 days |
| | B) | 7.3 days |
| | C) | 25 days |
| | D) | 30 days |
| | E) | None of the above |
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| 24 | |
If a company has sales of $500,000, cost of goods sold of $100,000, operating expenses of $100,000, average inventory of $8,000, average accounts receivable of $10,000, and average total assets of $35,000, what is its total asset turnover: |
| | A) | 50 |
| | B) | 20 |
| | C) | 14.29 |
| | D) | 8.57 |
| | E) | None |
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| 25 | |
Which of the following ratios would be of the most interest to the long-term creditor of the business? |
| | A) | Current ratio |
| | B) | Times interest earned |
| | C) | Acid-test ratio |
| | D) | Working capital ratio |
| | E) | Accounts receivable turnover |
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| 26 | |
Which of the following, which match ratios with their formulas, is not correct? |
| | A) | Total asset turnover = net sales/average total assets |
| | B) | Profit margin ratio = net income/net sales |
| | C) | Return on total assets = net income/average total assets |
| | D) | Equity ratio = total liabilities/total assets |
| | E) | Current ratio = current assets/current liabilities |
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| 27 | |
What is the denominator in the formula to calculate the return on common stockholders' equity? |
| | A) | Net sales |
| | B) | Average total assets |
| | C) | Total equity |
| | D) | Total contributed capital |
| | E) | None of the above |
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| 28 | |
The balance of the Common Stock account was $400,000 for the entire fiscal year. The company had no preferred stock outstanding during the year. Net income for the year was $40,000; 25% of that amount was distributed to stockholders as a cash dividend. The market price of the stock on the last day of the year was $12 per share. The par value of the stock is $10 per share. What was the price earnings ratio? |
| | A) | 40.0 |
| | B) | 4.0 |
| | C) | 12.0 |
| | D) | 2.5 |
| | E) | None of the above |
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| 29 | |
Which ratio is viewed as an indicator of future growth and risk for a stock? |
| | A) | Dividend yield |
| | B) | Earnings per share |
| | C) | Price-earnings ratio |
| | D) | Return on equity |
| | E) | Return on assets |
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| 30 | |
Which of the following, which match ratios with the related measurement, is not correct? |
| | A) | Current ratio - Liquidity and efficiency |
| | B) | Return on total assets - Profitability |
| | C) | Profit margin ratio - Profitability |
| | D) | Equity ratio - Solvency |
| | E) | Dividend yield - Solvency |
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