Deck 10: Analyzing financial Statements

Question 1

What are the four areas used when financial ratios are used to analyze a firm?

Answer 1

Profitability Liquidity Solvency Efficiency

Question 2

An important tool in monitoring a credit program is monthly aging of -------------------------------.

Answer 2

accounts receivable

Question 3

A profitability ratio potential investors often find useful when evaluating net income after all business expenses is -------------------------------.

Answer 3

return on equity

Question 4

------------------------------- analysis expresses the balance sheet and income statement figures as percentages of some key base figure.

Question 5

Financial analysis and records help to identify a firm's ------------------and-------------but do not solve problems

Question 6

The area of financial ratios used to analyze a firm's ability to take risks and potential losses is

A) Profitability
B) Liquidity
C) Solvency
D) Efficiency

Question 7

The profitability ratio(s) included in the profitability linkage analysis model is (are) the

A) Return on investment
B) Return on equity
C) Return on sales
D) All of the above

Question 8

The calculation of the various profitability ratios can be done before or after

A) Interest
B) Other income
C) Taxes
D) All of the above

Question 9

Given the following balance sheet information, what is the quick ratio?

A) 0.5
B) 1.0
C) 1.5
D) None of the above

Question 10

If the debt-to-equity ratio equals 1.0, then the debt-to-asset ratio will equal

A) 1.0
B) 2.0
C) 0.5
D) None of the above

Question 11

If a firm's ROI is 5 percent and its ROE is 10 percent , then its debt-to-asset ratio is

A) 25 percent
B) 50 percent
C) 75 percent
D) None of the above

Question 12

Examples of liquidity measures include all the following except

A) Debt-to-equity ratio
B) Quick ratio
C) Current ratio
D) Working capital

Question 13

Ratios used to evaluate efficiency in the collection of accounts receivable include

A) Days sales in accounts receivable
B) Percentage change in credit sales
C) Bad debts as a percentage of credit sales
D) All of the above

Question 14

Investors are probably most interested in which ratio?

A) ROE
B) ROA
C) ROS
D) None of the above

Question 15

Limitations of financial ratio analysis may include which of the following?

A) Cash basis of accounting is used to prepare the income statement
B) Market values are used to value assets on the balance sheet
C) Balance sheets are not prepared at the same time each year
D) All of the above

Question 16

The ability of a firm to meet all financial commitments is called its solvency.

Question 17

The set of ratios that is used to evaluate an agribusiness firm may differ from the set of ratios used to evaluate a nonagricultural firm.

Question 18

Interest expense is subtracted from net income before interest when calculating the return on assets ratio.

Question 19

When evaluating the days in accounts receivable ratio, the result should at greater than the days in accounts payable ratio.

Question 20

When calculating the leverage ratio used in the profitability analysis model, total assets is divided by total equity.

Question 21

The goal many lenders have for the current ratio is 1.0.

Question 22

The goal many lenders have for the debt-to-asset ratio is for it to be greater than 0.5.

Question 23

When calculating the inventory turnover ratio, users may use the ending inventory or the average inventory for the year.

Question 24

In the profitability analysis model ROS is multiplied by asset turnover to calculate ROE.

Question 25

One of the reasons financial ratio analysis is used to measure financial performance is so the firm's condition and performance may be compared to other similar firms.