Deck 8: Financial Analysis

Question 1

The first step in the evaluation of a firm starts with a financial analysis of the organization.

Answer 1

False

Question 2

In the Friend's Home Health case study, the founders used deviation analysis on their business.

Answer 2

False

Question 3

In the Friend's Home Health case study, the founders understood the profit margin, which assisted them in expanding the business.

Answer 3

False

Question 4

Liquidity ratios measure debt or accounts payable that must be paid in the near future.

Question 5

The current ratio is computed by dividing current assets by current liabilities.

Question 6

The quick acid ratio removes the ability to sell inventory from the calculation, and examines the pure cash position relative to the current liabilities.

Question 7

An important concept in conducting a ratio analysis is to ensure the business is comparing their ratios with the ratios of other similar firms. In other words, a small business should compare their ratios with other similar small businesses in the same industry.

Question 8

Activity ratios measure the efficiency with which a firm is handling the resources of the business.

Question 9

The inventory turnover ratio indicates whether a company is holding excessive stocks of inventory.

Question 10

Many businesses have some type of seasonal impact (significantly increasing or decreasing sales) that could have an impact on ordering, staffing, and advertising.

Question 11

Pro forma analysis involves taking the current cash flow statement and using it to look at how sensitive the company is to various factors.

Question 12

Chris in the Flow Right Brewery & Bar: A Family Affair case study realized that he needed to do a financial analysis.

Question 13

Surveys provide nonfinancial data to a business owner.

Question 14

Short surveys can be given to any party to a transaction with your business to provide your company an evaluation of its performance.

Question 15

In doing surveys, a random sample must be used to obtain valid data.

Question 16

There is always bias in any survey.

Question 17

The focus of survey questions should be on issues that will contribute to a firm's competitive advantages.

Question 18

A new small business does not need to worry about monitoring how well its inventory management system is operating; only larger businesses experience these kinds of problems.

Question 19

Deviation analysis tracks changes in competitors' marketing efforts and alerts a small business owner quickly.

Question 20

Sensitivity analysis is done by developing a chart of current information from the cash flow statement and income statement. The purpose is to examine the ability of a firm to handle changes in the future.

Question 21

Sensitivity analysis provides an opportunity to create a pro forma projection of key financial aspects of a business so the business owner can develop plans for the future.

Question 22

Surveys should be given to only one person or organization that is involved in a transaction with your business in order to eliminate bias and improve the effectiveness of the information collected.

Question 23

While a small business owner needs to focus on measuring the performance of the business, other aspects of operating the business are frequently more important.

Question 24

A small business owner needs to focus on measuring the business areas that are extraordinary in order to create differences from competitors.

Question 25

A classic technique for financial analysis is:

A) ratio analysis
B) sensitivity analysis
C) short surveys
D) all of these

Question 26

Liquidity ratios allow the owner the short-term ability to meet the firm's financial obligations. These obligations are _________ and _________.

A) debt; accounts payable
B) inventory; accounts receivable
C) debt; accounts receivable
D) inventory; accounts payable

Question 27

The acid test is commonly known as the _________.

A) quick ratio
B) current ratio
C) profitability rate
D) leverage ratio

Question 28

If the current ratio is just over 1.0, it reveals to the company they have just enough money to meet _________ percent of their short-term obligations.

A) 0
B) 50
C) 75
D) 100

Question 29

_________ measures the efficiency with which a company can handle its resources.

A) Profitability ratio
B) Leverage ratio
C) Inventory ratio
D) Activity ratio

Question 30

New businesses should try to _________ the amount of both fixed and total assets in order to conserve cash.

A) maximize
B) minimize
C) increase
D) decrease

Question 31

All of these are analytical methods focusing on financial data EXCEPT:

A) short survey
B) ratios
C) deviation analysis
D) sensitivity analysis

Question 32

To obtain accurate and useful data from surveys, the people who are asked to complete the survey should be selected _________.

A) stratified
B) randomly
C) multilevel
D) biased

Question 33

Which of the following is NOT a reason for the small business owner to measure the firm's performance?

A) An existing business is subject to competitors' moves.
B) Customers' preferences and needs change.
C) Suppliers and vendors change their offerings and/or prices.
D) All of these.

Question 34

The evaluation of a firms starts with:

A) the mission of the firm
B) ratio analysis
C) deviation analysis
D) short surveys

Question 35

Deviation analysis is used to compare:

A) this year's ratios with previous year's ratios
B) this year's ratios with industry standard ratios
C) this year's ratios with both previous year's ratios and industry standard ratios
D) none of these

Question 36

There are various methods to analyze the business, its activities, and its performance. All of the following methods focus on analyzing financial data of the business EXCEPT:

A) sensitivity analysis
B) deviation analysis
C) short surveys
D) ratio analysis

Question 37

In the case study, VAVAVROOMONLINE.COM, the firm's evaluation began with their:

A) key competitive advantages
B) mission statement
C) current activities
D) none of these

Question 38

The quick ratio is also known as the _________ test.

Question 39

_________ is the evaluation of a series of ratios along four areas of company performance (liquidity, activity, leverage, and profitability) that provides a picture of the health of a company.

Question 40

Define liquidity ratios and detail the two liquidity ratios.