Question 1

When evaluating the profit margin of a sole proprietorship,the formula should be modified by subtracting owner's equity from net income.This will factor in the value of the owner's efforts in running the business.

Accepted Answer

A) True 
 B)False

Question 2

Total asset turnover is used to evaluate:

Accepted Answer

A)   The number of times operating assets were sold during the year.
B)   The necessity for asset replacement.
C)   The efficiency of management's use of assets to generate sales.
D)   The cash flows used to acquire assets.
E)   The relationship between asset cost and book valuE.F) A) and E)
G) B) and C)

Question 3

Houston Co.had net sales of $186,000 and average total assets of $173,000.Its total asset turnover was 1.08.

Accepted Answer

A) True 
 B)False

Question 4

Comparative financial statements are reports where financial amounts are placed side by side in columns on a single statement for analysis purposes.

Accepted Answer

A) True 
 B)False

Question 5

The price-earnings ratio is calculated by:

Accepted Answer

A)   Dividing dividends by earnings per share.
B)   Dividing earnings per share by market price per share.
C)   Dividing market price per share by earnings per share.
D)   Dividing dividends by market price per share.
E)   Dividing market price per share by dividends.F) B) and D)
G) A) and E)

Question 6

The ability to generate future revenues and meet long-term obligations is called:

Accepted Answer

A)   Liquidity and efficiency.
B)   Profitability.
C)   Solvency.
D)   Market.
E)   Creditworthiness.F) A) and B)
G) B) and D)

Question 7

Common-size statements:

Accepted Answer

A)   Reveal changes in the relative importance of each financial statement item.
B)   Do not emphasize the relative importance of each item.
C)   Compare financial statements over time.
D)   Show the dollar amount of change for financial statement items.
E)   Reveal changes in the relative importance of each financial statement item and show the dollar amount of change for financial statement items.F) B) and C)
G) C) and E)

Question 8

_______________ is a tool used to evaluate individual financial statement items or groups of items in terms of a specific base amount.

Accepted Answer

The answer of _______________ is a tool used to evaluate...

Question 9

Music City had net income of $43,000,net sales of $380,500 and average total assets of $220,000.Its profit margin and total asset turnover were respectively:

Accepted Answer

A)   11.3%; 1.73.
B)   11.3%; 11.3.
C)   1.73%; 19.5.
D)   11.3%; 19.5.
E)   19.5%; 11.3.F) B) and E)
G) A) and B)

Question 10

Dividend yield is defined as the market price per share divided by earnings per share.

Accepted Answer

A) True 
 B)False

Question 11

Explain the gross margin ratio and discuss its use as an indicator of profitability.

Accepted Answer

The gross margin ratio is calculated by ...

Question 12

Sonie's accounts receivable turnover was 5.7 for this year and 5.4 for last year.Aple's accounts receivable turnover was 6.8 for this year and 7 for last year.This means that:

Accepted Answer

A)   Sonie has the better turnover for both years.
B)   Aple has the worse turnover for both years.
C)   Sonie's turnover is improving.
D)   Aple's turnover is improving.
E)   Sonie has the better turnover for both years and Aple's turnover is improving.F) A) and D)
G) All of the above

Question 13

Analytical tools comparing a company's financial condition and performance across time are:

Accepted Answer

A)   Horizontal analysis.
B)   Vertical analysis.
C)   Ratio analysis.
D)   Financial analysis.
E)   Investment analysis.F) B) and E)
G) B) and D)

Question 14

A company's sales in Year 1 were $460,000.Sales in Year 2 were $483,200.Using Year 1 as the base year,what is the trend percentage for Year 2?

Accepted Answer

$483,200/$...

Question 15

Times interest earned is calculated by:

Accepted Answer

A)   Multiplying interest times income.
B)   Dividing income before interest and income taxes by interest expense.
C)   Dividing interest expense by income before interest.
D)   Dividing interest expense by income before interest times interest.
E)   Dividing income before interest and income taxes by interest expense times interest.F) C) and E)
G) B) and D)

Question 16

When a company goes into debt,the debt ratio provides information about the risk created for the company's owners and lenders.

Accepted Answer

A) True 
 B)False

Question 17

The ability to meet short-term obligations and to efficiently generate revenues is called:

Accepted Answer

A)   Liquidity and efficiency.
B)   Solvency.
C)   Profitability.
D)   Market.
E)   Creditworthiness.F) A) and D)
G) A) and C)

Question 18

A traditional rule of thumb for an acceptable acid-test ratio and current ratio is 2 to 1 for the current ratio and 1 to 1 for the acid-test ratio.

Accepted Answer

A) True 
 B)False

Question 19

The purpose of financial statement analysis for internal users is to provide information helpful in improving the company's efficiency or effectiveness in providing products or services.

Accepted Answer

A) True 
 B)False

Question 20

Horizontal analysis:

Accepted Answer

A)   Is a tool used to evaluate changes in financial data across time.
B)   Is also called vertical analysis.
C)   Is the presentation of financial ratios.
D)   Is a tool used to evaluate financial statement items in terms of a specific base amount.
E)   Is a tool used to evaluate changes in financial data across time and is the presentation of financial ratios.F) B) and E)
G) A) and E)

Exam 18: Analyzing Financial Statements

Common-size statements:

Correct AnswerverifiedShow Answer

When evaluating the profit margin of a sole proprietorship,the formula should be modified by subtracting owner's equity from net income.This will factor in the value of the owner's efforts in running the business.

Correct AnswerverifiedShow Answer

Sonie's accounts receivable turnover was 5.7 for this year and 5.4 for last year.Aple's accounts receivable turnover was 6.8 for this year and 7 for last year.This means that:

Correct AnswerverifiedShow Answer

_______________ is a tool used to evaluate individual financial statement items or groups of items in terms of a specific base amount.

Correct AnswerverifiedShow Answer

Dividend yield is defined as the market price per share divided by earnings per share.

Correct AnswerverifiedShow Answer

The ability to generate future revenues and meet long-term obligations is called:

Correct AnswerverifiedShow Answer

The purpose of financial statement analysis for internal users is to provide information helpful in improving the company's efficiency or effectiveness in providing products or services.

Correct AnswerverifiedShow Answer

Explain the gross margin ratio and discuss its use as an indicator of profitability.

Correct AnswerverifiedThe gross margin ratio is calculated by ...View AnswerShow Answer

Horizontal analysis:

Correct AnswerverifiedShow Answer

Houston Co.had net sales of $186,000 and average total assets of $173,000.Its total asset turnover was 1.08.

Correct AnswerverifiedShow Answer

A traditional rule of thumb for an acceptable acid-test ratio and current ratio is 2 to 1 for the current ratio and 1 to 1 for the acid-test ratio.

Correct AnswerverifiedShow Answer

When a company goes into debt,the debt ratio provides information about the risk created for the company's owners and lenders.

Correct AnswerverifiedShow Answer

The price-earnings ratio is calculated by:

Correct AnswerverifiedShow Answer

Comparative financial statements are reports where financial amounts are placed side by side in columns on a single statement for analysis purposes.

Correct AnswerverifiedShow Answer

Music City had net income of $43,000,net sales of $380,500 and average total assets of $220,000.Its profit margin and total asset turnover were respectively:

Correct AnswerverifiedShow Answer

Times interest earned is calculated by:

Correct AnswerverifiedShow Answer

A company's sales in Year 1 were $460,000.Sales in Year 2 were $483,200.Using Year 1 as the base year,what is the trend percentage for Year 2?

Correct Answerverified$483,200/$...View AnswerShow Answer

Analytical tools comparing a company's financial condition and performance across time are:

Correct AnswerverifiedShow Answer

The ability to meet short-term obligations and to efficiently generate revenues is called:

Correct AnswerverifiedShow Answer

Total asset turnover is used to evaluate:

Correct AnswerverifiedShow Answer

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The gross margin ratio is calculated by ...
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$483,200/$...
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