Deck 16: Financial Statement Analysis

Question 1

Industrial figures, standards and statistics should be used with so much care that they are not a very good reference point to compare companies.

Answer 1

False

Question 2

An example of horizontal analysis is the increase in cost of goods sold by 25% from 2013 to 2014.

Answer 2

True

Question 3

Companies in the same industry may use different accounting methods, diminishing the usefulness of some industrial averages.

Answer 3

True

Question 4

A primary purpose of vertical analysis is to observe trends over a three-year period.

Question 5

Small sample sizes for an industrial report rarely cause a comparability problem in using standards.

Question 6

Common-size statements are statements of companies of similar size and operations.

Question 7

Labor markets can impact industrial statistics and standards.

Question 8

In vertical analysis of the income statement, cost of goods sold is represented by 100%.

Question 9

A number of online sources contain competitive information on individual company's ratios.

Question 10

Horizontal analysis involves comparing two or more years' financial data for a single company.

Question 11

Terms of sale can produce statistical variations among companies within the same industry.

Question 12

In horizontal analysis, the base year can be the immediately preceding period, or it can be a period further in the past.

Question 13

The use of common-size analysis makes comparisons more meaningful because percentages eliminate the effects of size.

Question 14

Industrial statistics should be taken as absolute norms as far as standards for comparability.

Question 15

Common-size analysis expresses each item in a financial statement as a percent of a base amount.

Question 16

In vertical analysis of the balance sheet, total liabilities are represented by 100%.

Question 17

Two major forms of common-size analysis are horizontal analysis and vertical analysis.

Question 18

In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.

Question 19

For meaningful analysis, ratios should be compared with a standard.

Question 20

Liquidity ratios measure the ability of a company to meet its current obligations.

Question 21

The current ratio is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.

Question 22

The inventory turnover ratio measures the number of days the average balance of accounts receivable is outstanding before being converted into cash.

Question 23

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Dividend payout ratio

Question 24

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Earnings per share

Question 25

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Debt-to-equity ratio

Question 26

The quick ratio should be larger than the current ratio.

Question 27

All debt is considered in the computation of the quick ratio.

Question 28

MATCHING
Match the classifications of ratios with each description.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
d.Horizontal Analysis
e.Trend Analysis
Measures the earning ability of a company

Question 29

Inventory turnover is a measure of liquidity that focuses on efficient use of inventory.

Question 30

MATCHING
Match the classifications of ratios with each description.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
d.Horizontal Analysis
e.Trend Analysis
Measures the degree of protection provided to company creditors

Question 31

When computing the quick ratio, a short-term note receivable would be included.

Question 32

Profitability ratios assess the ability of a company to meets its long- and short-term obligations.

Question 33

MATCHING
Match the classifications of ratios with each description.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
d.Horizontal Analysis
e.Trend Analysis
Measures the ability of the company to meet its current obligations

Question 34

MATCHING
Match the classifications of ratios with each description.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
d.Horizontal Analysis
e.Trend Analysis
Measures the ability of a company to meet long and short term obligations

Question 35

The dividend payout ratio is equal to common dividends divided by (Net Income - Preferred Dividends).

Question 36

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Current ratio

Question 37

Dividing the market price of a share of stock by the earnings per share gives the price-earnings ratio.

Question 38

Jill's Market has an inventory turnover of 120 times. Scott's Market has a turnover of 128 times. Scott's is more effective in managing inventory.

Question 39

MATCHING
Match the classifications of ratios with each description.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
d.Horizontal Analysis
e.Trend Analysis
Allows evaluation of the extent to which funds are used efficiently

Question 40

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Return on sales

Question 41

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Return on total assets ratio

Question 42

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A measure of the company's ability to pay its short-term liabilities out of short-term assets

Question 43

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Debt ratio

Question 44

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A measure of the company's success in earning a return for the common stockholders

Question 45

____________ are fractions or percentages computed by dividing one account or line-item amount by another.

Question 46

_________________ measure the ability of a company to meet its current obligations.

Question 47

For meaningful analysis, ratios should be compared with a ____________.

Question 48

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
An income statement measure of the ability of a company to service its debts

Question 49

_________________ expresses a line item as a percentage of some prior-period amount.

Question 50

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A ratio that indicates what proportion of equity and debt the company is using to finance its assets.

Question 51

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Price-earnings ratio

Question 52

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A measure that tells an investor the proportion of earnings that a company pays in dividends

Question 53

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A measure viewed by many investors as an important indicator of stock values. It is found by dividing the market price per share by the earnings per share

Question 54

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Inventory turnover ratio

Question 55

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A measure that compares only the most liquid assets to current liabilities

Question 56

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
A measure of the degree of protection afforded creditors in case of insolvency

Question 57

The measures of the ability of a company to meets its long- and short-term obligations are known as _______________.

Question 58

_____________________ expresses a line item as a percentage of some other line item for the same period.

Question 59

Select the ratio that each statement below most properly satisfies.
a.Dividend yield ratio
b.Current ratio
c.Debt ratio
d.Return on common stockholders' equity ratio
e.Times-interest-earned ratio
f.Quick ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
i.Price-earnings ratio
The relationship between dividends and the market price of a company's stock

Question 60

Indicate the type of each ratio listed below.
a.Liquidity Ratio
b.Leverage Ratio
c.Profitability Ratio
Times-interest-earned ratio

Question 61

The ratios that allow investors, creditors, and managers to evaluate the extent to which invested funds are being used efficiently are called ____________.

Question 62

How long it takes a company to turn its receivables into cash is known as the ________________.

Question 63

The _________________ uses the income statement to assess a company's ability to service its debt.

Question 64

______________ and ____________ are the two major sources of capital.

Question 65

____________________ represents the percentage of each sales dollar that is left over from net income after all expenses have been subtracted.

Question 66

The two major techniques for financial analysis are

A) horizontal analysis and circular analysis.
B) receivable analysis and profitability analysis.
C) vertical analysis and budget analysis.
D) common-size analysis and ratio analysis.

Question 67

In horizontal analysis, each item is expressed as a percentage of the

A) retained earnings figure.
B) total assets figure.
C) net income figure.
D) base year figure.

Question 68

The _________________ is a measure of liquidity that compares only the most liquid assets with current liabilities.

Question 69

Investors who prefer gains through appreciation will generally prefer a ___________ payout ratio.

Question 70

The ________________ is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.

Question 71

The ________________ is calculated by dividing total liabilities by total stockholders' equity.

Question 72

In vertical analysis, line items on the balance sheet are generally expressed as a percentage of

A) total liabilities.
B) net income.
C) total assets.
D) cost of goods sold.

Question 73

The ________________ is computed by dividing a company's total liabilities by its total assets.

Question 74

A company measures how efficiently it is using its assets by calculating the _______________.

Question 75

The ___________________ is calculated by dividing the market price per share by earnings per share.

Question 76

Creditors would like the debt-to-equity ratio to be _______, indicating that stockholders have financed most of the assets of the firm.

Question 77

In vertical analysis, line items on the income statement are generally expressed as a percentage of

A) net income.
B) net sales.
C) cost of goods sold.
D) total assets.

Question 78

Horizontal analysis is also known as

A) linear analysis.
B) vertical analysis.
C) trend analysis.
D) budget analysis.

Question 79

Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time

A) that has been arranged from the highest amount to the lowest amount.
B) that has been arranged from lowest amount to the highest amount.
C) to determine which items are in error.
D) to determine the amount and/or percentage increase or decrease that has taken place.

Question 80

The _____________________ gives the number of days inventory is held before being sold.