Question 1

The current cost method of inflation accounting adjusts statements by using the Consumer Price Index.

Accepted Answer

A) True 
 B)False

Question 2

________________ ratios measure the ability of a firm to earn an adequate return on sales, total assets, and invested capital.

Accepted Answer

A) Asset-utilization 
B) Liquidity 
C) Profitability 
D) Debt-utilization 
E) Price 
A) Asset-utilization 
B) Liquidity 
C) Profitability 
D) Debt-utilization 
E) Price

Question 3

The ________ does not represent continuing operations in any way but is simply a snapshot of the total worth of a firm at a given point in time.

Accepted Answer

A) income statement 
B) balance sheet 
C) source and use of funds statement 
D) statement of cash flows 
E) none of the above 
A) income statement 
B) balance sheet 
C) source and use of funds statement 
D) statement of cash flows 
E) none of the above

Question 4

Industry trend analysis provides a method of comparing industry performance throughout the economy, and of identifying the potential winning and losing companies within an industry.

Accepted Answer

A) True 
 B)False

Question 5

The Beaver and Altman bankruptcy studies found that firms can survive at least two years once they declare bankruptcy.

Accepted Answer

A) True 
 B)False

Question 6

DuPont analysis illustrates that the return on equity can be increased by decreasing the amount of debt used in the capital structure.

Accepted Answer

A) True 
 B)False

Question 7

The primary sections of a statement of cash flows are:

Accepted Answer

A) cash flows from investing, operating, and financing activities. 
B) cash flows from investing and operating activities. 
C) cash flows from investing, financing, and accounting activities. 
D) cash flows from investing, operating, financing, and accounting activities. 
A) cash flows from investing, operating, and financing activities. 
B) cash flows from investing and operating activities. 
C) cash flows from investing, financing, and accounting activities. 
D) cash flows from investing, operating, financing, and accounting activities.

Question 8

The type of ratio that allows the analyst to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital is:

Accepted Answer

A) liquidity ratios. 
B) profitability ratios. 
C) asset-utilization ratios. 
D) debt-utilization ratios. 
E) price ratios. 
A) liquidity ratios. 
B) profitability ratios. 
C) asset-utilization ratios. 
D) debt-utilization ratios. 
E) price ratios.

Question 9

An analyst can judge a company's level of debt by comparing these ratios:

Accepted Answer

A) return-on-equity to total debt-to-assets 
B) return-on-equity to total asset turnover 
C) return-on-equity to debt turnover 
D) return-on-equity to return-on-assets 
E) return-on-equity to current ratio 
A) return-on-equity to total debt-to-assets 
B) return-on-equity to total asset turnover 
C) return-on-equity to debt turnover 
D) return-on-equity to return-on-assets 
E) return-on-equity to current ratio

Question 10

If a firm has an after-tax profit margin of 8%, an asset turnover of 3 times, and no debt, what will be its return on assets and return on equity?

Accepted Answer

24.0%
Explanation: Refer to th

Question 11

__________ analysis is the process of studying a series of ratios for a company and/or industry over time.

Accepted Answer

A) DuPont 
B) Trend 
C) Common size 
D) Critical 
E) All of the above 
A) DuPont 
B) Trend 
C) Common size 
D) Critical 
E) All of the above

Question 12

Regardless of the method of presentation in the financial statements, the analyst should eliminate the effect of extraordinary gains and losses in projecting data into the future.

Accepted Answer

A) True 
 B)False

Question 13

An increase in assets is considered a source of funds.

Accepted Answer

A) True 
 B)False

Question 14

Inflation-adjusted financial statements may be shown as supplements to the historical cost financial statements.

Accepted Answer

A) True 
 B)False

Question 15

A stock is a good buy when the value of which of these ratios is low, compared to a market index or company history?

Accepted Answer

A) Price-to-book-value 
B) Price-to-earnings 
C) Dividend yield 
D) All of the above 
A) Price-to-book-value 
B) Price-to-earnings 
C) Dividend yield 
D) All of the above

Question 16

Which of the following is a good example of changes in accounting principles?

Accepted Answer

A) A change in earnings per share, due to an increase in the number of shares of common stock 
B) A change in income, due to a change for post-retirement benefits 
C) A change in earnings before taxes, because of a change in internal rates on debt 
D) None of the above 
A) A change in earnings per share, due to an increase in the number of shares of common stock 
B) A change in income, due to a change for post-retirement benefits 
C) A change in earnings before taxes, because of a change in internal rates on debt 
D) None of the above

Question 17

When a company repurchases shares of their own common stock,

Accepted Answer

A) the earnings per share will rise. 
B) the dividends paid out in total will decline. 
C) the earnings per share growth rate will rise. 
D) All of the above will happen 
A) the earnings per share will rise. 
B) the dividends paid out in total will decline. 
C) the earnings per share growth rate will rise. 
D) All of the above will happen

Question 18

Return on assets can be stated to equal (net income/sales) x (sales/total assets).

Accepted Answer

A) True 
 B)False

Question 19

For a firm with old, heavy fixed assets, replacement cost accounting will normally increase the debt-to-total-assets ratio.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is(are) true?

Accepted Answer

A) Debt-to-equity and debt-to-asset ratios measure capital structure and vary widely among industries 
B) Debt-utilization ratios alone do not measure a firm's ability to meet its cash obligations 
C) DuPont analysis considers the impact of debt on the profitability of the firm 
D) Two of the above are true 
A) Debt-to-equity and debt-to-asset ratios measure capital structure and vary widely among industries 
B) Debt-utilization ratios alone do not measure a firm's ability to meet its cash obligations 
C) DuPont analysis considers the impact of debt on the profitability of the firm 
D) Two of the above are true

Exam 8: Financial Statement Analysis

The current cost method of inflation accounting adjusts statements by using the Consumer Price Index.

________________ ratios measure the ability of a firm to earn an adequate return on sales, total assets, and invested capital.

The ________ does not represent continuing operations in any way but is simply a snapshot of the total worth of a firm at a given point in time.

Industry trend analysis provides a method of comparing industry performance throughout the economy, and of identifying the potential winning and losing companies within an industry.

The Beaver and Altman bankruptcy studies found that firms can survive at least two years once they declare bankruptcy.

DuPont analysis illustrates that the return on equity can be increased by decreasing the amount of debt used in the capital structure.

The primary sections of a statement of cash flows are:

The type of ratio that allows the analyst to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital is:

An analyst can judge a company's level of debt by comparing these ratios:

If a firm has an after-tax profit margin of 8%, an asset turnover of 3 times, and no debt, what will be its return on assets and return on equity?

__________ analysis is the process of studying a series of ratios for a company and/or industry over time.

Regardless of the method of presentation in the financial statements, the analyst should eliminate the effect of extraordinary gains and losses in projecting data into the future.

An increase in assets is considered a source of funds.

Inflation-adjusted financial statements may be shown as supplements to the historical cost financial statements.

A stock is a good buy when the value of which of these ratios is low, compared to a market index or company history?

Which of the following is a good example of changes in accounting principles?

When a company repurchases shares of their own common stock,

Return on assets can be stated to equal (net income/sales) x (sales/total assets).

For a firm with old, heavy fixed assets, replacement cost accounting will normally increase the debt-to-total-assets ratio.

Which of the following statements is(are) true?

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