Deck 7: Analysis of Financial Statements

Question 1

Which of the following statements is correct?

A) In a reverse split,a company reduces the number of shares outstanding in order to stabilize and provide a floor for a rapidly declining stock price.
B) In theory,dividends are determined as a residual item.Therefore,in order to conserve earnings for better future earnings opportunities,the poorer the firm's investment opportunities,the lower its dividend payments should be.
C) The farther to the right the IOS is the higher a firm's dividend payout ratio,other things held constant.
D) Even if a stock split has no information content,and even if the dividend per share adjusted for the split does not increase,there can still be a real benefit (i.e. ,a higher value for shareholders)from such a split,but any such benefit is probably small.

Answer 1

Even if a stock split has no information content,and even if the dividend per share adjusted for the split does not increase,there can still be a real benefit (i.e. ,a higher value for shareholders)from such a split,but any such benefit is probably small.

Question 2

Which of the following would be classified as a use of cash?

A) An increase in accounts payable.
B) A decrease in marketable securities.
C) A decrease in accounts receivable.
D) An increase in retained earnings.
E) An increase in inventories.

Answer 2

An increase in inventories.

Question 3

Which of the following statements is correct?

A) In the text,depreciation is regarded as a use of cash because it reduces fixed assets,which then must be replaced.
B) If a company uses some of its cash to pay off short-term debt,then its current ratio will always decline,given the way the ratio is calculated,other things held constant.
C) During a recession,it is reasonable to think that most companies' inventory turnover ratios will change while their fixed asset turnover ratios will remain fairly constant.
D) During a recession,we can be confident that most companies' DSOs (or ACPs)will decline because their sales will probably decline.
E) Each of the above statements is false.

Answer 3

Each of the above statements is false.

Question 4

Which of the following statements is most correct? If a company lowers its DSO,but no changes occur in sales or operating costs,then

A) the company might well end up with a higher debt ratio.
B) the company might well end up with a lower debt ratio.
C) the company would probably end up with a higher ROE.
D) the company's total asset turnover ratio would probably decline.
E) none of the above is a correct statement.

Question 5

Other things held constant,if a firm holds cash balances in excess of their optimal level in a non-interest bearing account,this will tend to lower the firm's

A) Operating profit margin.
B) Total asset turnover.
C) Return on equity.
D) All of the above.
E) Answers b and c above.

Question 6

Other things held constant,which of the following will not affect the quick ratio? (Assume that current assets equal current liabilities. )

A) Fixed assets are sold for cash.
B) Cash is used to purchase inventories.
C) Cash is used to pay off accounts payable.
D) Accounts receivable are collected.
E) Long-term debt is issued to pay off a short-term bank loan.

Question 7

Changes in balance sheet accounts are necessary for

A) A typical ratio analysis.
B) Pro forma balance sheet construction.
C) Statement of cash flows construction.
D) Profit and loss analysis.
E) Pro forma income statement construction.

Question 8

Recently the M&M Company has been having problems.As a result,its financial situation has deteriorated.M&M approached the First National Bank for a badly needed loan,but the loan officer insisted that the current ratio (now 0.5)be improved to at least 0.8 before the bank would even consider granting the credit.Which of the following actions would do the most to improve the ratio in the short run?

A) Using some cash to pay off some current liabilities.
B) Collecting some of the current accounts receivable.
C) Paying off some long-term debt.
D) Selling some of the existing inventory at cost.
E) Purchasing additional inventory on credit (accounts payable).

Question 9

Which of the following statements is most correct?

A) Cash flows and accounting profit are not at all related since no common elements are used in the calculation of either individual measure.
B) The debt ratio measures that portion of fixed assets which is supported by common equity.
C) High inflation can seriously distort firms' balance sheets,and since inflation also affects depreciation and inventory costs,profits can also be affected.
D) Financial statement analysis is important from the investor's viewpoint in assessing past performance and predicting future performance.However,from a management perspective,financial statement analysis measures history and is merely a reporting requirement.It is not useful for planning future actions because it does not help determine future cash flows.
E) When an action is taken at one point in time,but its full effects cannot be accurately measured until later,this has the potential to affect the firm's financial statements.However,as long as the firm keeps the same standard accounting period this timing problem can be avoided.

Question 10

Which of the following statements is correct?

A) If two firms pay the same interest rate on their debt and have the same rate of return on assets,and if that ROA is positive,the firm with the higher debt ratio will also have a higher rate of return on common equity.
B) One of the problems of ratio analysis is that the relationships are subject to manipulation.For example,we know that if we use some of our cash to pay off some of our current liabilities,the current ratio will always increase,especially if the current ratio is weak initially.
C) Generally,firms with high profit margins have high asset turnover ratios,and firms with low profit margins have low turnover ratios;this result is exactly as predicted by the Du Pont equation.
D) Firms A and B have identical earnings and identical dividend payout ratios.If Firm A's growth rate is higher than that of Firm B,Firm A's P/E ratio must be greater than Firm B's P/E ratio.
E) None of the above statements is correct.

Question 11

Which of the following statements is correct?

A) The annual report contains four basic financial statements: the income statement;balance sheet;statement of cash flows;and statement of changes in long-term financing.
B) Although the annual report is geared toward the average stockholder,it represents financial analysts' most complete source of financial information about the firm.
C) The key importance of annual report information is that it is used by investors when they form their expectations about the firm's future earnings and dividends and the riskiness of those cash flows.
D) The annual report provides no relevant information for use by financial analysts or by the investing public.
E) None of the above statements is correct.

Question 12

Stock dividends

A) Have the same effects on financial statements as cash dividends.
B) Are similar to stock splits in that they do not change the fundamental position of current shareholders.
C) Must be accompanied by cash dividends.
D) Are viewed unfavorably by investors and thus should not be used.
E) Have no effect on a firm's balance sheet.

Question 13

A stock split will cause a change in the total dollar amounts shown in which of the following balance sheet accounts?

A) Cash.
B) Common stock.
C) Paid-in capital.
D) Retained earnings.
E) None of the above.

Question 14

A stock dividend will,in and of itself,affect the amounts in which of the following accounts? (Assume the stock has a par value. )

A) Common stock account.
B) Paid-in capital account.
C) Retained earnings account.
D) Cash.
E) Only answers a,b,and c above.

Question 15

Other things held constant,which of the following will not affect the current ratio,assuming an initial current ratio greater than 1.0?

A) Fixed assets are sold for cash.
B) Long-term debt is issued to pay off current liabilities.
C) Accounts receivable are collected.
D) Cash is used to pay off accounts payable.
E) A bank loan is obtained,and the proceeds are credited to the firm's checking account.

Question 16

A firm's current ratio has steadily increased over the past 5 years,from 1.9 five years ago to 3.8 today.What would a financial analyst be most justified in concluding?

A) The firm's fixed assets turnover probably has improved.
B) The firm's liquidity position probably has improved.
C) The firm's stock price probably has increased.
D) Each of the above is likely to have occurred.
E) The analyst would be unable to draw any conclusions from this information.

Question 17

All of the following represent cash outflows to the firm except

A) Taxes.
B) Interest payments.
C) Dividends.
D) Purchase of plant and equipment.
E) Depreciation.

Question 18

We can be sure that,in and of itself,a stock dividend will not affect which of the following financial aspects of the firm? (Assume the stock has a par value. )

A) Market value per share.
B) Book value per share.
C) Common stock account.
D) Paid-in capital account.
E) Total assets.

Question 19

Which of the following actions will cause an increase in the quick ratio in the short run?

A) $1,000 worth of inventory is sold,and an account receivable is created.The receivable exceeds the inventory by the amount of profit on the sale,which is added to retained earnings.
B) A small subsidiary which was acquired for $100,000 two years ago and which was generating profits at the rate of 10 percent is sold for $100,000 cash.(Average company profits are 15 percent of assets. )
C) Marketable securities are sold at cost.
D) All of the above.
E) Answers a and b above.

Question 20

Which of the following statements is most correct?

A) An increase in a firm's debt ratio,with no changes in its sales and operating costs,could be expected to lower its profit margin on sales.
B) An increase in the DSO,other things held constant,would generally lead to an increase in the total asset turnover ratio.
C) An increase in the DSO,other things held constant,would generally lead to an increase in the ROE.
D) In a competitive economy,where all firms earn similar returns on equity,one would expect to find lower profit margins for airlines,which require a lot of fixed assets relative to sales,than for fresh fish markets.
E) It is more important to adjust the Debt/Assets ratio than the inventory turnover ratio to account for seasonal fluctuations.

Question 21

Which of the following statements is correct?

A) If Company A has a higher debt ratio than Company B,then we can be sure that A will have a lower times-interest-earned ratio than B.
B) Suppose two companies have identical operations in terms of sales,cost of goods sold,interest rate on debt,and assets.However,Company A uses more debt than Company B;that is,Company A has a higher debt ratio.Under these conditions,we would expect B's profit margin to be higher than A's.
C) The ROE of any company which is earning positive profits and which has a positive net worth (or common equity)must exceed the company's ROA.
D) Statements a,b,and c are all true.
E) Statements a,b,and c are all false.

Question 22

Tapley Dental Supply Company has the following data: Net income: $240
Sales: $10,000
Total assets: $6,000
Debt ratio: 75%
TIE ratio: 2.0
Current ratio: 1.2
If Tapley could streamline operations,cut operating costs,and raise net income to $300,without affecting sales or the balance sheet (the additional profits will be paid out as dividends),by how much would its ROE increase?

A) 3.00%
B) 3.50%
C) 4.00%
D) 4.25%
E) 5.50%

Question 23

Micromain Company has 10,000,000 shares of common stock authorized and 8,000,000 shares outstanding,each with a $1.00 par value.The firm's additional paid-in capital account has a balance of $18,000,000.The previous year's retained earnings account was $124,000,000.In the year just ended,Micromain generated net income of $16,000,000 and the firm has a dividend payout ratio of 40 percent.What will Micromain's book value per share be when based on the final year-end balance sheet?

A) $20.75
B) $15.00
C) $15.96
D) $19.95
E) $18.75

Question 24

Which of the following statements is correct?

A) The statement of cash flows should include changes in summary accounts,such as current assets and current liabilities,as well as changes in all individual accounts.
B) If a firm sells equity to reduce long-term bonds,this is a capital financing transaction and does not appear on the statement of cash flows.However,if the firm sells equity in order to purchase assets,this transaction would be included in the statement of cash flows.
C) Net income is normally the firm's primary operating cash flow,but changes in accounts payable,accounts receivable,inventories and accruals are also classified as operating cash flows.
D) Each change on the balance sheet results from one of two types of transactions,either financing activities,such as issuing or retiring new stock or debt,or long-term investment,such as buying and selling assets.
E) The change in the firm's liquidity position is measured by how much greater a firm's sources of funds are than its uses of funds.

Question 25

Manufacturer's Inc.estimates that its interest charges for this year will be $700 and that its net income will be $3,000.Assuming its average tax rate is 30%,what is the company's estimated times interest earned ratio?

A) 2.40
B) 4.25
C) 5.33
D) 7.12
E) 7.75

Question 26

Ducheyne Electric recently declared a 15 percent stock dividend.On the date of the stock dividend Ducheyne had 16 million shares outstanding priced at $46 per share in the market.An accounting entry was required on the balance sheet transferring some retained earnings to the common stock account.If retained earnings were $280 million prior to the transaction,what was the dollar amount of retained earnings after the transfer?

A) $280.0 million
B) $110.4 million
C) $234.0 million
D) $277.6 million
E) $169.6 million

Question 27

Pepsi Corporation's current ratio is 0.5,while Coke Company's current ratio is 1.5.Both firms want to "window dress" their coming end-of-year financial statements.As part of their window dressing strategy,each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account.Which of the statements below best describes the actual results of these transactions?

A) The transactions will have no effect on the current ratios.
B) The current ratios of both firms will be increased.
C) The current ratios of both firms will be decreased.
D) Only Pepsi Corporation's current ratio will be increased.
E) Only Coke Company's current ratio will be increased.

Question 28

If Boyd Corporation has sales of $2 million per year (all credit)and days sales outstanding of 35 days,what is its average amount of accounts receivable outstanding (assume a 360 day year)?

A) $194,444
B) $57,143
C) $5,556
D) $97,222
E) $285,714

Question 29

A firm has total interest charges of $10,000 per year,sales of $1 million,a tax rate of 40 percent,and a net profit margin of 6 percent.What is the firm's times-interest-earned ratio?

A) 16 times
B) 10 times
C) 7 times
D) 11 times
E) 20 times

Question 30

Borg Security Systems is considering the sale of 12,000 shares of stock to finance development of a new security product.The firm has 40,000 shares of common stock outstanding,par value of $1.00 per share.The firm has $60,000 in additional paid-in capital and $80,000 in retained earnings.Borg's investment bankers estimate that new shares will bring in $5.15 per share.If Borg goes ahead with the new stock issue,what will be the change in book value per share?

A) −$1.00
B) +$0.15
C) +$0.56
D) +$1.00
E) $0

Question 31

Culver Inc.has earnings after interest but before taxes of $300.The company's before-tax times-interest-earned ratio is 7.00.Calculate the company's interest charges.

A) $42.86
B) $50.00
C) $40.00
D) $60.00
E) $57.93

Question 32

Collins Company had the following partial balance sheet and complete income statement information for 2010: The industry average DSO is 30 (360-day basis).Collins plans to change its credit policy so as to cause its DSO to equal the industry average,and this change is expected to have no effect on either sales or cost of goods sold.If the cash generated from reducing receivables is used to retire debt (which was outstanding all last year and which has a 10% interest rate),what will Collins' debt ratio (Total debt/Total assets)be after the change in DSO is reflected in the balance sheet?

A) 33.33%
B) 45.28%
C) 52.75%
D) 60.00%
E) 65.71%

Question 33

As a short-term creditor concerned with a company's ability to meet its financial obligation to you,which one of the following combinations of ratios would you most likely prefer?
Current Debt
Ratio TIE ratio

A) 0.5 0.5 0.33
B) 1.0 1.0 0.50
C) 1.5 1.5 0.50
D) 2.0 1.0 0.67
E) 2.5 0.5 0.71

Question 34

Velcraft Company has 20,000,000 shares of common stock authorized,but to date,has only 12,000,000 shares outstanding,each with a $1.00 par value.The company has $24,000,000 in additional paid-in capital and retained earnings are $96,000,000.What is Velcraft's current book value per share?

A) $1.00
B) $3.00
C) $11.00
D) $6.60
E) $9.00

Question 35

You are given the following information: Stockholders' equity = $1,250;price/earnings ratio = 5;shares outstanding = 25;market/book ratio = 1.5.Calculate the market price of a share of the company's stock.

A) $33.33
B) $75.00
C) $10.00
D) $166.67
E) $133.32

Question 36

Lone Star Plastics has the following data: Assets: $100,000
Profit margin: 6.0%
Tax rate: 40%
Debt ratio: 40.0%
Interest rate: 8.0%
Total asset turnover: 3.0
What is Lone Star's EBIT?

A) $3,200
B) $12,000
C) $18,000
D) $30,000
E) $33,200

Question 37

The Charleston Company is a relatively small,privately owned firm.Last year the company had after-tax income of $15,000,and 10,000 shares were outstanding.The owners were trying to determine the market value for the stock,prior to taking the company public.A similar firm which is publicly traded had a price/earnings ratio of 5.0.Using only the information given,estimate the market value of one share of Charleston's stock.

A) $10.00
B) $7.50
C) $5.00
D) $2.50
E) $1.50

Question 38

Makeover Inc.believes that at its current stock price of $16.00 the firm is undervalued in the market.Makeover plans to repurchase 2.4 million of its 20 million shares outstanding.The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase.The firm's current earnings are $44 million.If management's assumptions hold,what is the expected market price after repurchase?

A) $16.00
B) $17.26
C) $18.18
D) $20.00
E) $24.40

Question 39

A firm has a profit margin of 15 percent on sales of $20,000,000.If the firm has debt of $7,500,000,total assets of $22,500,000,and an after-tax interest cost on total debt of 5 percent,what is the firm's ROA?

A) 8.4%
B) 10.9%
C) 12.0%
D) 13.3%
E) 15.1%

Question 40

Nolan Inc.has cost of goods sold of $1,000,000 and an inventory turnover of 10.0.The firm's current ratio is 3.0,while its quick ratio is 2.5.What are Nolan's current assets?

A) $200,000
B) $300,000
C) $400,000
D) $500,000
E) $600,000

Question 41

Retailers Inc.and Computer Corp.each have assets of $10,000 and a return on common equity equal to 15%.Retailers has twice as much debt and twice as many sales relative to Computer Corp.Retailers' net income equals $750,and its total asset turnover is equal to 3.What is Computer Corp.'s profit margin?

A) 2.50%
B) 5.00%
C) 7.50%
D) 10.00%
E) 12.50%

Question 42

A firm has notes payable of $1,546,000,long-term debt of $13,000,000,and total interest expense of $1,300,000.If the firm pays 8 percent interest on its long-term debt,what rate of interest does it pay on its notes payable?

A) 8.2%
B) 13.1%
C) 16.8%
D) 18.0%
E) 15.3%

Question 43

The Amer Company has the following characteristics:
Sales:$1,000
Total Assets:$1,000
Total Debt/Total Assets:35%
EBIT:$200
Tax rate:40%
Interest rate on total debt:4.57%
What is Amer's ROE?

A) 11.04%
B) 12.31%
C) 16.99%
D) 28.31%
E) 30.77%

Question 44

Aurillo Equipment Company (AEC)projected that its ROE for next year would be just 6%.However,the financial staff has determined that the firm can increase its ROE by refinancing some high interest bonds currently outstanding.The firm's total debt will remain at $200,000 and the debt ratio will hold constant at 80%,but the interest rate on the refinanced debt will be 10%.The rate on the old debt is 14%.Refinancing will not affect sales which are projected to be $300,000.EBIT will be 11% of sales,and the firm's tax rate is 40%.If AEC refinances its high interest bonds,what will be its projected new ROE?

A) 3.0%
B) 8.2%
C) 10.0%
D) 15.6%
E) 18.7%

Question 45

Alumbat Corporation has $800,000 of debt outstanding,and it pays an interest rate of 10 percent annually on its bank loan.Alumbat's annual sales are $3,200,000;its average tax rate is 40 percent;and its net profit margin on sales is 6 percent.If the company does not maintain a TIE ratio of at least 4 times,its bank will refuse to renew its loan,and bankruptcy will result.What is Alumbat's current TIE ratio?

A) 2.4
B) 3.4
C) 3.6
D) 4.0
E) 5.0

Question 46

A fire has destroyed a large percentage of the financial records of the Carter Company.You have the task of piecing together information in order to release a financial report.You have found the return on equity to be 18 percent.If sales were $4 million,the debt ratio was 0.40,and total liabilities were $2 million,what was the return on assets (ROA)?

A) 10.8%
B) 0.8%
C) 1.25%
D) 12.6%
E) Insufficient information.

Question 47

Determine the increase or decrease in cash for Rinky Supply Company for last year,given the following information.(Assume no other changes occurred during the past year. ) Decrease in marketable securities = $25
Increase in accounts receivables = $50
Increase in notes payable = $30
Decrease in accounts payable = $20
Increase in accrued wages and taxes = $15
Increase in inventories = $35
Retained earnings = $ 5

A) −$50
B) +$40
C) −$30
D) +$20
E) −$10

Question 48

Selzer Inc.sells all its merchandise on credit.It has a profit margin of 4 percent,days sales outstanding equal to 60 days,receivables of $150,000,total assets of $3 million,and a debt ratio of 0.64.What is the firm's return on equity (ROE)?

A) 7.1%
B) 33.3%
C) 3.3%
D) 71.0%
E) 8.1%

Question 49

A firm has a debt ratio of 40 percent.Currently,it has interest expense of $500,000 on $5,000,000 of total debt outstanding,and a tax rate of 40 percent.If the firm's ROA is 6 percent,by how many percentage points is the firm's ROE greater than its ROA?

A) 0.0%
B) 4.0%
C) 5.8%
D) 7.4%
E) 10.0%

Question 50

You are given the following information about a firm: The growth rate equals 8 percent;return on assets (ROA)is 10 percent;the debt ratio is 20 percent;and the stock is selling at $36.What is the return on equity (ROE)?

A) 14.0%
B) 12.5%
C) 15.0%
D) 2.5%
E) 13.5%

Question 51

On its December 31st balance sheet,LCG Company reported gross fixed assets of $6,500,000 and net fixed assets of $5,000,000.Depreciation for the year was $500,000.Net fixed assets a year earlier on December 31st,had been $4,700,000.What figure for "Cash Flows Associated with Long-Term Investments (Fixed Assets)" should LCG report on its Statement of Cash Flows for the current year?

A) $500,000
B) $600,000
C) $700,000
D) $800,000
E) $900,000

Question 52

Assume Meyer Corporation is 100 percent equity financed.Calculate the return on equity,given the following information:
(1)Earnings before taxes = $1,500;
(2)Sales = $5,000;
(3)Dividend payout ratio = 60%;
(4)Total assets turnover = 2.0;
(5)Applicable tax rate = 30%.

A) 25%
B) 30%
C) 35%
D) 42%
E) 50%

Question 53

Lombardi Trucking Company has the following data: Assets: $10,000
Profit margin: 3.0%
Debt ratio: 60.0%
Interest rate: 10.0%
Tax rate: 40%
Total asset turnover: 2.0
What is Lombardi's TIE ratio?

A) 0.95
B) 1.75
C) 2.10
D) 2.67
E) 3.45

Question 54

A firm has total assets of $1,000,000 and a debt ratio of 30 percent.Currently,it has sales of $2,500,000,total fixed costs of $1,000,000,and EBIT of $50,000.If the firm's before-tax cost of debt is 10 percent and the firm's tax rate is 40 percent,what is the firm's ROE?

A) 1.7%
B) 2.5%
C) 6.0%
D) 8.3%
E) 9.8%

Question 55

The accrual method of accounting recognizes revenue when ____,and recognizes expenses when ____.

A) they are earned;cash is paid
B) cash is received;they are incurred
C) they are earned;they are incurred
D) cash is received;cash is paid

Question 56

The Meryl Corporation's common stock currently is selling at $100 per share,which represents a P/E ratio of 10.If the firm has 100 shares of common stock outstanding,a return on equity of 20 percent,and a debt ratio of 60 percent,what is its return on total assets (ROA)?

A) 8.0%
B) 10.0%
C) 12.0%
D) 16.7%
E) 20.0%

Question 57

Given the following information,calculate the market price per share of WAM Inc.
Earnings after interest and taxes= $200,000
Earnings per share= $2.00
Stockholders' equity= $2,000,000
Market/Book ratio= 0.20

A) $20.00
B) $8.00
C) $4.00
D) $2.00
E) $1.00

Question 58

Harvey Supplies Inc.has a current ratio of 3.0,a quick ratio of 2.4,and an inventory turnover ratio of 6.Harvey's total assets are $1 million and its debt ratio is 0.20.The firm has no long-term debt.What is Harvey's sales figure if the total cost of goods sold is 75% of sales?

A) $960,000
B) $720,000
C) $1,620,000
D) $120,000
E) $540,000

Question 59

A(n)____ is a statement summarizing the firm's revenue and expenses over an accounting period.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings

Question 60

Cannon Company has enjoyed a rapid increase in sales in recent years,following a decision to sell on credit.However,the firm has noticed a recent increase in its collection period.Last year,total sales were $1 million,and $250,000 of these sales were on credit.During the year,the accounts receivable account averaged $41,664.It is expected that sales will increase in the forthcoming year by 50 percent,and,while credit sales should continue to be the same proportion of total sales,it is expected that the days sales outstanding will also increase by 50 percent.If the resulting increase in accounts receivable must be financed by external funds,how much external funding will Cannon need?

A) $41,664
B) $52,086
C) $47,359
D) $106,471
E) $93,750

Question 61

When a firm pays off a loan using cash,the source of funds is the decrease in the asset account,cash,while the use of funds involves a decrease in a liability account,debt.

Question 62

If a firm borrows money from a bank or reduces its level of inventory,these are both examples of sources of funds.

Question 63

Bender Corporation had sales of $250,000 last year.They had operating costs of $100,000,an interest expense of $15,000,and had an average tax 32%.Assuming Bender wants to have a 60% payout ratio and has 1,000 shares outstanding,what is Bender's expected dividend per share?

A) $235.00
B) $102.00
C) $91.80
D) $55.08

Question 64

In the event of a firm's liquidation,the order in which claimholders are paid off is

A) debtholders,common stockholders,preferred stockholders
B) common stockholders,preferred stockholders,debtholders
C) debtholders,preferred stockholders,common stockholders
D) common stockholders,debtholders,preferred stockholders

Question 65

The ____ shows the investments made by the firm in the form of assets and the means by which the assets were financed.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings

Question 66

Taxes,payment patterns,and reporting considerations,as well as credit sales and non-cash costs,are reasons why operating cash flows can differ from accounting profits.

Question 67

On the balance sheet,total assets must always equal total liabilities.The amount remaining is what is used to finance the firm and includes equity and long-term debt.

Question 68

The cash flow cycle can be described as the way in which net income flows into or out of the firm (i.e. ,a gain or a loss)during some specified period.

Question 69

From management's standpoint,financial statement analysis is useful

A) both as a way to anticipate future conditions and,more important,as a starting point for planning actions.
B) as a way to anticipate future conditions,but not for current planning.
C) for planning activities,but not as a way to anticipate future conditions.
D) For meeting government requirements,but not for anticipating future conditions or planning actions.

Question 70

The ____ is a statement reporting the effects of a firm's operating,investing,and financing activities on cash flows over an accounting period.

A) income statement
B) balance sheet
C) statement of cash flows
D) statement of retained earnings

Question 71

The current ratio and inventory turnover ratio measure the liquidity of a firm.The current ratio measures the relation of a firm's current assets to its current liabilities and the inventory turnover ratio measures how rapidly a firm turns its inventory back into a "quick" asset or cash.

Question 72

____ is a residual that represents the amount that stockholders would receive if all of the firm's assets could be sold at their book values and all of their liabilities could be paid at their book values.

A) Net worth
B) Retained earnings
C) Paid-in-capital
D) Total assets

Question 73

The ____ provides a good indication of the firm's ability to meet its current obligations.

A) debt ratio
B) profit margin
C) days sales outstanding
D) quick ratio
E) return on equity

Question 74

Although a full liquidity analysis requires the use of a cash budget,the current and quick ratios provide fast and easy-to-use measures of a firm's liquidity position.

Question 75

Ratio analysis involves a comparison of the relationships between financial statement accounts so as to analyze the financial position and strength of a firm.

Question 76

Non-cash assets are expected to produce cash over time but the amount of cash they eventually produce could be higher or lower than the values at which the assets are carried on the books.

Question 77

An increase in an asset account is a source of cash,whereas an increase in a liability account is a use of cash.

Question 78

The income statement measures the flow of funds into (i.e.revenue)and out of (i.e.expenses)the firm over a certain time period.It is always based on accounting data.

Question 79

Depreciation,as shown on the income statement,is regarded as a use of cash because it is an expense.

Question 80

The balance sheet is a financial statement measuring the flow of funds into and out of various accounts over time while the income statement measures the progress of the firm at a point in time.