Question 1

Long-term creditors are usually most interested in evaluating:

Accepted Answer

A)   Liquidity.
B)   Managerial effectiveness.
C)   Solvency.
D)   Profitability.E) None of the above
F) A) and C)

Question 2

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

Accepted Answer

A) True 
 B)False

Question 3

Financial ratios can be used to assess which of the following aspects of a firm's performance?

Accepted Answer

A)   Liquidity
B)   Solvency
C)   Profitability
D)   All of these answers are correct.E) All of the above
F) B) and C)

Question 4

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant issued common stock at par value for $10,000 cash. Which of the following statement is correct?

Accepted Answer

A)   Gant's current ratio will decrease.
B)   Gant's current ratio will increase.
C)   Gant's quick ratio will decrease.
D)   Gant's working capital will decrease.E) All of the above
F) B) and C)

Question 5

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.E) B) and C)
F) A) and B)

Question 6

The most frequently quoted measure of earnings performance is the stockholders' equity ratio.

Accepted Answer

A) True 
 B)False

Question 7

Which ratios measure a company's long-term debt paying ability and its financing structure?

Accepted Answer

A)   Solvency
B)   Liquidity
C)   Profitability
D)   None of these answers is correct.E) A) and D)
F) All of the above

Question 8

Which ratio measures how effectively a company is using assets to generate revenue?

Accepted Answer

A)   Net margin
B)   Plant assets to long-term liabilities
C)   Asset turnover
D)   Inventory turnoverE) A) and D)
F) C) and D)

Question 9

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Accepted Answer

A) True 
 B)False

Question 10

Financial statement analysis involves forms of comparison including:

Accepted Answer

A)   Comparing changes in the same item over a number of periods.
B)   Comparing key relationships within the same year.
C)   Comparing key items to industry averages.
D)   All of these answers are correct.E) B) and D)
F) C) and D)

Question 11

Which of the following statements is correct?

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.E) A) and B)
F) None of the above

Question 12

The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?

Accepted Answer

A)   19
B)   17
C)   20
D)   None of these answers is correct.E) C) and D)
F) A) and C)

Question 13

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

Accepted Answer

A)   Financial statement users with expertise in particular industries can look at absolute amounts and assess a company's performance in a certain area.
B)   To correctly evaluate an absolute amount, the analyst must consider its relative importance.
C)   Economic statistics such as the gross national product are built upon totals of absolute amounts reported by businesses.
D)   Using absolute amounts eliminates the problem of varying materiality levels.E) B) and D)
F) A) and B)

Question 14

The study of an individual financial statement item over several accounting periods is called:

Accepted Answer

A)   Horizontal analysis.
B)   Vertical analysis.
C)   Ratio analysis.
D)   Time and motion analysis.E) C) and D)
F) A) and B)

Question 15

Vertical analysis always involves comparing financial statement elements over a span of time.

Accepted Answer

A) True 
 B)False

Question 16

The following balance sheet information was provided by O'Connor Company:  Assuming that net credit sales for Year 2 totaled $270,000, what is the company's most recent accounts receivable turnover?

Accepted Answer

A)   18 times
B)   20 times
C)   22.5 times
D)   7.7 timesE) None of the above
F) A) and C)

Question 17

Which ratio would you use to examine a company's ability to pay its debts in the short term?

Accepted Answer

A)   Earnings per share
B)   Acid-test ratio
C)   Debt to assets ratio
D)   Return on equityE) None of the above
F) A) and D)

Question 18

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Accepted Answer

A)   No impact
B)   Increase it
C)   Decrease it
D)   Not enough information is provided to answer the question.E) None of the above
F) B) and C)

Question 19

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

Accepted Answer

A)   Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies.
B)   Since Harmon's working capital exceeds Lilly's working capital, it is safe to conclude that Harmon is more liquid than Lilly.
C)   If Lilly Corporation is smaller than Harmon or has lower current liabilities; Lilly could be more liquid than Harmon.
D)   None of these answers is correct.E) A) and D)
F) A) and C)

Question 20

As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant recorded cost of goods sold of $4,100. As a result of this transaction, Gant's quick ratio will:

Accepted Answer

A)   Decrease.
B)   Increase.
C)   Remain the same.
D)   Cannot be determined.E) All of the above
F) B) and C)

Exam 9: Financial Statement Analysis

The most frequently quoted measure of earnings performance is the stockholders' equity ratio.

Correct Answer
verified

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

Correct Answer
verified

Vertical analysis always involves comparing financial statement elements over a span of time.

Correct Answer
verified

Which ratios measure a company's long-term debt paying ability and its financing structure?

Correct Answer
verified

Financial statement analysis involves forms of comparison including:

Correct Answer
verified

Correct Answer
verified

Which ratio measures how effectively a company is using assets to generate revenue?

Correct Answer
verified

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

Correct Answer
verified

Correct Answer
verified

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Correct Answer
verified

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

Correct Answer
verified

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?

Correct Answer
verified

Which ratio would you use to examine a company's ability to pay its debts in the short term?

Correct Answer
verified

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

Correct Answer
verified

Financial ratios can be used to assess which of the following aspects of a firm's performance?

Correct Answer
verified

The study of an individual financial statement item over several accounting periods is called:

Correct Answer
verified

The following balance sheet information was provided by O'Connor Company: Assuming that net credit sales for Year 2 totaled $270,000, what is the company's most recent accounts receivable turnover?

Correct Answer
verified

Long-term creditors are usually most interested in evaluating:

Correct Answer
verified

Exam 9: Financial Statement Analysis

The most frequently quoted measure of earnings performance is the stockholders' equity ratio.

Correct AnswerverifiedShow Answer

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

Correct AnswerverifiedShow Answer

Vertical analysis always involves comparing financial statement elements over a span of time.

Correct AnswerverifiedShow Answer

Which ratios measure a company's long-term debt paying ability and its financing structure?

Correct AnswerverifiedShow Answer

Financial statement analysis involves forms of comparison including:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which ratio measures how effectively a company is using assets to generate revenue?

Correct AnswerverifiedShow Answer

Lilly's Corporation has working capital of $620,000, and Harmon Corporation has working capital of $840,000. Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the analysis of absolute amounts of various accounts reported on the financial statements is incorrect?

Correct AnswerverifiedShow Answer

Financial analysis typically involves some form of comparison such as changes in the same item over a number of years.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares. Preferred dividends total $12,000. On the most recent trading day, the preferred shares sold at $50 and the common shares sold at $95. What is this company's current price-earnings ratio?

Correct AnswerverifiedShow Answer

Which ratio would you use to examine a company's ability to pay its debts in the short term?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Financial ratios can be used to assess which of the following aspects of a firm's performance?

Correct AnswerverifiedShow Answer

The study of an individual financial statement item over several accounting periods is called:

Correct AnswerverifiedShow Answer

The following balance sheet information was provided by O'Connor Company: Assuming that net credit sales for Year 2 totaled $270,000, what is the company's most recent accounts receivable turnover?

Correct AnswerverifiedShow Answer

Long-term creditors are usually most interested in evaluating:

Correct AnswerverifiedShow Answer

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