Deck 13: Financial Statement Analysis

Question 1

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

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

Along with its other financial statements,a public corporation must present its most recent two years of income statements.

Question 5

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 6

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.

Question 7

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 8

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

Question 9

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

Question 10

The least liquid of all assets is cash.

Question 11

The question answered by financial statements for suppliers is,"Will the company be able to buy and pay for the goods or services that are provided?"

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

An example of vertical analysis is that the cost of goods sold for Year 2 is 129% of the amount from Year 1.

Question 17

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

Question 18

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

Question 19

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 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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 31

Trend analysis is another name for ____________________ analysis.

Question 32

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

Question 33

____________________ analysis compares a single corporation across time.

Question 34

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 35

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

Question 36

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

Question 37

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 38

Companies are required to produce a report to announce major events that are important to investors and creditors.

Question 39

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

Question 40

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

Question 41

For each of the following sentences, select the phrase or group of words that best completes the statement.

-relationship between total liabilities and shareholders' equity

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)share repurchase payout

Question 42

For each of the following sentences, select the phrase or group of words that best completes the statement.

-percentage of earnings paid out as dividends

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)share repurchase payout

Question 43

For each of the following sentences, select the phrase or group of words that best completes the statement.

-measure of a company's success in earning a return for the common shareholders

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)share repurchase payout

Question 44

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-total liabilities

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 45

Indicate the type of each ratio listed. (Choices may be used more than once.)

-current ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 46

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

Question 47

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-average shareholders' equity

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 48

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-total shareholders' equity

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 49

For each of the following sentences, select the phrase or group of words that best completes the statement.

-difference between total payout and dividend payout

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)share repurchase payout

Question 50

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

Question 51

For each of the following sentences, select the phrase or group of words that best completes the statement.

-using debt to help the company earn a higher return

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)share repurchase payout

Question 52

For each of the following sentences, select the phrase or group of words that best completes the statement.

-a company's bottom line stated on a per share basis

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)share repurchase payout

Question 53

For each of the following sentences, select the phrase or group of words that best completes the statement.

-measure of a company's success in earning a return for all providers of capital

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)share repurchase payout

Question 54

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-net income

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 55

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-interest expense

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 56

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-income from operations

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 57

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-current liabilities

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 58

Select the ratio that would include each amount or account in its calculation. (Choices may be used more than once.)

-cash flows from operations

A)times interest earned ratio
B)operating cash flow ratio
C)debt-to-equity ratio
D)return on equity

Question 59

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 60

For each of the following sentences, select the phrase or group of words that best completes the statement.

-relationship between dividends and the market price of a company's shares

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)share repurchase payout

Question 61

Indicate the type of each ratio listed. (Choices may be used more than once.)

-dividend yield ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 62

Select the ratio that each definition most properly satisfies.

-the relationship between net sales and total assets

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

Question 63

Match these terms to their correct definition.

-compares a single corporation across time

A)common size statements
B)cross-sectional analysis
C)DuPont analysis
D)horizontal analysis
E)ratio analysis
F)short-term liquidity ratios
G)time series analysis
H)vertical analysis

Question 64

Indicate the type of each ratio listed. (Choices may be used more than once.)

-dividend payout ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 65

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.)

-dividend yield ratio

A)increase
B)decrease

Question 66

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.)

-current ratio

A)increase
B)decrease

Question 67

Select the ratio that each definition most properly satisfies.

-the relationship between dividends and the market price of a company's shares

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

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.)

-asset turnover ratio

A)increase
B)decrease

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.)

-debt-to-equity ratio

A)increase
B)decrease

Question 70

Indicate the type of each ratio listed. (Choices may be used more than once.)

-net profit margin percentage

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 71

Indicate the type of each ratio listed. (Choices may be used more than once.)

-gross profit percentage

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 72

Indicate the type of each ratio listed. (Choices may be used more than once.)

-earnings per share

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

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.)

-times interest earned ratio

A)increase
B)decrease

Question 74

Indicate the type of each ratio listed. (Choices may be used more than once.)

-debt-to-equity ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 75

Select the ratio that each definition most properly satisfies.

-a measure of the ability of a company to finance current obligations from cash from operations

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

Question 76

Select the ratio that each definition most properly satisfies.

-an income statement measure of the ability of a company to make its interest payments

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

Question 77

Indicate the type of each ratio listed. (Choices may be used more than once.)

-inventory turnover ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 78

Indicate the type of each ratio listed. (Choices may be used more than once.)

-return on assets ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 79

Indicate the type of each ratio listed. (Choices may be used more than once.)

-times interest earned ratio

A)liquidity ratio
B)debt management ratio
C)asset efficiency ratio
D)profitability ratio
E)shareholder ratio

Question 80

Select the ratio that each definition most properly satisfies.

-a measure of a company's success in earning a return for the common shareholders

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