Question 1

Lenders would be most concerned with

Accepted Answer

A)   debt to equity ratio.
B)   EPS.
C)   inventory turnover.
D)   price earnings ratio.

Question 2

Which of the following best represents a company following the product differentiation strategy?

Accepted Answer

A)   gourmet grocery store
B)   discount grocery store
C)   discount retailer
D)   dollar store

Question 3

Which of the following best represents a low-cost producer?

Accepted Answer

A)   gourmet grocery store
B)   discount grocery store
C)   high end retailer
D)   specialty store

Question 4

Purchase of inventory for cash will

Accepted Answer

A)   increase the current ratio.
B)   decrease the current ratio.
C)   increase the quick ratio.
D)   decrease the quick ratio.

Question 5

To see if a company's cost of sales is increasing proportionately with sales, an analyst would use

Accepted Answer

A)   raw financial data.
B)   common-size analysis.
C)   trend analysis.
D)   prospective analysis.

Question 6

Times series analysis compares the data from one company with the data from another company.

Accepted Answer

A) True 
 B)False

Question 7

The price investors are willing to pay for a dollar's worth of earnings is the

Accepted Answer

A)   ROE
B)   EPS.
C)   price earnings ratio.
D)   stock market price.

Question 8

When preparing common-size analysis of a statement of income, the base is normally

Accepted Answer

A)   Net income.
B)   Operating expenses.
C)   Revenues.
D)   Cost of goods sold.

Question 9

Which of the return on investment ratios would be of most interest to the owners of a company?

Accepted Answer

A)   return on assets
B)   return on interest
C)   return on debt
D)   return on equity

Question 10

The auditor's report guarantees the accuracy of the information presented in the financial statements.

Accepted Answer

A) True 
 B)False

Question 11

Which one of the following steps adds the most value to an analysis?

Accepted Answer

A)   determine the purpose of the analysis
B)   develop conclusions
C)   analyze and interpret the ratios
D)   prepare common-size analysis

Question 12

Changes in the profit margin ratio could indicate changes in any of the following EXCEPT changes in

Accepted Answer

A)   sales volume.
B)   product profitability.
C)   the cost structure.
D)   the pricing policy.

Question 13

Which of the following descriptions best describes cross-sectional analysis?

Accepted Answer

A)   converting dollar values on the financial statements to percentages of a specific base amount
B)   comparing data from one company to with those of another company over the same period
C)   examining company information from multiple periods
D)   using historical information as a basis for predicting future outcomes

Question 14

Diesel Inc. had the following activity during 2016:  The interest coverage ratio during 2016 is

Accepted Answer

A)   5.13.
B)   5.80.
C)   7.69.
D)   11.28.

Question 15

Which of the following represents the interest coverage ratio?

Accepted Answer

A)   Net income ÷ interest
B)   [Net income + (interest × (1 - tax rate) ) ] ÷ interest
C)   Income before interest but after taxes ÷ interest
D)   Income before interest , taxes and depreciation ÷ interest

Question 16

Which of the following depicts the current ratio?

Accepted Answer

A)   (current assets - inventory)  ÷ current liabilities
B)   currents assets ÷ total assets
C)   (current assets - inventory)  ÷ total assets
D)   current assets ÷ current liabilities

Question 17

Cross-sectional analysis involves examining a company's financial data

Accepted Answer

A)   across account classifications.
B)   as percentages of net sales or total assets.
C)   and comparing it with other companies.
D)   across time periods.

Question 18

Two companies have an identical amount of current assets and current liabilities. Chelmsford Inc. has 40% of its current assets invested in inventory, whereas Hanmer Corp. has 30% of its current assets invested in inventory. Which of the following statements is true?

Accepted Answer

A)   Chelmsford will have the higher quick ratio.
B)   Chelmsford will have the higher current ratio.
C)   The companies are equally liquid because their current ratios are the same.
D)   Chelmsford is less liquid than Hanmer.

Question 19

A low-cost producer focuses on

Accepted Answer

A)   providing goods and services at highest possible costs and selling at high prices.
B)   providing goods and services at lowest possible costs and selling at high prices.
C)   providing goods and services at highest possible costs and selling at low prices.
D)   providing goods and services at lowest possible costs and selling at low prices.

Question 20

Which of the following depicts the quick ratio?

Accepted Answer

A)   (cash + accounts receivable + short-term investments)  ÷ current liabilities
B)   (cash + accounts receivable)  ÷ total assets
C)   (current assets - current liabilities)  ÷ total assets
D)   (cash + inventory)  ÷ current liabilities

Exam 12: Financial Statement Analysis

Which of the following represents the interest coverage ratio?

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Purchase of inventory for cash will

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Which of the following descriptions best describes cross-sectional analysis?

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Times series analysis compares the data from one company with the data from another company.

Correct AnswerverifiedShow Answer

Which of the following depicts the current ratio?

Correct AnswerverifiedShow Answer

The auditor's report guarantees the accuracy of the information presented in the financial statements.

Correct AnswerverifiedShow Answer

Which of the following best represents a low-cost producer?

Correct AnswerverifiedShow Answer

When preparing common-size analysis of a statement of income, the base is normally

Correct AnswerverifiedShow Answer

A low-cost producer focuses on

Correct AnswerverifiedShow Answer

Diesel Inc. had the following activity during 2016: The interest coverage ratio during 2016 is

Correct AnswerverifiedShow Answer

Lenders would be most concerned with

Correct AnswerverifiedShow Answer

Cross-sectional analysis involves examining a company's financial data

Correct AnswerverifiedShow Answer

Two companies have an identical amount of current assets and current liabilities. Chelmsford Inc. has 40% of its current assets invested in inventory, whereas Hanmer Corp. has 30% of its current assets invested in inventory. Which of the following statements is true?

Correct AnswerverifiedShow Answer

The price investors are willing to pay for a dollar's worth of earnings is the

Correct AnswerverifiedShow Answer

Which one of the following steps adds the most value to an analysis?

Correct AnswerverifiedShow Answer

To see if a company's cost of sales is increasing proportionately with sales, an analyst would use

Correct AnswerverifiedShow Answer

Which of the following best represents a company following the product differentiation strategy?

Correct AnswerverifiedShow Answer

Which of the following depicts the quick ratio?

Correct AnswerverifiedShow Answer

Which of the return on investment ratios would be of most interest to the owners of a company?

Correct AnswerverifiedShow Answer

Changes in the profit margin ratio could indicate changes in any of the following EXCEPT changes in

Correct AnswerverifiedShow Answer

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