Deck 12: Financial Statement Analysis

Question 1

Common size financial statements exclude the dollar amount as a relevant variable in the analysis, which makes comparison of one period with the next more meaningful.

Answer 1

True

Question 2

Along with its other financial statements, a public corporation must present its most recent two years of income statements within Item I of its Form 10-K.

Answer 2

False

Question 3

Three measures of liquidity include working capital, the acid test ratio, and the current ratio.

Answer 3

True

Question 4

Comparing two companies in the same industry should cause no problem since both companies are required to use the same accounting principles.

Question 5

The stock repurchase payout ratio is calculated by adding the dividend payout ratio to the total payout ratio.

Question 6

Return on assets is computed by adding the after-tax interest expense to net income, then dividing by the average total assets.

Question 7

The least liquid of all assets is cash.

Question 8

The acid test ratio is a stricter measure than the current ratio regarding a company's ability to pay its current obligations as they are due.

Question 9

Management's Discussion and Analysis is a key part of the 10-K because it provides investors with information management believes necessary to understand the company and forecast future performance.

Question 10

The return on equity ratio measures the profit earned by a company through the use of capital supplied by its bondholders.

Question 11

The net profit margin percentage reflects the amount of income for each dollar of sales.

Question 12

The amount of working capital is more meaningful to users than the current ratio because working capital provides information on the composition of the current accounts.

Question 13

An example of vertical analysis is that the cost of goods sold for 2015 is 129% of the amount from 2014.

Question 14

Time series analysis compares a company's financial data with industry averages.

Question 15

An increase in a company's revenue and expense accounts will always cause an increase in net income for the period.

Question 16

The analysis of common size financial statements may be included in a horizontal or vertical analysis.

Question 17

The length of the operating cycle is always considered to be a one year period, although that one year doesn't have to begin on January 1.

Question 18

Ratios that focus on cash are more useful than those that focus on income in the evaluation of a company's liquidity.

Question 19

Inventory is more liquid than accounts receivable because receivables must be collected and some customers may not be willing to pay, while inventory need only be sold in a retail store.

Question 20

When using vertical analysis of the income statement, the base upon which all items are compared is net income.

Question 21

The three aspects of return on equity (ROE)recognized by DuPont analysis are the net profit margin percentage, the ____________________ ratio, and leverage.

Question 22

____________________ refers to the likelihood that a company will be able to pay its current obligations as they come due.

Question 23

In ____________________ analysis, each financial statement line item is expressed as a percent of the largest amount on the statement, which is net sales for the income statement and total assets for balance sheet.

Question 24

Public companies file their annual reports on Form ____________________.

Question 25

As a general rule, all users of financial statements seek answers to the same questions.

Question 26

____________________ analysis compares a single corporation across time.

Question 27

____________________ analysis compares one corporation to another corporation and to industry averages.

Question 28

A company with a capital structure that shifts more toward debt financing will appear to be in a stronger position to pay interest and any principal amount that may be maturing by using its cash flows generated by operating activities.

Question 29

Many companies assist the users of the financial statements by providing information about the company's accounting policy choices in the first note to the financial statements.

Question 30

Public companies file their quarterly reports on Form ____________________.

Question 31

When trying to predict future profits, analysts often take a top-down approach which starts with gathering economic and industry data to supplement what they are able to find out about the specific corporations they follow.

Question 32

Liquidity refers to a company's ability to pay its current obligations when they come due.

Question 33

Trend analysis is another name for ____________________ analysis.

Question 34

Investors who buy stock in a corporation expect to earn returns on their investment from dividends and an increase in the value of the stock (a capital gain).

Question 35

Form 8-K is the "current report^" companies must file with the SEC to announce major events that are important to investors and creditors.

Question 36

Riverdale Drugs has an inventory turnover ratio of 15 times while RJ's Drugs has an inventory turnover of 14 times. RJ's is less efficient in managing its inventory.

Question 37

A company that is considering selling goods or providing services to another company wants to know whether its customer will provide: competitive salary and benefits; experiences that will prepare employees to assume increased responsibility; and a secure job for the foreseeable future.

Question 38

The best source of information about a particular company is Standard & Poor's industry guide.

Question 39

In ____________________ analysis, each financial statement line item is expressed as a percent of a base year, which is typically the earliest year shown.

Question 40

____________________ statements highlight differences by expressing each financial statement item in percentage terms.

Question 41

A company's relative mix of debt and equity financing is referred to as its __________ structure.

Question 42

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Net income

Question 43

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Measure of a company's success in earning a return for all providers of capital.

Question 44

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
A company's bottom line stated on a per share basis.

Question 45

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Relationship between dividends and the market price of a company's stock.

Question 46

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Average stockholders' equity

Question 47

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Total liabilities

Question 48

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Current liabilities

Question 49

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Relationship between total liabilities and stockholders' equity.

Question 50

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Cash flows from operations

Question 51

Measures of ____________________ evaluate how efficiently a company uses its assets, that is, the average length of time required for assets to be consumed or replaced.

Question 52

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Total stockholders' equity

Question 53

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Percentage of earnings paid out as dividends.

Question 54

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Interest expense

Question 55

____________________ assets generally include cash, accounts receivable, and short-term investments.

Question 56

Various financial ratios, including return ratios, are categorized as ____________________ ratios.

Question 57

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Difference between total payout and dividend payout.

Question 58

Various financial ratios, including payout ratios, are categorized as ____________________ ratios.

Question 59

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Using debt to help the company earn a higher return.

Question 60

MATCHING
For each of the following sentences, select the phrase or group of words that best completes the statement.
a. Debt-to-equity ratio
b. Dividend payout ratio
c. Dividend yield ratio
d. Earnings per share
e. Leverage
f. Return on assets ratio
g. Return on common equity ratio
h. Stock repurchase payout
Measure of a company's success in earning a return for the common stockholders.

Question 61

Select the ratio that each definition most properly satisfies.
a.Dividend yield ratio
b.Operating cash flow ratio
c.Debt-to-total assets ratio
d.Return on common equity ratio
e.Times interest earned ratio
f.Asset turnover ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
An income statement measure of the ability of a company to make its interest payments.

Question 62

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Current ratio

Question 63

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Dividend payout ratio

Question 64

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Dividend yield ratio

Question 65

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Debt-to-equity ratio

Question 66

Select the ratio that each definition most properly satisfies.
a.Dividend yield ratio
b.Operating cash flow ratio
c.Debt-to-total assets ratio
d.Return on common equity ratio
e.Times interest earned ratio
f.Asset turnover ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
The relationship between net sales and total assets.

Question 67

Select the ratio that each definition most properly satisfies.
a.Dividend yield ratio
b.Operating cash flow ratio
c.Debt-to-total assets ratio
d.Return on common equity ratio
e.Times interest earned ratio
f.Asset turnover ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
A measure of a company's success in earning a return for the common stockholders.

Question 68

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. (Choices may be used more than once.)
a.increase
b.decrease
Times interest earned ratio

Question 69

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. (Choices may be used more than once.)
a.increase
b.decrease
Current ratio

Question 70

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Times interest earned ratio

Question 71

Select the ratio that each definition most properly satisfies.
a.Dividend yield ratio
b.Operating cash flow ratio
c.Debt-to-total assets ratio
d.Return on common equity ratio
e.Times interest earned ratio
f.Asset turnover ratio
g.Debt-to-equity ratio
h.Dividend payout ratio
The relationship between dividends and the market price of a company's stock.

Question 72

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Gross profit percentage

Question 73

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. (Choices may be used more than once.)
a.increase
b.decrease
Asset turnover ratio

Question 74

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Return on assets ratio

Question 75

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. (Choices may be used more than once.)
a.increase
b.decrease
Dividend yield ratio

Question 76

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Net profit margin percentage

Question 77

For each ratio listed, select whether an increase or decrease in the ratio is generally considered to be better. (Choices may be used more than once.)
a.increase
b.decrease
Debt-to-equity ratio

Question 78

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Earnings per share

Question 79

Indicate the type of each ratio listed. (Choices may be used more than once.)
a.Liquidity ratio
b.Debt management ratio
c.Asset efficiency ratio
d.Profitability ratio
e.Stockholder ratio
Inventory turnover ratio

Question 80

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)
a.Times interest earned ratio
b.Operating cash flow ratio
c.Debt-to-equity ratio
d.Return on equity
Income from operations