Question 1

Intercompany comparison refers to comparison with other companies to provide insight into competitive position.

Accepted Answer

Intercompany comparison involves analyzing financial and operational metrics of different companies to assess their competitive standing and performance in the industry.

Question 2

Vertical analysis expresses all income statement items as a percentage of profit.

Accepted Answer

Vertical analysis expresses all income statement items as a percentage of total sales or revenue, not profit.

Question 3

A base year is selected when performing horizontal analysis.

Accepted Answer

Horizontal analysis involves comparing financial data over multiple periods, and a base year is selected as a point of reference to measure changes over time.

Question 4

Current ratio, receivables turnover, and inventory turnover, are measures of solvency.

Accepted Answer

These are measures of liquidity and efficiency, not solvency. Solvency measures a company's ability to meet long-term obligations, while liquidity and efficiency measures assess short-term financial health and operational performance.

Question 5

Gross profit margin, asset turnover, and return on equity are profitability ratios.

Accepted Answer

Gross profit margin, asset turnover, and return on equity are all measures of profitability, as they all indicate how efficiently a company is using its assets to generate profits.

Question 6

The payout ratio is a reflection of investor's assessments of a company's future profits.

Accepted Answer

The payout ratio indicates the proportion of earnings a company pays to its shareholders as dividends, not directly reflecting investor assessments of future profits.

Question 7

The formula for calculating the interest coverage ratio is profit before income tax expense and interest expense divided by interest expense.

Accepted Answer

The interest coverage ratio is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense, which is equivalent to profit before income tax expense and interest expense divided by interest expense.

Question 8

Earnings per share is reported for both common and preferred shares.

Accepted Answer

Earnings per share (EPS) is typically reported for common shares only, as it represents the portion of a company's profit allocated to each outstanding share of common stock. Preferred shares have fixed dividends and do not typically participate in earnings distribution in the same way.

Question 9

Sales (in millions) for a three-year period are: Year 1 $4.0, Year 2 $4.6, and Year 3 $5.0. Using Year 1 as the base year, sales in Years 2 and 3 expressed as a percentage of the base year sales are, respectively:

A) 115% and 125%.
B) 115% and 109%.
C) 15% and 25%.
D) 87% and 80%.

Accepted Answer

($4.6 ÷ $4.0; $5.0 ÷ $4.0)

Question 10

All of the formulas are correct except:&#10;A) Receivables Turnover = Net Credit Sales &#247; Average Gross Receivables.&#10;B) Asset turnover = Net Sales &#247; Average Total Assets.&#10;C) Current Ratio = Current Liabilities &#247; Current Assets.&#10;D) Payout Ratio = Cash Dividends &#247; Profit.

Accepted Answer

The answer of All of the formulas are correct except:&#10;A)...

Question 11

Net credit sales are $4,000,000 and average gross receivables are $250,000. The collection period is:&#10;A) 16 times.&#10;B) 6.25 percent.&#10;C) 16 days.&#10;D) 22.8 days.

Accepted Answer

The answer of Net credit sales are $4,000,000 and average...

Question 12

The Operating Cycle:&#10;A) Represents the number of days to purchase inventory&#10;B) Measures liquidity of inventory.&#10;C) Measures the number of days receivables are outstanding&#10;D) Increases as the collection period increases.

Accepted Answer

The answer of The Operating Cycle:&#10;A) Represents the number of...

Question 13

Earnings per share:&#10;A) is calculated by dividing profit by the number of common share issued in the year&#10;B) is a measure of the profit earned on each common share&#10;C) is not presented on the income statement for publicly traded companies&#10;D) is a measure of profit earned on each preferred share

Accepted Answer

The answer of Earnings per share:&#10;A) is calculated by dividing...

Question 14