Question 1

Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

Accepted Answer

A) Historical cost concept. 
B) Matching principle. 
C) Conservatism principle. 
D) Time value of money concept. 
A) Historical cost concept. 
B) Matching principle. 
C) Conservatism principle. 
D) Time value of money concept.

Question 4

Indicate whether each of the following statements about financial statement analysis is true or false.
_____ a)In vertical percentage analysis,an item from the financial statements is expressed as a percentage of the same item from a previous year's financial statements.
_____ b)The reason behind a financial statement ratio or percentage analysis result is usually self-evident and does not require further study or analysis.
_____ c)Horizontal analysis for several years can be done by choosing one year as a base year and calculating increases or decreases in relation to that year.
_____ d)Vertical analysis compares two or more financial statement items within the same time period.
_____ e)One form of horizontal analysis is the preparation of common size financial statements.

Accepted Answer

a)False b)

Question 5

The Herald Company provided the following information from its financial records:
What is the company's book value per share?

Accepted Answer

A) $3.33 
B) $10.67 
C) $13.33 
D) $10.83 
A) $3.33 
B) $10.67 
C) $13.33 
D) $10.83

Question 6

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

Accepted Answer

A) True 
 B)False

Question 7

Garrett Corporation had sales of $6,000,000,cost of sales of $4,200,000,and average inventory of $900,000.Garrett's inventory turnover ratio for the period is closest to:

Accepted Answer

A) 4.7 times 
B) 2.0 times 
C) 6.7 times 
D) .15 times 
A) 4.7 times 
B) 2.0 times 
C) 6.7 times 
D) .15 times

Question 8

The Pittsburgh Company paid total cash dividends of $100,000 on 25,000 outstanding common shares.On the most recent trading day,the common shares sold at $80.What is this company's dividend yield?

Accepted Answer

A) 25% 
B) 3.2% 
C) 5% 
D) 16.9% 
A) 25% 
B) 3.2% 
C) 5% 
D) 16.9%

Question 9

Select the incorrect statement regarding net margin.

Accepted Answer

A) Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. 
B) Net margin may be calculated in several ways. 
C) The smaller the net margin the better. 
D) The amount of net margin is affected by a company's choices of accounting principles. 
A) Net margin refers to the average amount of each sales dollar remaining after all expenses are subtracted. 
B) Net margin may be calculated in several ways. 
C) The smaller the net margin the better. 
D) The amount of net margin is affected by a company's choices of accounting principles.

Question 10

Solvency ratios are used to assess a company's:

Accepted Answer

A) Short-term debt paying ability. 
B) Long-term debt paying ability. 
C) Profitability. 
D) Efficiency in use of its assets. 
A) Short-term debt paying ability. 
B) Long-term debt paying ability. 
C) Profitability. 
D) Efficiency in use of its assets.

Question 11

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

Accepted Answer

A) Price-earnings ratio. 
B) Earnings per share. 
C) Dividend yield. 
D) Working capital. 
A) Price-earnings ratio. 
B) Earnings per share. 
C) Dividend yield. 
D) Working capital.

Question 12

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

Question 13

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 answer choices are correct. 
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 answer choices are correct.

Question 14

Cost of goods sold/average inventory is the formula for which of these analytical measures?

Accepted Answer

A) Inventory turnover 
B) Number of days' sales in inventory 
C) Return on investment 
D) Debt to assets ratio 
A) Inventory turnover 
B) Number of days' sales in inventory 
C) Return on investment 
D) Debt to assets ratio

Question 15

Vertical analysis involves comparing amounts in the financial statements for a single period,but an analyst may usefully compare vertical analysis results for two or more periods.

Accepted Answer

A) True 
 B)False

Question 16

Milton Company has total current assets of $65,000,including inventory of $20,000,and current liabilities of $25,000.The company's current ratio is:

Accepted Answer

A) 0.4. 
B) 1.8. 
C) 3.4. 
D) 2.6. 
A) 0.4. 
B) 1.8. 
C) 3.4. 
D) 2.6.

Question 17

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

Accepted Answer

Return on equity is higher than return o

Question 18

Jones Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jones carries more inventory than most companies in its industry.

Accepted Answer

A) True 
 B)False

Question 19

The following balance sheet information is provided for Amarillo Company:
Assume 2015 cost of goods sold is $665,000.The company's average days to sell inventory ?

Accepted Answer

A) 24 days 
B) 30 days 
C) 14 days 
D) None of these answer choices is correct. 
A) 24 days 
B) 30 days 
C) 14 days 
D) None of these answer choices is correct.

Question 20

Indicate whether each of the following statements is true or false.
_____ a)Some forms of financial statement analysis involve identifying changes in the same item for the same company over a period of time.
_____ b)Some forms of financial statement analysis involve comparing operations of different companies in the same industry.
_____ c)Vertical analysis is also called trend analysis.
_____ d)Horizontal analysis refers to studying the behavior of individual financial statement items over several periods.
_____ e)Horizontal analysis could be done using changes in the absolute dollar amount of an item or trends in percentages.

Accepted Answer

a)True b)T

Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements.

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

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

The Herald Company provided the following information from its financial records: What is the company's book value per share?

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

Garrett Corporation had sales of $6,000,000,cost of sales of $4,200,000,and average inventory of $900,000.Garrett's inventory turnover ratio for the period is closest to:

The Pittsburgh Company paid total cash dividends of $100,000 on 25,000 outstanding common shares.On the most recent trading day,the common shares sold at $80.What is this company's dividend yield?

Select the incorrect statement regarding net margin.

Solvency ratios are used to assess a company's:

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

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

Financial statement analysis involves forms of comparison including:

Cost of goods sold/average inventory is the formula for which of these analytical measures?

Vertical analysis involves comparing amounts in the financial statements for a single period,but an analyst may usefully compare vertical analysis results for two or more periods.

Milton Company has total current assets of $65,000,including inventory of $20,000,and current liabilities of $25,000.The company's current ratio is:

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

Jones Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jones carries more inventory than most companies in its industry.

The following balance sheet information is provided for Amarillo Company: Assume 2015 cost of goods sold is $665,000.The company's average days to sell inventory ?

An Introduction to Accounting

Understanding the Accounting Cycle

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships,partnerships,and Corporations

Statement of Cash Flows

Filters

Exam 13: Financial Statement Analysis

Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements.

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

The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:

The Herald Company provided the following information from its financial records: What is the company's book value per share?

While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.

Garrett Corporation had sales of $6,000,000,cost of sales of $4,200,000,and average inventory of $900,000.Garrett's inventory turnover ratio for the period is closest to:

The Pittsburgh Company paid total cash dividends of $100,000 on 25,000 outstanding common shares.On the most recent trading day,the common shares sold at $80.What is this company's dividend yield?

Select the incorrect statement regarding net margin.

Solvency ratios are used to assess a company's:

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

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

Financial statement analysis involves forms of comparison including:

Cost of goods sold/average inventory is the formula for which of these analytical measures?

Vertical analysis involves comparing amounts in the financial statements for a single period,but an analyst may usefully compare vertical analysis results for two or more periods.

Milton Company has total current assets of $65,000,including inventory of $20,000,and current liabilities of $25,000.The company's current ratio is:

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

Jones Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jones carries more inventory than most companies in its industry.

The following balance sheet information is provided for Amarillo Company: Assume 2015 cost of goods sold is $665,000.The company's average days to sell inventory ?

An Introduction to Accounting

Understanding the Accounting Cycle

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships,partnerships,and Corporations

Statement of Cash Flows

Filters