Question 1

The larger the times interest earned ratio, the greater the risk a company incurs.

Accepted Answer

A) True 
 B)False

Question 2

Vertical analysis is used to reveal patterns in data covering successive periods.

Accepted Answer

A) True 
 B)False

Question 3

All companies desire a low return on total assets.

Accepted Answer

A) True 
 B)False

Question 4

Profit margin is sales divided by profit.

Accepted Answer

A) True 
 B)False

Question 5

A component of operating efficiency and profitability, calculated by expressing profit as a percentage of net sales, is the:

Accepted Answer

A)   Acid-test ratio.
B)   Accounts receivable turnover.
C)   Profit margin.
D)   Price-earnings ratio.
E)   Merchandise turnover.F) A) and E)
G) A) and D)

Question 6

Vertical analysis includes tools used to compare a company's financial condition and performance across time.

Accepted Answer

A) True 
 B)False

Question 7

Financial reporting refers to:

Accepted Answer

A)   The communication of relevant financial information to decision makers.
B)   The application of analytical tools to general-purpose financial statements.
C)   Ratio analysis.
D)   The application of analytical tools to general-purpose financial statements and ratio analysis.
E)   Financial statements only.F) A) and B)
G) B) and D)

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 andpercentages, are:

Accepted Answer

A)   Cost statements.
B)   Successive statements.
C)   Position statements.
D)   Controlling statements.
E)   Comparative statements.F) A) and B)
G) B) and D)

Question 9

The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying the answer by 365.

Accepted Answer

A) True 
 B)False

Question 10

Horizontal analysis:

Accepted Answer

A)   Is a tool used to evaluate changes in financial data across time.
B)   Is the presentation of financial ratios.
C)   Is also called vertical analysis.
D)   Is a tool used to evaluate financial statement items in terms of a specific base amount.
E)   Is a tool used to evaluate changes in financial data across time and is the presentation of financial ratios.F) A) and E)
G) B) and D)

Question 11

The two basic components to operating efficiency are current ratio and return on total assets.

Accepted Answer

A) True 
 B)False

Question 12

The ability to meet short-term obligations and to efficiently generate revenues is called:

Accepted Answer

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

Question 13

When the times interest earned ratio falls below 1.5, the default rate on liabilities increases sharply.

Accepted Answer

A) True 
 B)False

Question 14

The gross profit ratio measures the relationship between sales and cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 15

The four building blocks of financial statement analysis include 1) liquidity, 2) creditworthiness, 3) solvency, and 4) profitability.

Accepted Answer

A) True 
 B)False

Question 16

Sonie's accounts receivable turnover was 5.7 for this year and 5.4 for last year. Aple's accounts receivable turnover was 6.8 for this year and 7 for last year. This means that:

Accepted Answer

A)   Sonie has the better turnover for both years and Aple's turnover is improving.
B)   Aple's turnover is improving.
C)   Sonie's turnover is improving.
D)   Aple has the worse turnover for both years.
E)   Sonie has the better turnover for both years.F) B) and C)
G) A) and E)

Question 17

Dividend yield is defined as the market price per share divided by earnings per share.

Accepted Answer

A) True 
 B)False

Question 18

The ability to generate future revenues and meet long-term obligations is called:

Accepted Answer

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

Question 19

Anheuser-Busch had average total assets of $109,650 and net sales of $114,330. Its total asset turnover was 0.96.

Accepted Answer

A) True 
 B)False

Question 20

Accounts receivable turnover shows how often a company converts its average accounts receivable balance into cash during the period.

Accepted Answer

A) True 
 B)False

Exam 17: Analyzing Financial Statements

The four building blocks of financial statement analysis include 1) liquidity, 2) creditworthiness, 3) solvency, and 4) profitability.

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Dividend yield is defined as the market price per share divided by earnings per share.

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Sonie's accounts receivable turnover was 5.7 for this year and 5.4 for last year. Aple's accounts receivable turnover was 6.8 for this year and 7 for last year. This means that:

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Vertical analysis includes tools used to compare a company's financial condition and performance across time.

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Vertical analysis is used to reveal patterns in data covering successive periods.

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Anheuser-Busch had average total assets of $109,650 and net sales of $114,330. Its total asset turnover was 0.96.

Correct AnswerverifiedShow Answer

The ability to generate future revenues and meet long-term obligations is called:

Correct AnswerverifiedShow Answer

When the times interest earned ratio falls below 1.5, the default rate on liabilities increases sharply.

Correct AnswerverifiedShow Answer

A component of operating efficiency and profitability, calculated by expressing profit as a percentage of net sales, is the:

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The ability to meet short-term obligations and to efficiently generate revenues is called:

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The larger the times interest earned ratio, the greater the risk a company incurs.

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Profit margin is sales divided by profit.

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Horizontal analysis:

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All companies desire a low return on total assets.

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The two basic components to operating efficiency are current ratio and return on total assets.

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The days' sales uncollected ratio is calculated by dividing accounts receivable by net sales and multiplying the answer by 365.

Correct AnswerverifiedShow Answer

The gross profit ratio measures the relationship between sales and cost of goods sold.

Correct AnswerverifiedShow Answer

Accounts receivable turnover shows how often a company converts its average accounts receivable balance into cash during the period.

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 andpercentages, are:

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Financial reporting refers to:

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