Deck 9: Financial Analysis: The Gauges

Question 1

Analysis of financial statements involves the comparison of a business's performance with that of other businesses in different industries

Answer 1

False

Question 2

Financial statement analysis helps business to correct its weaknesses and capitalize on its strengths.

Answer 2

True

Question 3

Working capital is a ratio measure of long-term financial position.

Answer 3

False

Question 4

The Debt/Asset ratio is a measure of current financial performance

Question 5

A high Debt/Equity ratio (D/E ratio) indicates that creditors are financing most of a business's operations.

Question 6

In?come-statement ratios provide information on current operating performance and effi?ciency.

Question 7

The operating-expense ratio is calculated by dividing total operating expenses by net profit.

Question 8

Inventory turnover calculates the number of times, on average, inventory is replaced during the year.

Question 9

ROA or the Rate of Return on Assets helps a venture owner to understand how management is performing with the resources available

Question 10

A Z-score above 2.99 could be a sign that the business is heading towards bankruptcy.

Question 11

Current assets - Current Liabilities = ____________

A) Current ratio
B) Acid-test ratio
C) Working capital
D) Inventory turnover

Question 12

[Current Assets (Less Inventory & Prepaid Expenses) ] / Current liabilities = ___________

A) Current ratio
B) Acid-test ratio
C) Debt / Asset ratio
D) Inventory turnover

Question 13

Total Operating Expenses / Net Sales = ____________

A) Current ratio
B) Operating-expense ratio
C) Acid-test ratio
D) Debt / Asset ratio

Question 14

Operating Income / Annual Financial Expense = _______________

A) Operating-expense ratio
B) Income-expense ratio
C) Number of times interest earned
D) Accounts receivable turnover

Question 15

Cost of Goods Sold / Average Inventory = ________________

A) Accounts receivable turnover
B) Operating-expense ratio
C) Inventory turnover
D) Inventory/Cost ratio

Question 16

Average number of days to inventory turnover = _______________

A) Days in a year / Inventory turnover
B) (Average inventory x Inventory turnover) / Days in a year
C) (Days in a year x Inventory turnover) / Average inventory
D) Inventory turnover x Days in a year

Question 17

Net Sales / Average accounts receivable = ____________

A) Accounts receivable turnover
B) Operating-expense ratio
C) Inventory turnover
D) Inventory/Cost ratio

Question 18

Operating Income / Average Assets = _______________

A) Quick ratio
B) Asset turnover ratio
C) Rate of return on total assets (ROA)
D) Rate of return on equity (ROE)

Question 19

The primary budget for a new venture, from which all other budgets flow, is known as the _____

A) Sales Budget
B) Cash Budget
C) Operating Budget
D) Venture Budget

Question 20

In a Cash Budget, usually a business will estimate its needs for a ___________ day period and then determine how much money it is likely to collect during this time.

A) 7 to 14
B) 14 to 30
C) 30 to 60
D) 60 to 90

Question 21

"Other" budgetary considerations include:

A) Payroll budgets
B) Advertising / Selling budgets
C) Property, Plant, & Equipment budgets
D) All of the above

Question 22

Which of these is an expense that needs to be considered when making budgeting decisions for international expansion.

A) Fluctuating exchange rates
B) Taxation
C) Labor laws
D) All of the above

Question 23

What does a business owner hope to gain from financial statement analysis? Support your answer

Question 24

Which ratio is of greater interest to the owner-manager, the rate of return on total assets or the rate of return on equity? Support your answer.

Question 25

List and explain three of the limitations of financial analysis

Question 26

How does the cash budget help the owner-manager control operations? Include a description of this budget in your answer

Question 27

Describe the 4 combination ratios as listed out in the chapter