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Exam 9: Financial Statement Analysis

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Question 61

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The quick ratio although similar to the current ratio is more conservative.

A) True
B) False

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Question 62

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

A) Total expenses on the income statement.
B) Net income on the income statement.
C) Sales on the income statement.
D) None of these answers is correct.

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

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Question 63

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The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.

For Perez Corporation, return on equity is substantially higher than return on investment. What does that tell you about the company?

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

Select the correct statement regarding vertical analysis.

Indicate whether each of the following statements about financial statement analysis is true or false. 1. Having too little inventory can hurt a company's profitability because of lost sales. 2. Having too much inventory can hurt a company's profitability because of excess costs. 3. Generally, a lower inventory turnover indicates that merchandise is being handled more efficiently. 4. Average days to sell inventory is the number of times, on average, that inventory is replaced during the year. 5. Values for the inventory turnover ratio vary widely among different industries.

Select the incorrect statement regarding the analysis of absolute amounts of various accounts reported on the financial statements.

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000 net credit sales of $1,300,000, beginning accounts receivable of $65,000 and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

Sable Company is seeking a short-term loan from its local bank. The banker needs assurance that the company will be able to repay the loan. Describe three financial ratios the banker should consider including in the loan approval process. What information does each of your selected ratios provide?

Which of the following is not included in the computation of the quick ratio?

The return on investment measure is also referred to as:

Denver Corporation and Cheyenne Company are in different industries. Denver's current ratio is 1.89, while Cheyenne's current ratio is 1.65. Therefore, is it safe to conclude that Denver's liquidity position is better than that of Cheyenne?

As of December 31, 2013, 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, 2014 Gant paid $3,600 on accounts payable. Which of the following statements is incorrect?

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market. All of the following ratios can be used except:

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

Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

As of December 31, 2013, 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, 2014, Gant collected $5,200 of accounts receivable. As a result of this transaction, Gant's working capital will:

The following balance sheet information was provided by O'Connor Company: $\begin{array}{|l|r|r|}\hline \text { Assets } & 2014 & 2013 \\\hline \text { Cash } & \$ 4,000 & \$ 2,000 \\\hline \text { Accounts receivable } & 15,000 & 12,000 \\\hline \text { Inventory } & \$ 35,000 & \$ 38,000 \\\hline\end{array}$ Assuming that net credit sales for the year 2014 totaled $270,000, what is the company's most recent accounts receivable turnover?