Question 1

Describe the differences among liquidity ratios,solvency ratios,and profitability ratios.Identify examples of each type of ratio as well.

Accepted Answer

Liquidity ratios indicate a company's ab

Question 2

The Abel Company provided the following information from its financial records:   What is the amount of the company's earnings per share?

Accepted Answer

A)  $0.82 
B)  $1.00 
C)  $0.90 
D)  $0.75 
A)  $0.82 
B)  $1.00 
C)  $0.90 
D)  $0.75

Question 3

Net income divided by sales is the formula for which of these analytical measures?

Accepted Answer

A)  Return on assets 
B)  Return on equity 
C)  Earnings per share 
D)  Net margin 
A)  Return on assets 
B)  Return on equity 
C)  Earnings per share 
D)  Net margin

Question 4

Which ratio measures how effectively a company is using assets to generate revenue?

Accepted Answer

A)  Net margin 
B)  Plant assets to long-term liabilities 
C)  Asset turnover 
D)  Inventory turnover 
A)  Net margin 
B)  Plant assets to long-term liabilities 
C)  Asset turnover 
D)  Inventory turnover

Question 5

When debt is used to finance the purchase of assets,the term or time span of the debt should always be shorter than the life span of the assets.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about financial statements is incorrect?

Accepted Answer

A)  The net margin ratio is a profitability ratio. 
B)  The current ratio is a liquidity ratio. 
C)  The debt to assets ratio is a liquidity ratio. 
D)  The dividend yield is a stock market ratio. 
A)  The net margin ratio is a profitability ratio. 
B)  The current ratio is a liquidity ratio. 
C)  The debt to assets ratio is a liquidity ratio. 
D)  The dividend yield is a stock market ratio.

Question 7

Grove Corporation had sales of $3,000,000,cost of goods sold of $2,250,000,and average inventory of $500,000.What was Grove's inventory turnover ratio for the period?

Accepted Answer

A)  1.6 times 
B)  6 times 
C)  4.5 times 
D)  23 times 
A)  1.6 times 
B)  6 times 
C)  4.5 times 
D)  23 times

Question 8

Indicate whether each of the following statements about financial statement analysis is true or false.
Working capital is a measure of the amount of current assets a company would have left after paying its current liabilities.______
If a transaction caused a company's working capital to increase,the transaction caused the company to become less liquid.______
Interpretation of a company's current ratio can be difficult because it is an absolute amount.______
The quick ratio is a more conservative variation of the current ratio.______
The quick ratio is usually calculated by using the following equation: cash + receivables + current marketable securities ÷ current liabilities.______

Accepted Answer

Working capital is a measure of the amou

Question 9

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

Accepted Answer

A)  Remain the same. 
B)  Increase. 
C)  Decrease. 
D)  Cannot be determined. 
A)  Remain the same. 
B)  Increase. 
C)  Decrease. 
D)  Cannot be determined.

Question 10

For Year 2,Weston Corporation reported after-tax net income of $1,200,000.During the year,the number of outstanding shares of 6% $100 par preferred stock remained constant at 5,000,and 500,000 shares of common stock were outstanding all year.The company's total stockholders' equity at December 31,Year 2,was $12,500,000.Weston's common stock was selling at $38 per share at the end of the year.All dividends for the year were paid,including a dividend of $2.50 per share to common stockholders.
Required:
Compute the following:
(a)Earnings per share (Round your answer to the nearest cent.)
(b)Book value per share of common stock
(c)Price-earnings ratio (Round your answer to one decimal place.)
(d)Dividend yield (Round your answer to one decimal place.)

Accepted Answer

(a)Earnings per share = ($1,200,000 − 30

Question 11

Financial analysis typically involves some form of comparison,such as changes in the same item over a number of years.

Accepted Answer

A) True 
 B)False

Question 12

Working capital is current assets minus current liabilities.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding the return on equity (ROE)measure is incorrect?

Accepted Answer

A)  ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders. 
B)  ROE equals net income divided by average total stockholders' equity. 
C)  ROE is affected by a company's use of leverage. 
D)  A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt. 
A)  ROE is used to measure the profitability of the firm in relation to the amount invested by stockholders. 
B)  ROE equals net income divided by average total stockholders' equity. 
C)  ROE is affected by a company's use of leverage. 
D)  A company's ROE is lower than its return on investment because ROE does not consider that part of the business that is financed by debt.

Question 14

The return on investment measure is also referred to as:

Accepted Answer

A)  Net margin. 
B)  Return on equity. 
C)  Return on debt. 
D)  Return on assets. 
A)  Net margin. 
B)  Return on equity. 
C)  Return on debt. 
D)  Return on assets.

Question 15

The Poole Company reported the following income for Year 2: $\begin{array}{lr}
\text { Sales } & \$ 30,000 \
\text { Cost of goods sold } &  \underline{8,000} \
\text { Gross margin } &\$ 22,000 \
\text { Selling and administrative expense } &  \underline{10,000} \
\text { Operating income } & \$ 12,000\
\text { Interest expense } & \underline{ 4,000 }\
\text { Income before taxes } & \$ 8,000 \
\text { income tax expense } &  \underline{2,500} \
\text { Net income } & \underline{ \$ 5,500}
\end{array}$
 What is the company's net margin? (Rounded to the nearest whole percent.)

Accepted Answer

A)  73% 
B)  40% 
C)  18% 
D)  27% 
A)  73% 
B)  40% 
C)  18% 
D)  27%

Question 16

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 answers 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 answers are correct.

Question 17

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 18

Which of the following statements regarding the quick ratio is incorrect?

Accepted Answer

A)  The quick ratio is also known as the acid-test ratio. 
B)  The quick ratio ignores some current assets that are less liquid than others. 
C)  The quick ratio is a conservative variation of the current ratio. 
D)  The quick ratio equals quick assets divided by total liabilities. 
A)  The quick ratio is also known as the acid-test ratio. 
B)  The quick ratio ignores some current assets that are less liquid than others. 
C)  The quick ratio is a conservative variation of the current ratio. 
D)  The quick ratio equals quick assets divided by total liabilities.

Question 19

Profitability ratios attempt to assess the company's ability to generate earnings.

Accepted Answer

A) True 
 B)False

Question 20

Indicate whether each of the following statements about financial statement analysis is true or false.
The value of a corporation's price-earnings ratio indicates how optimistic investors are about a company's growth potential.______
The dividend yield ratio indicates the percentage of a company's net income that it paid out in dividends.______
Conservatism produces a positive bias in a company's financial statements and thus in the ratios calculated from the financial statements.______
Changes in general economic conditions (such as rate of inflation)can cause the values for a company's financial statement ratios to change from one year to the next.______
Comparing financial statement ratios of companies in different industries can give misleading results.______

Accepted Answer

The value of a corporation's price-earni

Describe the differences among liquidity ratios,solvency ratios,and profitability ratios.Identify examples of each type of ratio as well.

The Abel Company provided the following information from its financial records: What is the amount of the company's earnings per share?

Net income divided by sales is the formula for which of these analytical measures?

Which ratio measures how effectively a company is using assets to generate revenue?

When debt is used to finance the purchase of assets,the term or time span of the debt should always be shorter than the life span of the assets.

Which of the following statements about financial statements is incorrect?

Grove Corporation had sales of $3,000,000,cost of goods sold of $2,250,000,and average inventory of $500,000.What was Grove's inventory turnover ratio for the period?

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

Financial analysis typically involves some form of comparison,such as changes in the same item over a number of years.

Working capital is current assets minus current liabilities.

Which of the following statements regarding the return on equity (ROE)measure is incorrect?

The return on investment measure is also referred to as:

Financial statement analysis involves forms of comparison including:

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

Which of the following statements regarding the quick ratio is incorrect?

Profitability ratios attempt to assess the company's ability to generate earnings.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Statement of Cash Flows

Filters

Exam 13: Financial Statement Analysis

Describe the differences among liquidity ratios,solvency ratios,and profitability ratios.Identify examples of each type of ratio as well.

The Abel Company provided the following information from its financial records: What is the amount of the company's earnings per share?

Net income divided by sales is the formula for which of these analytical measures?

Which ratio measures how effectively a company is using assets to generate revenue?

When debt is used to finance the purchase of assets,the term or time span of the debt should always be shorter than the life span of the assets.

Which of the following statements about financial statements is incorrect?

Grove Corporation had sales of $3,000,000,cost of goods sold of $2,250,000,and average inventory of $500,000.What was Grove's inventory turnover ratio for the period?

Benson Company received cash of $5,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:

Financial analysis typically involves some form of comparison,such as changes in the same item over a number of years.

Working capital is current assets minus current liabilities.

Which of the following statements regarding the return on equity (ROE)measure is incorrect?

The return on investment measure is also referred to as:

Financial statement analysis involves forms of comparison including:

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

Which of the following statements regarding the quick ratio is incorrect?

Profitability ratios attempt to assess the company's ability to generate earnings.

Management Accounting and Corporate Governance

Cost Behavior, operating Leverage, and Profitability Analysis

Analysis of Cost, volume, and Pricing to Increase Profitability

Cost Accumulation,tracing,and Allocation

Cost Management in an Automated Business Environment: ABC, ABM, and TQM

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Responsibility Accounting

Planning for Capital Investments

Product Costing in Service and Manufacturing Entities

Job-Order, process, and Hybrid Costing Systems

Statement of Cash Flows

Filters