Question 1

A company wishing to improve its acid- test ratio should:

Accepted Answer

A)  sell inventory on account.
B)  purchase additional inventory on account.
C)  purchase additional inventory for cash.
D)  do all of the above.E) A) and C)
F) All of the above

Question 2

Of the items listed below, the one most helpful in the comparison of different size companies is:

Accepted Answer

A)  preparation of common- size financial statements.
B)  horizontal analysis.
C)  comparison of their net incomes.
D)  comparison of their working capital balances.E) B) and D)
F) A) and C)

Question 3

Common- size financial statements are particularly valuable for identifying company strengths.

Accepted Answer

A) True 
 B)False

Question 4

Given the following data:  If net sales decreases by 10%, and cost of goods sold increases by 15%, gross profit would:

Accepted Answer

A)  increase by 25%.
B)  decrease by 80%.
C)  decrease by 25%.
D)  increase by 80%.E) B) and C)
F) All of the above

Question 5

The dividend yield for young, growth- oriented companies is generally high in order to attract potential investors.

Accepted Answer

A) True 
 B)False

Question 6

When using common- size financial statement to evaluate the operating results of two different companies, the gross margin of Company A is expressed as a percentage of:

Accepted Answer

A)  a common standard for both Company A and Company B.
B)  the total gross margins of Companies A and B.
C)  Company B's gross margin.
D)  Company A's sales.E) B) and C)
F) A) and D)

Question 7

Accounts Receivable was $45,000 at the beginning of the year and 55,000 at the end of the year. The percentage change and direction of change for the year was:

Accepted Answer

A)  22% decrease.
B)  22% increase.
C)  18% decrease.
D)  18% increase.E) A) and B)
F) A) and C)

Question 8

To be truly useful, financial ratios should be tracked over multiple accounting periods.

Accepted Answer

A) True 
 B)False

Question 9

The times- interest- earned ratio is calculated as:

Accepted Answer

A)  income from operations / interest expense.
B)  net income after taxes + interest expense) /interest expense.
C)  net income / interest expense.
D)  income from operations - interest expense) /interest expense.E) A) and C)
F) B) and C)

Question 10

A firm's ability to pay current liabilities can be evaluated using working capital, the current ratio, and the debt ratio.

Accepted Answer

A) True 
 B)False

Question 11

The debt ratio is an indicator of a company's:

Accepted Answer

A)  relationship between current liabilities and current assets.
B)  percentage of assets financed with debt.
C)  relationship between debt and interest expense.
D)  relationship between interest expense and income.E) All of the above
F) C) and D)

Question 12

All of the following ratios directly relate to the analysis of a given stock as an investment EXCEPT the:

Accepted Answer

A)  current ratio.
B)  book value per share of common stock.
C)  earnings per share.
D)  dividend yield.E) A) and B)
F) B) and D)

Question 13

The gross margin percent is a form of horizontal analysis.

Accepted Answer

A) True 
 B)False

Question 14

Common- size financial statements represent a form of:

Accepted Answer

A)  trend analysis.
B)  ratio analysis.
C)  horizontal analysis.
D)  vertical analysis.E) B) and C)
F) C) and D)

Question 15

Compute working capital using the following data:

Accepted Answer

A)  $80,000
B)  $770,000
C)  $290,000
D)  $295,000E) None of the above
F) C) and D)

Question 16

The acid- test ratio reflects the company's percentage of assets financed with debt.

Accepted Answer

A) True 
 B)False

Question 17

An "efficient capital market" is one where:

Accepted Answer

A)  stock market prices fully reflect all information available to the public.
B)  regulatory bodies are doing a good job of controlling the sale of publicly available stock securities.
C)  stock prices are set by the law of supply and demand.
D)  companies can easily and efficiently raise capital when needed.E) All of the above
F) A) and B)

Question 18

An efficient capital market is one in which market prices fully reflect all information available to the public.

Accepted Answer

A) True 
 B)False

Question 19

Compute the times interest earned ratio given the following data:

Accepted Answer

A)  12.9 times
B)  15.6 times
C)  9.8 times
D)  12.5 timesE) C) and D)
F) A) and C)

Question 20

Earnings per share of common stock measures the market value of one share of common stock.

Accepted Answer

A) True 
 B)False

Exam 13: Financial Statement Analysis

Accounts Receivable was $45,000 at the beginning of the year and 55,000 at the end of the year. The percentage change and direction of change for the year was:

Correct AnswerverifiedShow Answer

An efficient capital market is one in which market prices fully reflect all information available to the public.

Correct AnswerverifiedShow Answer

The dividend yield for young, growth- oriented companies is generally high in order to attract potential investors.

Correct AnswerverifiedShow Answer

The acid- test ratio reflects the company's percentage of assets financed with debt.

Correct AnswerverifiedShow Answer

All of the following ratios directly relate to the analysis of a given stock as an investment EXCEPT the:

Correct AnswerverifiedShow Answer

A firm's ability to pay current liabilities can be evaluated using working capital, the current ratio, and the debt ratio.

Correct AnswerverifiedShow Answer

A company wishing to improve its acid- test ratio should:

Correct AnswerverifiedShow Answer

The times- interest- earned ratio is calculated as:

Correct AnswerverifiedShow Answer

Of the items listed below, the one most helpful in the comparison of different size companies is:

Correct AnswerverifiedShow Answer

Compute working capital using the following data:

Correct AnswerverifiedShow Answer

To be truly useful, financial ratios should be tracked over multiple accounting periods.

Correct AnswerverifiedShow Answer

The gross margin percent is a form of horizontal analysis.

Correct AnswerverifiedShow Answer

Common- size financial statements represent a form of:

Correct AnswerverifiedShow Answer

Earnings per share of common stock measures the market value of one share of common stock.

Correct AnswerverifiedShow Answer

The debt ratio is an indicator of a company's:

Correct AnswerverifiedShow Answer

When using common- size financial statement to evaluate the operating results of two different companies, the gross margin of Company A is expressed as a percentage of:

Correct AnswerverifiedShow Answer

Compute the times interest earned ratio given the following data:

Correct AnswerverifiedShow Answer

Given the following data: If net sales decreases by 10%, and cost of goods sold increases by 15%, gross profit would:

Correct AnswerverifiedShow Answer

An "efficient capital market" is one where:

Correct AnswerverifiedShow Answer

Common- size financial statements are particularly valuable for identifying company strengths.

Correct AnswerverifiedShow Answer

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