Question 1

Which of the following statements regarding net margin is incorrect?

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 amount of net margin is affected by a company's choices of accounting principles.
D)   The smaller the net margin the better. D

Question 2

Which of the following statement is correct regarding the quick ratio?

Accepted Answer

A)   The numerator for the quick ratio is current assets minus inventory minus accounts receivable.
B)   The numerator for the quick ratio is current assets.
C)   The quick ratio is also called the working capital ratio.
D)   The quick ratio is a more conservative variation of the current ratio.

Question 3

Solvency 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 4

Solvency ratios are used to assess a company's:

Accepted Answer

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

Question 5

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Accepted Answer

A)   Average days to collect receivables.
B)   Asset turnover.
C)   Return on investment.
D)   Net margin.

Question 6

Select the correct statement regarding vertical analysis.

Accepted Answer

A)   Vertical analysis of the income statement involves showing each item as a percentage of sales.
B)   Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
C)   Vertical analysis examines two or more items from the financial statements of one accounting period.
D)   All of these answers are correct.

Question 7

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.

Question 8

Which of the following is not included in the computation of the quick ratio?

Accepted Answer

A)   Cash
B)   Prepaid expenses
C)   Accounts receivable
D)   Marketable securities

Question 9

A company has an obligation to provide highly detailed information on its financial statements.

Accepted Answer

A) True 
 B)False

Question 10

A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales.

Accepted Answer

A) True 
 B)False

Question 11

Working capital is defined as:

Accepted Answer

A)   Current assets divided by current liabilities.
B)   Total assets minus total liabilities.
C)   Current assets less current liabilities.
D)   Current liabilities divided by total liabilities.

Question 12

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

Accepted Answer

A)   $0.50
B)   $5.50
C)   $6.67
D)   $1.67

Question 13

In vertical analysis, each item is expressed as a percentage of:

Accepted Answer

A)   Total assets on the balance sheet.
B)   Total cash on the balance sheet.
C)   Total current assets on the balance sheet.
D)   None of these answers is correct.

Question 14

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Accepted Answer

A)   Debt to assets ratio
B)   Earnings per share
C)   Return on investment
D)   Number of times interest is earned

Question 15

The Poole Company reported the following income for Year 2:  What is the company's net margin? (Round your answers to the nearest whole percent.)

Accepted Answer

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

Question 16

Accrual accounting requires the use of many estimates, including:

Accepted Answer

A)   Uncollectible accounts expense.
B)   Warranty costs.
C)   Assets' useful lives.
D)   All of these answers are correct.

Question 17

Common methods of financial statement analysis include all of the following except:

Accepted Answer

A)   Incremental analysis.
B)   Horizontal analysis.
C)   Vertical analysis.
D)   Ratio analysis.

Question 18

The following balance sheet information is provided for Greene Company for Year 2:  What is the company's quick (acid-test)  ratio?

Accepted Answer

A)   0.7
B)   1.4
C)   1.3
D)   3.8

Question 19

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.

Question 20

Which of the following statements is generally incorrect from an investor's perspective?

Accepted Answer

A)   A 1:1 current ratio is generally preferred over a 1.5:1 current ratio.
B)   A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period.
C)   A 5% dividend yield is generally preferred over a 3% dividend yield.
D)   A 10% net margin is generally preferred over an 8% net margin. A

Exam 9: Financial Statement Analysis

Which of the following statements regarding net margin is incorrect?

Correct AnswerverifiedD

Which of the following statement is correct regarding the quick ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Solvency ratios are used to assess a company's:

Correct AnswerverifiedA

You are considering an investment in Frontier Airlines stock and wish to assess the firm's earnings performance. All of the following ratios can be used to assess profitability except:

Correct AnswerverifiedShow Answer

Select the correct statement regarding vertical analysis.

Correct AnswerverifiedShow Answer

The return on investment measure is also referred to as:

Correct AnswerverifiedShow Answer

Which of the following is not included in the computation of the quick ratio?

Correct AnswerverifiedShow Answer

A company has an obligation to provide highly detailed information on its financial statements.

Correct AnswerverifiedShow Answer

A vertical analysis uses percentages to compare each of the parts of an individual statement to a key statement figure. For example, on an income statement each item would be shown as a percentage of net sales.

Correct AnswerverifiedShow Answer

Working capital is defined as:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In vertical analysis, each item is expressed as a percentage of:

Correct AnswerverifiedShow Answer

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

Correct AnswerverifiedShow Answer

The Poole Company reported the following income for Year 2: What is the company's net margin? (Round your answers to the nearest whole percent.)

Correct AnswerverifiedShow Answer

Accrual accounting requires the use of many estimates, including:

Correct AnswerverifiedShow Answer

Common methods of financial statement analysis include all of the following except:

Correct AnswerverifiedShow Answer

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test) ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is generally incorrect from an investor's perspective?

Correct AnswerverifiedA

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