Deck 3: Review of Financial Statements and Selected Ratios

Question 1

The uniform system of accounts helps managers organize the statement of cash flows.

Answer 1

False

Question 2

It is always easy to know which firms comprise an industry average.

Answer 2

False

Question 3

Assets are held by the firm to generate revenues and cash flows.

Answer 3

True

Question 4

Treasury stock is an asset.

Question 5

The income statement indicates firm performance between two balance sheet dates.

Question 6

Securities held by the firm for more than are year are classified as

A)temporary investments.
B)marketable securities.
C)deferred investments.
D)long-term investments.

Question 7

Cash is found in the owner's equity account.

Question 8

The DuPont ratio is a combination of two ratios. These are the profit margin and the solvency ratio.

Question 9

The statement of cash flows has three major components.

Question 10

Owners would like to have a higher current ratio than lenders.

Question 11

A P/E ratio will always give a clear indication of when to buy a share of stock.

Question 12

Which of the following is a "snapshot" of the hospitality operation?

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

Question 13

Another name for department profit is

A)net income.
B)revenue.
C)contribution margin.
D)taxable income.

Question 14

A current ratio of less than 1.0 for a hospitality company is always bad.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Question 15

A manager could manipulate improve)the asset turnover ratio by failing to replace older assets on a timely basis.

Question 16

RevPar can be calculated by multiplying the occupancy percentage by the ADR.

Question 17

All interested parties would like to have a high times interest earned ratio.

Question 18

Liquidity ratios measure the amount of long-term debt held by the firm.

Question 19

The detail of a hotel income statement will vary depending on the needs of the user.

Question 20

The balance sheet is good for a period of time.

Question 21

If current liabilities exceed current assets, then the:

A)current ratio will be less than one.
B)current ratio will be more than one.
C)quick ratio will be more than one.
D)none of the above.

Question 22

A high inventory turnover ratio

A)is always good.
B)could indicate that we are buying too much inventory.
C)could indicate a problem with "stockouts."
D)means that our inventory is too costly.

Question 23

A manager at a local food service establishment recently calculated her food cost percentage to be 43%. This percentage is:

A)very high.
B)sort of low.
C)can't tell.
D)high, but not too high.

Question 24

The impact of the Enron accounting scandal was

A)to prove that all audits are just about worthless.
B)increased investor scrutiny regarding financial statements and the audit process.
C)to eliminate the need for accountants from the financial reporting process.
D)such that accountants can no longer use estimates when compiling financial statements.

Question 25

In calculating the statement of cash flows, depreciation is added to net income because

A)depreciation represents a net inflow of cash.
B)it is often a large number.
C)it is a non-cash expense that was subtracted to initially lower the taxable income.
D)it represents additional income for the firm.

Question 26

Which of the following is an example of an "other" asset?

A)prepaid insurance
B)deferred income taxes
C)treasury stock
D)patents

Question 27

A share of Outback Steakhouse common stock sells for $37. If the P/E ratio is 15, how much are the earnings per share?

A)$5.55
B)$22
C)$52
D)$2.47

Question 28

The number of times interest earned is a

A)liquidity ratio.
B)turnover ratio.
C)profitability ratio.
D)solvency ratio.

Question 29

Dividends

A)increase retained earnings.
B)reduce retained earnings when declared.
C)reduce retained earnings when paid.
D)are an operating expense like food cost.

Question 30

If total revenue is $100,000, net income is $40,000, and total assets equal $200,000, then return on investment is

A)20 percent.
B)40 percent.
C)50 percent.
D)none of the above.

Question 31

For current liabilities, "current" means

A)payable within the month.
B)payable within a year.
C)past due.
D)none of the above.

Question 32

Which of the following is the preferred measure of hotel performance?

A)ADR
B)occupancy percentage
C)REVPAR
D)number of available room nights

Question 33

Assets relate to revenue as liabilities relate to

A)expenses.
B)owner's equity.
C)retained earnings.
D)cash flows.

Question 34

Which of the following is a limitation of ratio analysis?

A)Many ratios can be easily calculated.
B)Ratios provide lenders, investors, and managers with important information.
C)Ratios are more meaningful when compared to some standard of performance.
D)Ratios there are too many different types of ratios.

Question 35

Over the long term, successful companies generate positive cash flows from

A)operating activities.
B)investing activities.
C)financing activities.
D)other activities.

Question 36

The DuPont ratio shows that return on assets is a function of

A)current ratio and debt ratio.
B)profit margin and asset turnover.
C)profit margin and inventory turnover.
D)debt ratio and number of times interest earned.