Question 1

Vertical analysis is the comparison of a company's financial condition and performance across time.

Accepted Answer

A) True 
 B)False

Question 2

Three of the most common tools of financial analysis are:

Accepted Answer

A)   Financial reporting, ratio analysis, vertical analysis.
B)   Ratio analysis, horizontal analysis, financial reporting.
C)   Horizontal analysis, vertical analysis, ratio analysis.
D)   Trend analysis, financial reporting, ratio analysis.
E)   Vertical analysis, political analysis, horizontal analysis.F) B) and E)
G) A) and C)

Question 3

Ratios, like other analysis tools, are only historically oriented.

Accepted Answer

A) True 
 B)False

Question 4

A corporation reported cash of $14,000 and total assets of $178,300. Its common-size percent for cash equals:

Accepted Answer

A)   .0785%.
B)   7.85%.
C)   12.73%.
D)   1273%.
E)   7850%.F) B) and D)
G) A) and B)

Question 5

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 trend percents for cost of goods sold using Year 1 as the base.

Accepted Answer

A)   36.4% for Year 2 and 41.1% for Year 1.
B)   55.0% for Year 2 and 56.0% for Year 1.
C)   119.4% for Year 2 and 100.0% for Year 1.
D)   117.2% for Year 2 and 100.0% for Year 1.
E)   65.1% for Year 2 and 64.6% for Year 1.F) B) and C)
G) C) and E)

Question 6

The ability to generate positive market expectations is called:

Accepted Answer

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

Question 7

The background on a company, its industry, and its economic setting is usually included in which of the following sections of a financial statement analysis report?

Accepted Answer

A)   Executive summary.
B)   Analysis overview.
C)   Evidential conclusions.
D)   Factor analysis.
E)   Inferences.F) D) and E)
G) B) and C)

Question 8

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in dollar amounts and percents, are referred to as:

Accepted Answer

A)   Period-to-period statements.
B)   Controlling statements.
C)   Successive statements.
D)   Comparative statements.
E)   Serial statements.F) C) and E)
G) A) and B)

Question 9

Net sales divided by average total assets is the:

Accepted Answer

A)   Profit margin.
B)   Total asset turnover.
C)   Current ratio.
D)   Sales return ratio.
E)   Return on total assets.F) C) and D)
G) A) and D)

Question 10

Liquidity and efficiency are considered to be building blocks of financial statement analysis.

Accepted Answer

A) True 
 B)False

Question 11

Refer to the following selected financial information from Fennie's, LLC. Compute the company's current ratio for Year 2.

Accepted Answer

A)   2.26.
B)   1.98.
C)   2.95.
D)   3.05.
E)   1.88.F) A) and E)
G) A) and D)

Question 12

Refer to the following selected financial information from Fennie's, LLC. Compute the company's days' sales in inventory for Year 2.

Accepted Answer

A)   43.9.
B)   42.3.
C)   46.2.
D)   80.0.
E)   113.3.F) C) and D)
G) A) and E)

Question 13

Refer to the following selected financial information from Hansen's, LLC. Compute the company's times interest earned for Year 2.

Accepted Answer

A)   6.9.
B)   4.8.
C)   5.8.
D)   14.0.
E)   7.9.F) B) and E)
G) B) and C)

Question 14

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 common size percents for cost of goods sold using Year 1 net sales as the base.

Accepted Answer

A)   36.4% for Year 2 and 41.1% for Year 1.
B)   55.0% for Year 2 and 56.0% for Year 1.
C)   119.4% for Year 2 and 100.0% for Year 1.
D)   117.2% for Year 2 and 100.0% for Year 1.
E)   65.1% for Year 2 and 64.6% for Year 1.F) A) and E)
G) None of the above

Question 15

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Accepted Answer

A) True 
 B)False

Question 16

Intracompany analysis is based on comparisons with competitors.

Accepted Answer

A) True 
 B)False

Question 17

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Accepted Answer

A) True 
 B)False

Question 18

Refer to the following selected financial information from Fennie's, LLC. Compute the company's accounts receivable turnover for Year 2.

Accepted Answer

A)   8.32.
B)   8.62.
C)   8.94.
D)   5.78.
E)   7.90.F) C) and D)
G) D) and E)

Question 19

The common-size percent is computed by:

Accepted Answer

A)   Dividing the analysis amount by the base amount.
B)   Dividing the base amount by the analysis amount.
C)   Dividing the analysis amount by the base amount and multiplying the result by 100.
D)   Dividing the base amount by the analysis amount and multiplying the result by 1,000.
E)   Subtracting the base amount from the analysis amount and multiplying the result by 100.F) B) and C)
G) A) and D)

Question 20

External users of financial information:

Accepted Answer

A)   Are those individuals involved in managing and operating the company.
B)   Include internal auditors and consultants.
C)   Are not directly involved in operating the company.
D)   Make strategic decisions for a company.
E)   Make operating decisions for a company.F) C) and D)
G) A) and C)

Exam 17: Analysis of Financial Statements

External users of financial information:

Correct AnswerverifiedShow Answer

The background on a company, its industry, and its economic setting is usually included in which of the following sections of a financial statement analysis report?

Correct AnswerverifiedShow Answer

Vertical analysis is the comparison of a company's financial condition and performance across time.

Correct AnswerverifiedShow Answer

The common-size percent is computed by:

Correct AnswerverifiedShow Answer

Refer to the following selected financial information from Hansen's, LLC. Compute the company's times interest earned for Year 2.

Correct AnswerverifiedShow Answer

Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.

Correct AnswerverifiedShow Answer

Financial statements with data for two or more successive accounting periods placed in columns side by side, sometimes with changes shown in dollar amounts and percents, are referred to as:

Correct AnswerverifiedShow Answer

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 trend percents for cost of goods sold using Year 1 as the base.

Correct AnswerverifiedShow Answer

Ratios, like other analysis tools, are only historically oriented.

Correct AnswerverifiedShow Answer

Refer to the following selected financial information from Fennie's, LLC. Compute the company's days' sales in inventory for Year 2.

Correct AnswerverifiedShow Answer

Refer to the following selected financial information from Fennie's, LLC. Compute the company's accounts receivable turnover for Year 2.

Correct AnswerverifiedShow Answer

Liquidity and efficiency are considered to be building blocks of financial statement analysis.

Correct AnswerverifiedShow Answer

Refer to the following selected financial information from Fennie's, LLC. Compute the company's current ratio for Year 2.

Correct AnswerverifiedShow Answer

Measures taken from a selected competitor or a group of competitors are often excellent standards of comparison for analysis.

Correct AnswerverifiedShow Answer

Three of the most common tools of financial analysis are:

Correct AnswerverifiedShow Answer

A corporation reported cash of $14,000 and total assets of $178,300. Its common-size percent for cash equals:

Correct AnswerverifiedShow Answer

Net sales divided by average total assets is the:

Correct AnswerverifiedShow Answer

Intracompany analysis is based on comparisons with competitors.

Correct AnswerverifiedShow Answer

Use the following selected information from Farris, LLC to determine the Year 2 and Year 1 common size percents for cost of goods sold using Year 1 net sales as the base.

Correct AnswerverifiedShow Answer

The ability to generate positive market expectations is called:

Correct AnswerverifiedShow Answer

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