Question 1

Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold? Round your final answer to the nearest dollar.

Accepted Answer

A)   $2,074,557
B)   $2,745,640
C)   $274,560
D)   None of the above.

Question 2

The three different perspectives on financial statement analysis are those of the:

Accepted Answer

A)   manager, regulator, and bondholder.
B)   manager, shareholder, and creditor.
C)   regulator, shareholder, and creditor.
D)   shareholder, creditor, and regulator.

Question 3

Which of the following is true about the quick ratio?

Accepted Answer

A)   The quick ratio is calculated by dividing the least liquid of current assets by current liabilities.
B)   Service firms that tend not to carry too much inventory will see significantly higher quick ratios than current ratios.
C)   Inventory, being not very liquid, is subtracted from total current assets to determine the most liquid assets.
D)   Quick ratios will tend to be much larger than current ratio for manufacturing firms or other industries that have a lot of inventory.

Question 4

An individual analyzing a firm's financial statements should do all but which one of the following?

Accepted Answer

A)   Use unaudited financial statements
B)   Perform a trend analysis
C)   Perform a benchmark analysis
D)   Compare the firm's performance to that of its direct competitors

Question 5

If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables? Round your final answer to the nearest dollar.

Accepted Answer

A)   $881,234
B)   $13,403,567
C)   $1,340,357
D)   $81,234

Question 6

In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity? (Round your percentage answer to one decimal place.)

Accepted Answer

A)   13.1%
B)   14.6%
C)   22.5%
D)   18.7%

Question 7

Which one of the following statements about trend analysis is NOT correct?

Accepted Answer

A)   The benchmark for trend analysis is based on a firm's historical performance.
B)   It allows management to examine each ratio over time and determine whether the trend is good or bad for the firm.
C)   It uses the Standard Industrial Classification (SI
C)   System to benchmark firms.
D)   A ratio value that is changing typically prompts the financial manager to sort out the issues surrounding the change.

Question 8

Common-size financial statements:

Accepted Answer

A)   are a specialized application of ratio analysis.
B)   allow us to make meaningful comparisons between the financial statements of two firms that are different in size.
C)   are prepared by having each financial statement item expressed as a percentage of some base number, such as total assets or total revenues.
D)   All of the above are true.

Question 9

A firm increased its day's sales outstanding from 35 days to 43 days. This implies the firm is more efficient in collecting the debts.

Accepted Answer

A) True 
 B)False

Question 10

Financial statement analysis can help us determine why a firm's cash flows are increasing or decreasing.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is NOT true of the asset turnover ratio?

Accepted Answer

A)   Asset turnover ratio measures the dollar amount of sales per dollar of assets that the firm has.
B)   The fixed assets turnover ratio is less significant for equipment-intensive manufacturing industry firms than the total assets turnover ratio.
C)   The higher the total asset turnover, the more efficiently management is using total assets.
D)   The ratio is quite useful in identifying the inefficient use of current and long-term assets.

Question 12

Which of the following is NOT a method of "benchmarking"?

Accepted Answer

A)   Conducting an industry group analysis.
B)   Utilizing the DuPont system to analyze a firm's performance.
C)   Evaluating a single firm's performance over time.
D)   Identifying a group of firms that compete with the company being analyzed.

Question 13

The creditors of a firm analyze financial statements so that they can focus on:

Accepted Answer

A)   the firm's amount of debt.
B)   the firm's ability to generate sufficient cash flows to meet its legal obligations first and still have sufficient cash flows to meet debt repayment and interest payments.
C)   the firm's ability to meet its short-term obligations.
D)   All of the above.

Question 14

Turnover ratios are useful for managers in identifying inefficient use of current and long-term assets.

Accepted Answer

A) True 
 B)False

Question 15

Trident Corp., has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times-interest-earned ratio? Round your final answer to nearest number.

Accepted Answer

A)   13 times
B)   12 times
C)   11 times
D)   None of the above

Question 16

A typical way in which a common-size income statement is constructed is by dividing all expense items in an income statement by net income.

Accepted Answer

A) True 
 B)False

Question 17

Ronaldinho Trading Co. is required by its bank to maintain a current ratio of at least 1.75, and its current ratio now is 2.1. The firm plans to acquire additional inventory to meet an unexpected surge in the demand for its products and will pay for the inventory with short-term debt. How much inventory can the firm purchase without violating its debt agreement, if their total current assets equal $3.5 million? Round your final answer to the nearest dollar.

Accepted Answer

A)   $0
B)   $777,777
C)   $1 million
D)   None of the above

Question 18

Peer group analysis can be performed by:

Accepted Answer

A)   management choosing a set of firms that are similar in size or sales, or who compete in the same market.
B)   using the average ratios of this peer group, which would then be used as the benchmark.
C)   identifying firms in the same industry that are grouped by size, sales, and product lines in order to establish benchmark ratios.
D)   Only a and b relate to peer group analysis.

Question 19

There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?

Accepted Answer

A)   Ratio analysis requires the analyst to evaluate a firm's performance over a period of time to be of any value.
B)   Proper ratio analysis requires the analyst to rely upon audited financial statements, which can be easily manipulated.
C)   Thorough ratio analysis requires the analyst to refer to benchmarking, which is very easy to misinterpret.
D)   Ratio analysis requires the analyst to utilize accounting data that is based on historical costs instead of current market values.

Question 20

Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio? Round your final answers to two decimal places.

Accepted Answer

A)   2.31; 1.31
B)   1.75; 0.75
C)   0.75; 1.75
D)   1.31; 2.31

Exam 4: Analyzing Financial Statements

Common-size financial statements:

Correct Answer
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There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?

Correct Answer
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Trident Corp., has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times-interest-earned ratio? Round your final answer to nearest number.

Correct Answer
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Which one of the following statements about trend analysis is NOT correct?

Correct Answer
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If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables? Round your final answer to the nearest dollar.

Correct Answer
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Which of the following is NOT a method of "benchmarking"?

Correct Answer
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The three different perspectives on financial statement analysis are those of the:

Correct Answer
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A typical way in which a common-size income statement is constructed is by dividing all expense items in an income statement by net income.

Correct Answer
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In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity? (Round your percentage answer to one decimal place.)

Correct Answer
verified

Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold? Round your final answer to the nearest dollar.

Correct Answer
verified

An individual analyzing a firm's financial statements should do all but which one of the following?

Correct Answer
verified

Which of the following statements is NOT true of the asset turnover ratio?

Correct Answer
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The creditors of a firm analyze financial statements so that they can focus on:

Correct Answer
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Turnover ratios are useful for managers in identifying inefficient use of current and long-term assets.

Correct Answer
verified

Peer group analysis can be performed by:

Correct Answer
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Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio? Round your final answers to two decimal places.

Correct Answer
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Which of the following is true about the quick ratio?

Correct Answer
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Correct Answer
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Financial statement analysis can help us determine why a firm's cash flows are increasing or decreasing.

Correct Answer
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A firm increased its day's sales outstanding from 35 days to 43 days. This implies the firm is more efficient in collecting the debts.

Correct Answer
verified

Exam 4: Analyzing Financial Statements

Common-size financial statements:

Correct AnswerverifiedShow Answer

There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?

Correct AnswerverifiedShow Answer

Trident Corp., has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times-interest-earned ratio? Round your final answer to nearest number.

Correct AnswerverifiedShow Answer

Which one of the following statements about trend analysis is NOT correct?

Correct AnswerverifiedShow Answer

If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables? Round your final answer to the nearest dollar.

Correct AnswerverifiedShow Answer

Which of the following is NOT a method of "benchmarking"?

Correct AnswerverifiedShow Answer

The three different perspectives on financial statement analysis are those of the:

Correct AnswerverifiedShow Answer

A typical way in which a common-size income statement is constructed is by dividing all expense items in an income statement by net income.

Correct AnswerverifiedShow Answer

In the latest year, Photon, Inc. reported $276,000 in net income. The firm maintains a debt ratio of 30% and has total assets of $3,000,000. What is Photon's return on equity? (Round your percentage answer to one decimal place.)

Correct AnswerverifiedShow Answer

Ellicott City Manufacturers, Inc., has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the firm's cost of goods sold? Round your final answer to the nearest dollar.

Correct AnswerverifiedShow Answer

An individual analyzing a firm's financial statements should do all but which one of the following?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT true of the asset turnover ratio?

Correct AnswerverifiedShow Answer

The creditors of a firm analyze financial statements so that they can focus on:

Correct AnswerverifiedShow Answer

Turnover ratios are useful for managers in identifying inefficient use of current and long-term assets.

Correct AnswerverifiedShow Answer

Peer group analysis can be performed by:

Correct AnswerverifiedShow Answer

Dreisen Traders has total debt of $1,233,837 and total assets of $2,178,990. What are the firm's equity multiplier and debt-to-equity ratio? Round your final answers to two decimal places.

Correct AnswerverifiedShow Answer

Which of the following is true about the quick ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Financial statement analysis can help us determine why a firm's cash flows are increasing or decreasing.

Correct AnswerverifiedShow Answer

A firm increased its day's sales outstanding from 35 days to 43 days. This implies the firm is more efficient in collecting the debts.

Correct AnswerverifiedShow Answer

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