Deck 16: Financial Statement Analysis

Question 1

An example of horizontal analysis is the increase in cost of goods sold by 25% from 2013 to 2014.

Answer 1

True

Question 2

Labor markets can impact industrial statistics and standards.

Answer 2

True

Question 3

The use of common-size analysis makes comparisons more meaningful because percentages eliminate the effects of size.

Answer 3

True

Question 4

A primary purpose of vertical analysis is to observe trends over a three-year period.

Question 5

In vertical analysis of the balance sheet, total liabilities are represented by 100%.

Question 6

Small sample sizes for an industrial report rarely cause a comparability problem in using standards.

Question 7

In vertical analysis of the income statement, cost of goods sold is represented by 100%.

Question 8

Two major forms of common-size analysis are horizontal analysis and vertical analysis.

Question 9

Liquidity ratios measure the ability of a company to meet its current obligations.

Question 10

For meaningful analysis, ratios should be compared with a standard.

Question 11

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

Question 12

Horizontal analysis involves comparing two or more years' financial data for a single company.

Question 13

Industrial figures, standards and statistics should be used with so much care that they are not a very good reference point to compare companies.

Question 14

Terms of sale can produce statistical variations among companies within the same industry.

Question 15

A number of online sources contain competitive information on individual company's ratios.

Question 16

Common-size analysis expresses each item in a financial statement as a percent of a base amount.

Question 17

Companies in the same industry may use different accounting methods, diminishing the usefulness of some industrial averages.

Question 18

Common-size statements are statements of companies of similar size and operations.

Question 19

Industrial statistics should be taken as absolute norms as far as standards for comparability.

Question 20

In horizontal analysis, the base year can be the immediately preceding period, or it can be a period further in the past.

Question 21

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Measures the ability of a company to meet long and short term obligations

Question 22

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Dividend payout ratio

Question 23

Profitability ratios assess the ability of a company to meets its long- and short-term obligations.

Question 24

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Measures the ability of the company to meet its current obligations

Question 25

The quick ratio should be larger than the current ratio.

Question 26

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Debt-to-equity ratio

Question 27

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Measures the earning ability of a company

Question 28

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Return on sales

Question 29

When computing the quick ratio, a short-term note receivable would be included.

Question 30

The current ratio is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.

Question 31

All debt is considered in the computation of the quick ratio.

Question 32

The inventory turnover ratio measures the number of days the average balance of accounts receivable is outstanding before being converted into cash.

Question 33

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Earnings per share

Question 34

The dividend payout ratio is equal to common dividends divided by (Net Income - Preferred Dividends).

Question 35

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Allows evaluation of the extent to which funds are used efficiently

Question 36

Jill's Market has an inventory turnover of 120 times. Scott's Market has a turnover of 128 times. Scott's is more effective in managing inventory.

Question 37

Inventory turnover is a measure of liquidity that focuses on efficient use of inventory.

Question 38

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Measures the degree of protection provided to company creditors

Question 39

Dividing the market price of a share of stock by the earnings per share gives the price-earnings ratio.

Question 40

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Current ratio

Question 41

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Return on total assets ratio

Question 42

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A ratio that indicates what proportion of equity and debt the company is using to finance its assets.

Question 43

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
The relationship between dividends and the market price of a company's stock

Question 44

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Inventory turnover ratio

Question 45

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A measure viewed by many investors as an important indicator of stock values. It is found by dividing the market price per share by the earnings per share

Question 46

_____________________ expresses a line item as a percentage of some other line item for the same period.

Question 47

_________________ expresses a line item as a percentage of some prior-period amount.

Question 48

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Price-earnings ratio

Question 49

For meaningful analysis, ratios should be compared with a ____________.

Question 50

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Times-interest-earned ratio

Question 51

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
An income statement measure of the ability of a company to service its debts

Question 52

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A measure of the degree of protection afforded creditors in case of insolvency

Question 53

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
Debt ratio

Question 54

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A measure that compares only the most liquid assets to current liabilities

Question 55

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A measure of the company's success in earning a return for the common stockholders

Question 56

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A measure of the company's ability to pay its short-term liabilities out of short-term assets

Question 57

_________________ measure the ability of a company to meet its current obligations.

Question 58

____________ are fractions or percentages computed by dividing one account or line-item amount by another.

Question 59

The measures of the ability of a company to meets its long- and short-term obligations are known as _______________.

Question 60

MATCHING
Match the classifications of ratios with each description.
a.
Liquidity Ratio
b.
Leverage Ratio
c.
Profitability Ratio
d.
Horizontal Analysis
e.
Trend Analysis
A measure that tells an investor the proportion of earnings that a company pays in dividends

Question 61

The ratios that allow investors, creditors, and managers to evaluate the extent to which invested funds are being used efficiently are called ____________.

Question 62

In vertical analysis, line items on the income statement are generally expressed as a percentage of

A) net income.
B) net sales.
C) cost of goods sold.
D) total assets.

Question 63

Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time

A) that has been arranged from the highest amount to the lowest amount.
B) that has been arranged from lowest amount to the highest amount.
C) to determine which items are in error.
D) to determine the amount and/or percentage increase or decrease that has taken place.

Question 64

The _____________________ gives the number of days inventory is held before being sold.

Question 65

The ___________________ is calculated by dividing the market price per share by earnings per share.

Question 66

The ________________ is calculated by dividing total liabilities by total stockholders' equity.

Question 67

The _________________ is a measure of liquidity that compares only the most liquid assets with current liabilities.

Question 68

A company measures how efficiently it is using its assets by calculating the _______________.

Question 69

Horizontal analysis is also known as

A) linear analysis.
B) vertical analysis.
C) trend analysis.
D) budget analysis.

Question 70

____________________ represents the percentage of each sales dollar that is left over from net income after all expenses have been subtracted.

Question 71

Investors who prefer gains through appreciation will generally prefer a ___________ payout ratio.

Question 72

The ________________ is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.

Question 73

The two major techniques for financial analysis are

A) horizontal analysis and circular analysis.
B) receivable analysis and profitability analysis.
C) vertical analysis and budget analysis.
D) common-size analysis and ratio analysis.

Question 74

In horizontal analysis, each item is expressed as a percentage of the

A) retained earnings figure.
B) total assets figure.
C) net income figure.
D) base year figure.

Question 75

How long it takes a company to turn its receivables into cash is known as the ________________.

Question 76

The ________________ is computed by dividing a company's total liabilities by its total assets.

Question 77

The _________________ uses the income statement to assess a company's ability to service its debt.

Question 78

Creditors would like the debt-to-equity ratio to be _______, indicating that stockholders have financed most of the assets of the firm.

Question 79

______________ and ____________ are the two major sources of capital.

Question 80

In vertical analysis, line items on the balance sheet are generally expressed as a percentage of

A) total liabilities.
B) net income.
C) total assets.
D) cost of goods sold.