Question 1

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

The fixed asset turnover ratio measures how efficiently a company uses its fixed assets to generate revenue. This provides insight into the company's profitability as it indicates how well the company is using its resources to generate income. The other measures listed (Debt-to-assets ratio, Receivables turnover ratio, Current ratio) are important financial metrics but do not directly relate to profitability.

Question 2

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 is the best choice as it measures a company's long-term ability to meet its financial obligations and remain in business. It includes assessing a company's debt levels, interest coverage, and overall financial stability. Liquidity, market share, and profitability are important factors to consider, but they do not necessarily provide an accurate picture of a company's long-term survival prospects.

Question 3

Net income was $418,600 in 2011 and $364,000 in 2012.The year-to- year dollar change in net income is:
A)15%.
B)87%.
C)$54,600.
D)$418,600.

Accepted Answer

To calculate the year-to-year dollar change in net income, we need to subtract the net income of 2012 from the net income of 2011:

$418,600 - $364,000 = $54,600

Therefore, the correct answer is C) $54,600.

Question 4

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 above.

Accepted Answer

Ratio analysis is a useful method to assess a company's financial performance. It involves comparing different financial ratios to industry averages or a company's historical performance, as well as to competitors in the same industry. Therefore, all of the given choices (A, B, and C) are correct when it comes to data from ratio analysis.

Question 5

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 28.3 days.

Accepted Answer

To calculate the receivables turnover ratio, we divide the revenue from credit sales by the average accounts receivable balance.
Average accounts receivable balance = (Beginning accounts receivable balance + Ending accounts receivable balance) / 2 = ($51,480 + $52,200) / 2 = $51,840

Receivables turnover ratio = Revenue from credit sales / Average accounts receivable balance = $671,000 / $51,840 = 12.9

Therefore, choice A is correct. Choice B is incorrect because the receivables turnover ratio does not indicate the number of days it takes to collect payment from credit customers. Choice C is incorrect as the calculated ratio is 12.9 and not 28.3. Choice D is irrelevant as it asks about the inventory turnover ratio, which is not related to the information given in the question.

Question 6

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 used to examine the relationships among various items reported in financial statements. It involves calculating ratios based on items such as assets, liabilities, equity, revenue, and expenses to get an understanding of a company's financial health and performance. Time-series analysis looks at data over time, horizontal analysis compares financial data over a period of time, and cross-sectional analysis compares data across different companies or industries. While these types of analysis can provide insight into a company's financial performance, they are not specifically designed to examine relationships among items in financial statements.

Question 7

Which of the following measures would assist in assessing the profitability of a company?
A)Quality of income ratio
B)Times interest earned ratio
C)Inventory turnover ratio
D)Capital acquisitions ratio

Accepted Answer

The quality of income ratio measures the proportion of income that is cash-based, which helps in assessing the profitability and sustainability of a company's earnings.

Question 8

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 through its operations. Liquidity measures a company's ability to meet short-term obligations, market share measures the company's position in the market, and solvency measures a company's ability to meet long-term obligations.

Question 9

Which of the following analysis techniques does not examines significant sustained changes over time?
A)Trend analyses
B)Horizontal analyses
C)Time-series analyses
D)Vertical analyses

Accepted Answer

Vertical analyses look at the percentage of each item on the financial statement relative to a base value (such as total assets or total revenue) in a single period, rather than comparing changes over time. Trend analyses, horizontal analyses, and time-series analyses all examine changes over time.

Question 10

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 refers to a company's ability to meet its short-term obligations with the cash or near-cash assets it has on hand. It is, therefore, the best choice for examining a company's short-run ability to survive. Market share and profitability relate more to a company's long-term success, while solvency is concerned with the ability of the company to meet its long-term obligations.

Question 11

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 collects payment from its customers, which can indicate the speed at which the company generates cash and its ability to meet short-term obligations. Measures like the price/earnings ratio, fixed asset turnover ratio, and times interest earned ratio focus on different aspects of a company's financial performance and may not give insight into their liquidity.

Question 12

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 ratios are financial ratios that measure a company's ability to meet its long-term debts and other financial obligations. Thus, they primarily indicate a company's ability to handle its debt.

Question 13

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

The fixed asset turnover ratio is calculated as net sales revenue divided by the average fixed assets. Average fixed assets = ($361,000 + $389,000) / 2 = $375,000. Fixed asset turnover ratio = $1,250,000 / $375,000 = 3.33.

Question 14

Net income was $418,600 in 2010 and $364,000 in 2011.The year- to-year percent change in net income is:
A)15%.
B)$54,600.
C)87%.
D)13%.

Accepted Answer

The answer of Net income was $418,600 in 2010 and...

Question 15

Consider the formula used to calculate each of the following financial performance ratios.From the list of financial statement items below,match their letters with the ratio it is used to calculate.Some financial statement items will be used more than once. ___ Net Profit Margin
___ Debt-to-Assets Ratio
___ EPS
___ ROE
___ Capital Acquisitions Ratio
___ Inventory Turnover Ratio
___ Times interest earned Ratio
A)Net Income
B)Interest Paid
C)Cost of Goods Sold
D)Net Sales Revenue
E)Net Cash Flows from Operating Activities 
F)Total Assets
G)Average Shareholders' Equity
H)Total Liabilities
I)Average Shares Outstanding
J)Cash paid for Property,Plant,and Equipment
K)Average Inventory
L)Income Tax Expense

Accepted Answer

The answer of Consider the formula used to calculate each...

Question 16

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)Quality of income ratio

Accepted Answer

The debt-to-assets ratio measures the percentage of a company's assets that are financed with debt. A lower ratio indicates a higher level of solvency, as the company is less reliant on debt financing to support its operations. Consequently, a high ratio indicates that a company may have difficulty meeting its obligations if it experiences financial difficulties.

Question 17

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 18

Company X has a capital acquisitions ratio of 0.8.Company Y has a capital acquisitions ratio of 1.2.Which of the following statements is true?
A)Company X is more likely to have a higher quality of income ratio than Company Y.
B)Company Y is less likely to need external financing than Company X.
C)Company X is more likely to have a higher times interest earned ratio than Company Y.
D)Company X is less likely to need external financing than Company Y.

Accepted Answer

A higher capital acquisitions ratio indicates that Company Y is generating more cash from operations relative to its capital expenditures, making it less likely to need external financing compared to Company X.

Question 19

When using ratio data for comparison to other companies,analyst 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 not be used to assume direct competition among companies in the industry, as different companies may have different business models, strategies, and market positions. Therefore, analysts should exercise caution and use additional information to assess the competitive dynamics and performance of individual companies.

Question 20

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.

Quiz 13: Measuring and Evaluating Financial Performance

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

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

Net income was $418,600 in 2011 and $364,000 in 2012.The year-to- year dollar change in net income is:

Data from ratio analysis can be:

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?

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:

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

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 analysis techniques does not examines significant sustained changes over time?

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

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

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

Net income was $418,600 in 2010 and $364,000 in 2011.The year- to-year percent change in net income is:

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

Company X has a capital acquisitions ratio of 0.8.Company Y has a capital acquisitions ratio of 1.2.Which of the following statements is true?

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

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