Question 1

Financial statement analysis is a judgmental process.

Accepted Answer

A) True 
 B)False  True

Question 2

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt.The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2.Which best describes these three numbers?

Accepted Answer

A)  One third of each of the companies experienced each of the ratios. 
B)  The average ratio was 1.3.The best firm had 1.6; The worst had 1.2. 
C)  The median was 1.3.1.6 is the figure for the upper quartile; 1.2 is the figure for the lower quartile. 
D)  The median was 1.3.1.6 is the figure for the lower quartile; 1.2 is the figure for the upper quartile. 
E)  None of the answers are correct. 
A)  One third of each of the companies experienced each of the ratios. 
B)  The average ratio was 1.3.The best firm had 1.6; The worst had 1.2. 
C)  The median was 1.3.1.6 is the figure for the upper quartile; 1.2 is the figure for the lower quartile. 
D)  The median was 1.3.1.6 is the figure for the lower quartile; 1.2 is the figure for the upper quartile. 
E)  None of the answers are correct. C

Question 3

A service firm will usually have a low amount of inventory, consisting primarily of supplies.

Accepted Answer

A) True 
 B)False  True

Question 4

Liquidity ratios can be used:

Accepted Answer

A)  to measure the degree of protection of long-term suppliers of funds 
B)  to measure borrowing capacity 
C)  to measure the earning ability of a firm 
D)  to measure the firm's ability to meet its current obligations 
E)  to measure the worth of the firm 
A)  to measure the degree of protection of long-term suppliers of funds 
B)  to measure borrowing capacity 
C)  to measure the earning ability of a firm 
D)  to measure the firm's ability to meet its current obligations 
E)  to measure the worth of the firm

Question 5

Which of these statements is false?

Accepted Answer

A)  Many companies will not clearly fit into any one industry. 
B)  A financial service uses its best judgment as to which industry the firm best fits. 
C)  The analysis of an entity's financial statements can be more meaningful if the results are compared with industry averages and with results of competitors. 
D)  When using industry averages, it is often necessary to use an industry that the firm best fits. 
E)  A company comparison should not be made with industry averages if the company does not clearly fit into any one industry. 
A)  Many companies will not clearly fit into any one industry. 
B)  A financial service uses its best judgment as to which industry the firm best fits. 
C)  The analysis of an entity's financial statements can be more meaningful if the results are compared with industry averages and with results of competitors. 
D)  When using industry averages, it is often necessary to use an industry that the firm best fits. 
E)  A company comparison should not be made with industry averages if the company does not clearly fit into any one industry.

Question 6

Which of the following is not a source of industry statistics?

Accepted Answer

A)  Annual Statement Studies 
B)  Mergent Dividend Record 
C)  Value Line 
D)  Standard and Poor's Industry Surveys 
E)  The Department of Commerce Financial Report 
A)  Annual Statement Studies 
B)  Mergent Dividend Record 
C)  Value Line 
D)  Standard and Poor's Industry Surveys 
E)  The Department of Commerce Financial Report

Question 7

The descriptive information in annual reports is not useful in statement analysis; only the financial statements themselves are of value.

Accepted Answer

A) True 
 B)False

Question 8

Dissimilar year ends will have no impact on the results of ratios.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is a government document that provides industry statistics?

Accepted Answer

A)  The Wall Street Journal 
B)  Business Week 
C)  Dun's 
D)  The Department of Commerce Financial Report 
E)  Standard and Poor's Industry Survey 
A)  The Wall Street Journal 
B)  Business Week 
C)  Dun's 
D)  The Department of Commerce Financial Report 
E)  Standard and Poor's Industry Survey

Question 10

Management is a user of financial analysis.Which of the following comments does not represent a fair statement as to the management perspective?

Accepted Answer

A)  Management is interested in the view of investors. 
B)  Management is interested in the view of creditors. 
C)  Management is interested in the financial structure of the entity. 
D)  Management is interested in the asset structure of the entity. 
E)  Management is always interested in maximum profitability. 
A)  Management is interested in the view of investors. 
B)  Management is interested in the view of creditors. 
C)  Management is interested in the financial structure of the entity. 
D)  Management is interested in the asset structure of the entity. 
E)  Management is always interested in maximum profitability.

Question 11

Suppose you are comparing two firms in the steel industry.One firm is large and the other is small.Which type of numbers would be most meaningful for statement analysis?

Accepted Answer

A)  Absolute numbers would be most meaningful for both the large and small firm. 
B)  Absolute numbers would be most meaningful in the large firm; relative numbers would be most meaningful in the small firm. 
C)  Relative numbers would be most meaningful for the large firm; absolute numbers would be most meaningful for the small firm. 
D)  Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons. 
E)  It is not meaningful to compare a large firm with a small firm. 
A)  Absolute numbers would be most meaningful for both the large and small firm. 
B)  Absolute numbers would be most meaningful in the large firm; relative numbers would be most meaningful in the small firm. 
C)  Relative numbers would be most meaningful for the large firm; absolute numbers would be most meaningful for the small firm. 
D)  Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons. 
E)  It is not meaningful to compare a large firm with a small firm.

Question 12

In financial statement analysis, ratios are:

Accepted Answer

A)  the only type of analysis where industry data are available 
B)  absolute numbers converted to a common base 
C)  fractions usually expressed in percent or times 
D)  the only indication of the financial position of the firm 
E)  none of the answers are correct 
A)  the only type of analysis where industry data are available 
B)  absolute numbers converted to a common base 
C)  fractions usually expressed in percent or times 
D)  the only indication of the financial position of the firm 
E)  none of the answers are correct

Question 13

In vertical common-size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following does not represent a problem with financial analysis?

Accepted Answer

A)  Financial statement analysis is an art; it requires judgment decisions on the part of the analyst. 
B)  Financial analysis can be used to detect apparent liquidity 
C)  There are as many ratios for financial analysis as there are pairs of figures. 
D)  Some industry ratio formulas vary from source to source. 
E)  Adequate detailed disclosure of how the industry ratios are computed is often lacking. 
A)  Financial statement analysis is an art; it requires judgment decisions on the part of the analyst. 
B)  Financial analysis can be used to detect apparent liquidity 
C)  There are as many ratios for financial analysis as there are pairs of figures. 
D)  Some industry ratio formulas vary from source to source. 
E)  Adequate detailed disclosure of how the industry ratios are computed is often lacking.

Question 15

Which of these statements is false?

Accepted Answer

A)  A ratio can be computed from any pair of numbers. 
B)  Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. 
C)  Comparing ratios computed from income statement and balance sheet numbers can create difficulties due to the timing of the financial statements. 
D)  Financial ratios are usually expressed in percent or times. 
E)  In vertical analysis, a figure from the year's statement is compared with a base selected from the prior statement. 
A)  A ratio can be computed from any pair of numbers. 
B)  Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. 
C)  Comparing ratios computed from income statement and balance sheet numbers can create difficulties due to the timing of the financial statements. 
D)  Financial ratios are usually expressed in percent or times. 
E)  In vertical analysis, a figure from the year's statement is compared with a base selected from the prior statement.

Question 16

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

Accepted Answer

A)  ratio analysis 
B)  common-size analysis 
C)  theory consistency 
D)  examination of relative size among firms 
E)  review of descriptive material 
A)  ratio analysis 
B)  common-size analysis 
C)  theory consistency 
D)  examination of relative size among firms 
E)  review of descriptive material

Question 17

In order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful.

Accepted Answer

A) True 
 B)False

Question 18

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following can offer a type of comparison in financial statement analysis?

Accepted Answer

A)  past ratios and figures 
B)  industry averages 
C)  statistics of competitors 
D)  all of the answers are correct 
E)  none of the answers are correct 
A)  past ratios and figures 
B)  industry averages 
C)  statistics of competitors 
D)  all of the answers are correct 
E)  none of the answers are correct

Question 20

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

Accepted Answer

A) True 
 B)False

Financial statement analysis is a judgmental process.

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt.The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2.Which best describes these three numbers?

A service firm will usually have a low amount of inventory, consisting primarily of supplies.

Liquidity ratios can be used:

Which of these statements is false?

Which of the following is not a source of industry statistics?

The descriptive information in annual reports is not useful in statement analysis; only the financial statements themselves are of value.

Dissimilar year ends will have no impact on the results of ratios.

Which of the following is a government document that provides industry statistics?

Management is a user of financial analysis.Which of the following comments does not represent a fair statement as to the management perspective?

Suppose you are comparing two firms in the steel industry.One firm is large and the other is small.Which type of numbers would be most meaningful for statement analysis?

In financial statement analysis, ratios are:

In vertical common-size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year.

Which of the following does not represent a problem with financial analysis?

Which of these statements is false?

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

In order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful.

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

Which of the following can offer a type of comparison in financial statement analysis?

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters

Exam 5: Basics of Analysis

Financial statement analysis is a judgmental process.

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt.The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2.Which best describes these three numbers?

A service firm will usually have a low amount of inventory, consisting primarily of supplies.

Liquidity ratios can be used:

Which of these statements is false?

Which of the following is not a source of industry statistics?

The descriptive information in annual reports is not useful in statement analysis; only the financial statements themselves are of value.

Dissimilar year ends will have no impact on the results of ratios.

Which of the following is a government document that provides industry statistics?

Management is a user of financial analysis.Which of the following comments does not represent a fair statement as to the management perspective?

Suppose you are comparing two firms in the steel industry.One firm is large and the other is small.Which type of numbers would be most meaningful for statement analysis?

In financial statement analysis, ratios are:

In vertical common-size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year.

Which of the following does not represent a problem with financial analysis?

Which of these statements is false?

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

In order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful.

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

Which of the following can offer a type of comparison in financial statement analysis?

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters