Question 1

Working capital is defined as:

Accepted Answer

A)  Current assets divided by current liabilities.
B)  Total assets minus total liabilities.
C)  Current assets less current liabilities.
D)  Current liabilities divided by total liabilities.

Question 2

Net income divided by net sales is the formula for which of these analytical measures?

Accepted Answer

A)  Return on assets
B)  Return on equity
C)  Earnings per share
D)  Net margin

Question 3

The return on investment measure is also referred to as:

Accepted Answer

A)  Net margin.
B)  Return on equity.
C)  Return on debt.
D)  Return on assets.

Question 4

In vertical analysis,each item is expressed as a percentage of:

Accepted Answer

A)  Total assets on the balance sheet.
B)  Total cash on the balance sheet.
C)  Total current assets on the balance sheet.
D)  None of these answers is correct.

Question 5

The following balance sheet information is provided for Patton Company:

Assuming Year 2 cost of goods sold is $730,000,what is the company's average days to sell inventory? (Use 365 days in a year.Do not round your intermediate calculations. )

Accepted Answer

A)  17.5 days
B)  18.25 days
C)  19 days
D)  20.86 days

Question 6

Select the correct statement regarding vertical analysis.

Accepted Answer

A)  Vertical analysis of the income statement involves showing each item as a percentage of sales.
B)  Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
C)  Vertical analysis examines two or more items from the financial statements of one accounting period.
D)  All of these answers are correct.

Question 7

The following balance sheet information is provided for Santana Company for Year 2:

What is the company's debt to equity ratio? (Rounded to nearest whole percent. )

Accepted Answer

A)  42%
B)  130%
C)  43%
D)  77%

Question 8

Alpha Company provided the following balance sheet for Year 2:

What is the company's plant assets to long-term liabilities ratio?

Accepted Answer

A)  2.5
B)  4.5
C)  1.7
D)  None of these answers is correct.

Question 9

Current financial reporting standards assume that users of accounting information:

Accepted Answer

A)  Have an expert's understanding of economic and financial events and conditions.
B)  Have a reasonably informed knowledge of business.
C)  Have widely differing levels of knowledge about business,and that financial reporting must meet these differing needs.
D)  Have only minimal knowledge of business.

Question 10

Which of the following is (are) objective(s) of ratio analysis?

Accepted Answer

A)  Assessing past performance.
B)  Assessing the prospects for future performance.
C)  Analyzing how a company finances its operations.
D)  All of these answers are correct.

Question 11

The following balance sheet information is provided for Duke Company for Year 2:

What is the company's current ratio? (Round your answer to 2 decimal places. )

Accepted Answer

A)  2.53
B)  1.16
C)  1.31
D)  3.79

Question 12

Which of the following statements is generally not true from an investor's perspective?

Accepted Answer

A)  A 1:1 current ratio is generally preferred over a 1.5:1 current ratio.
B)  A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period.
C)  A 5% dividend yield is generally preferred over a 3% dividend yield.
D)  A 10% net margin is generally preferred over an 8% net margin.

Question 13

Which of the following statements is true?

Accepted Answer

A)  Investors need to understand that the value of a company's earnings per share is affected by its choices of accounting principles and assumptions.
B)  Earnings per share is calculated for a company's preferred stock.
C)  The most widely quoted measure of a company's earnings performance is return on equity.
D)  The book value per share measures the market value of a corporation's stock.

Question 14

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

Accepted Answer

A)  Number of times interest is earned.
B)  Debt to assets ratio.
C)  Debt to equity ratio.
D)  Net margin.

Question 15

Which of the following statements about financial statement analysis is not true?

Accepted Answer

A)  In horizontal percentage analysis,an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
B)  Vertical analysis compares two or more financial statement items within the same time period.
C)  Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
D)  The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.

Question 16

Solvency ratios are used to assess a company's:

Accepted Answer

A)  Long-term debt paying ability.
B)  Profitability.
C)  Short-term debt paying ability.
D)  Efficiency in use of its assets.

Question 17

If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the components of the current ratio?

Accepted Answer

A)  Current assets decrease and current liabilities increase by the same amount.
B)  Current liabilities decrease.
C)  Current assets and current liabilities decrease by the same amount.
D)  Current assets increase.

Question 18

Grove Corporation had sales of $3,000,000,cost of sales of $2,250,000,and average inventory of $500,000.What was Grove's inventory turnover ratio for the period?

Accepted Answer

A)  1.6 times
B)  6 times
C)  4.5 times
D)  23 times

Question 19

Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

Accepted Answer

A)  Number of day's sales in inventory
B)  Return on investment
C)  Inventory turnover
D)  Debt to assets ratio

Question 20

Which of the following statements regarding ratio analysis is not true?

Accepted Answer

A)  Ratio analysis is a specific form of horizontal analysis.
B)  There are many different ratios available for evaluating a firm's performance.
C)  Some ratios involve an account from the balance sheet and one from the income statement.
D)  Ratio analysis involves making comparisons between different accounts in the same set of financial statements.

Exam 13: Financial Statement Analysis

The return on investment measure is also referred to as:

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Current financial reporting standards assume that users of accounting information:

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The following balance sheet information is provided for Duke Company for Year 2: What is the company's current ratio? (Round your answer to 2 decimal places. )

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Which of the following statements is true?

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In vertical analysis,each item is expressed as a percentage of:

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Grove Corporation had sales of $3,000,000,cost of sales of $2,250,000,and average inventory of $500,000.What was Grove's inventory turnover ratio for the period?

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Which of the following statements is generally not true from an investor's perspective?

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Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

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Which of the following is (are) objective(s) of ratio analysis?

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The following balance sheet information is provided for Patton Company: Assuming Year 2 cost of goods sold is $730,000,what is the company's average days to sell inventory? (Use 365 days in a year.Do not round your intermediate calculations. )

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Alpha Company provided the following balance sheet for Year 2: What is the company's plant assets to long-term liabilities ratio?

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Which of the following statements regarding ratio analysis is not true?

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Net income divided by net sales is the formula for which of these analytical measures?

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Working capital is defined as:

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Select the correct statement regarding vertical analysis.

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Which of the following statements about financial statement analysis is not true?

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Solvency ratios are used to assess a company's:

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The following balance sheet information is provided for Santana Company for Year 2: What is the company's debt to equity ratio? (Rounded to nearest whole percent. )

Correct AnswerverifiedShow Answer

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

Correct AnswerverifiedShow Answer

If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank,then immediately after this transaction what is the expected impact on the components of the current ratio?

Correct AnswerverifiedShow Answer

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