Question 1

Which of the following measures would assist in assessing the liquidity of a company?
A)Price/earnings ratio
B)Fixed asset turnover ratio
C)Receivables turnover ratio
D)Times interest earned ratio

Accepted Answer

The receivables turnover ratio measures how quickly a company is collecting its accounts receivable (amounts owed by customers). A higher receivables turnover ratio indicates that a company is collecting its debts more quickly, which improves its liquidity.

Question 2

Net income was $364,000 in 2017 and $418,600 in 2018.The year- to-year $\bold{\text{percent change}}$ in net income is:
A)15%.
B)$54,600.
C)87%.
D)13%. (418600-364000)/364000 = 15%.

Accepted Answer

The answer of Net income was $364,000 in 2017 and...

Question 3

Company X has net sales revenue of $1,250,000,cost of goods sold of $760,000,and all other expenses of $290,000.The beginning balance of shareholders' equity is $400,000 and the beginning balance of fixed assets is $361,000.The ending balance of shareholders' equity is $600,000 and the ending balance of fixed assets is $389,000.What is the Return On Equity of the company?
A)0.53
B)2.50
C)3.33
D)0.40

Accepted Answer

The answer of Company X has net sales revenue of...

Question 4

If an analyst wants to examine a company's short-run ability to survive,which of the following would best be considered?
A)Liquidity
B)Market share
C)Profitability
D)Solvency

Accepted Answer

Liquidity measures a company's ability to meet short-term obligations, indicating its capacity to survive in the short run. Market share and profitability are important metrics for a company's long-term success, while solvency looks at a company's ability to pay off long-term debts.

Question 5

Company X has net sales revenue of $780,000,cost of goods sold of $343,200,and all other expenses of $327,600.The net profit margin is:
A)0.32
B)0.56
C)0.86
D)0.14

Accepted Answer

Net profit margin is calculated by dividing net profit by net sales revenue.

Net Profit = Net Sales Revenue - Cost of Goods Sold - Other Expenses 
Net Profit = $780,000 - $343,200 - $327,600 = $109,200

Net Profit Margin = Net Profit ÷ Net Sales Revenue 
Net Profit Margin = $109,200 ÷ $780,000 ≈ 0.14

Therefore, the net profit margin is 0.14 or 14%. The best choice is D.

Question 6

Company X has net sales revenue of $780,000,cost of goods sold of $343,200 and all other expenses of $327,600 for the current year.At the beginning of the year,503,000 shares of common shares were outstanding,and,at the end of the year,537,000 shares of common shares were outstanding.The basic EPS for the company is:
A)$1.50
B)$0.84
C)$0.21
D)$0.87

Accepted Answer

The answer of Company X has net sales revenue of...

Question 7

If an analyst wants to examine a company's current ability to generate income,which of the following would best be considered?
A)Liquidity
B)Market share
C)Profitability
D)Solvency

Accepted Answer

Profitability measures a company's ability to generate income by comparing its revenue to its expenses. This includes metrics such as gross profit margin, net profit margin, and return on investment (ROI).

Question 8

Which of the following measures would assist in assessing the solvency of a company?
A)Debt-to-assets ratio
B)Fixed asset turnover ratio
C)Return on equity ratio
D)None of the answers assess solvency

Accepted Answer

The debt-to-assets ratio measures the amount of a company's assets that are financed by debt, indicating how much risk the company has taken on. A higher ratio indicates higher risk and potentially less solvency. The other ratios listed do not specifically assess solvency.

Question 9

Net income was $418,600 in 2017 and $364,000 in 2018.The year-to- year dollar change in net income is:
A)15%.
B)87%.
C)-$54,600.
D)$418,600.

Accepted Answer

The year-to-year dollar change in net income is calculated by subtracting the net income of 2018 from the net income of 2017. 
$418,600 - $364,000 = $54,600 
Therefore, the answer is choice C: -$54,600.

Question 10

When using ratio data for comparison to other companies,analysts should:
A)not assume that all companies in the industry are in direct competition.
B)not interpret the data as a way of determining which companies will survive and outperform others.
C)only use data from one time period.
D)use industry averages,rather than individual companies,for the comparison.

Accepted Answer

Ratio data should be interpreted with caution and not assume that all companies in the industry are in direct competition. It is important to understand the differences in operations and strategies among the companies being compared.

Question 11

Company X has net sales revenue of $780,000,cost of goods sold of $343,200,and all other expenses of $327,600.The gross profit percentage is:
A)32%
B)56%
C)86%
D)14%

Accepted Answer

Gross profit% = (Net Sales - COGS)/Net Sales ($780,000 - $343,200)/$780,000 = 56%.

Question 12

If an analyst wanted to examine a company's long-run ability to survive,which of the following would best be considered?
A)Liquidity
B)Market share
C)Profitability
D)Solvency

Accepted Answer

Solvency refers to a company's ability to meet its long-term obligations and remain in business over the long run. This is a key consideration when assessing a company's long-run ability to survive. Liquidity, market share, and profitability are important factors to consider as well, but they do not necessarily provide insight into a company's long-term viability.

Question 13

Which of the following are the constraints on how broadly accounting rules can be applied?
A)Industry practices constraint and cost-benefit constraint.
B)Disclosure principle constraint and cost-benefit constraint.
C)Industry practices constraint and disclosure principle constraint.
D)Cost-benefit constraint and disclosure principle constraint.

Accepted Answer

Industry practices and cost-benefit constraints are limitations on the broad application of accounting rules. Industry practices constraint allows for deviations in accounting methods based on common practices within an industry, ensuring relevance and comparability for users of financial statements. The cost-benefit constraint ensures that the value of the information provided by accounting exceeds the cost of providing it, balancing the need for detailed information with the practicality of its provision.

Question 14

Which of the following measures would assist in assessing the profitability of a company?
A)Debt-to-assets ratio
B)Fixed asset turnover ratio
C)Receivables turnover ratio
D)Current ratio

Accepted Answer

Fixed asset turnover is a profitability ratio.Debt to assets is a solvency ratio.The receivables turnover and the current ratio are liquidity ratios.

Question 15

During the current accounting period,revenue from credit sales is $671,000.The accounts receivable balance is $51,480 at the beginning of the period and $52,200 at the end of the period.Which of the following statements is true?
A)The receivables turnover ratio is 12.9.
B)On average,it takes 12.9 days to collect payment from credit customers.
C)The receivables turnover ratio is 28.3.
D)On average,the company sells its inventory every 28.4 days.

Accepted Answer

Avg.net receivables = (Prior EB receivables + Current EB receivables)/2($51,480 + $52,200)/2 = $51,840
Receivables turnover ratio = Net sales revenue/Avg.net receivables
$671,000/$51,840 = 12.9

Question 16

Data from ratio analysis can be:
A)compared to particular competitors in the industry.
B)compared to the company ratio data in previous years.
C)compared to industry averages.
D)all of the answers are acceptable.

Accepted Answer

All of the options are acceptable as they provide a different perspective on the performance of the company. Comparing data from ratio analysis to particular competitors in the industry and industry averages can give insights on how the company's performance compares to others in the same industry, while comparing to previous years can show the trend and progress of the company's performance.

Question 17

Solvency ratio data are primarily concerned with the ability of a company to:
A)produce profits.
B)handle its debt.
C)manage its cash flow.
D)provide income for shareholders.

Accepted Answer

Solvency ratio data are a measure of a company's ability to handle its debt, specifically to meet its long-term financial obligations. It assesses whether a company's assets are enough to cover its liabilities in the long term.

Question 18

Which of the following analysis techniques does $\bold{not}$ examine significant sustained changes over time?
A)Trend analyses
B)Horizontal analyses
C)Time-series analyses
D)Vertical analyses

Accepted Answer

Vertical analyses compare different items on the same financial statement, such as comparing sales to cost of goods sold. This technique does not examine significant sustained changes over time, but rather provides insight into the relationship between different elements within a given time period. Trend, horizontal, and time-series analyses all examine changes over time.

Question 19

If you wish to examine the relationships among various items reported in one or more of the financial statements,you are most likely to use:
A)time-series analysis.
B)ratio analysis.
C)horizontal analysis.
D)cross-sectional analysis.

Accepted Answer

Ratio analysis is the best choice to examine the relationships among various items reported in one or more of the financial statements. Ratio analysis involves the calculation of various financial ratios that help to evaluate the company's performance and financial position. These ratios can help to identify trends and relationships in the financial statements and provide insights into the company's liquidity, profitability, efficiency, and solvency. Time-series analysis involves the comparison of financial data over time, horizontal analysis involves the comparison of financial data for a single period, and cross-sectional analysis involves the comparison of financial data between different companies or industries. While these methods can also provide useful information, they are not as effective for examining relationships among items within a single company's financial statements.

Question 20

Company X has net sales revenue of $1,250,000,cost of goods sold of $760,000,and all other expenses of $290,000.The beginning balance of shareholders' equity is $400,000 and the beginning balance of fixed assets is $361,000.The ending balance of shareholders' equity is $600,000 and the ending balance of fixed assets is $389,000.What is the fixed asset turnover ratio?
A)0.53
B)2.50
C)3.33
D)0.80

Accepted Answer

Average net assets = (Beginning fixed assets + Ending fixed assets)/2 ($361,000 + $389,000)/2 = $375,000
Fixed asset turnover = Net Sales/Average Net Fixed Assets
$1,250,000/375,000 = 3.33.

Quiz 13: Measuring and Evaluating Financial Performance

Which of the following measures would assist in assessing the liquidity of a company?

Net income was $364,000 in 2017 and $418,600 in 2018.The year- to-year percent change\bold{\text{percent change}}percent change in net income is:

If an analyst wants to examine a company's short-run ability to survive,which of the following would best be considered?

Company X has net sales revenue of $780,000,cost of goods sold of $343,200,and all other expenses of $327,600.The net profit margin is:

If an analyst wants to examine a company's current ability to generate income,which of the following would best be considered?

Which of the following measures would assist in assessing the solvency of a company?

Net income was $418,600 in 2017 and $364,000 in 2018.The year-to- year dollar change in net income is:

When using ratio data for comparison to other companies,analysts should:

Company X has net sales revenue of $780,000,cost of goods sold of $343,200,and all other expenses of $327,600.The gross profit percentage is:

If an analyst wanted to examine a company's long-run ability to survive,which of the following would best be considered?

Which of the following are the constraints on how broadly accounting rules can be applied?

Which of the following measures would assist in assessing the profitability of a company?

During the current accounting period,revenue from credit sales is $671,000.The accounts receivable balance is $51,480 at the beginning of the period and $52,200 at the end of the period.Which of the following statements is true?

Data from ratio analysis can be:

Solvency ratio data are primarily concerned with the ability of a company to:

Which of the following analysis techniques does not\bold{not}not examine significant sustained changes over time?

If you wish to examine the relationships among various items reported in one or more of the financial statements,you are most likely to use:

Net income was $364,000 in 2017 and $418,600 in 2018.The year- to-year $\bold{\text{percent change}}$ in net income is:

Which of the following analysis techniques does $\bold{not}$ examine significant sustained changes over time?