Multiple Choice:
Question 1. When vertical analysis is performed:
a. Ratios are used to detect fraud.
b. Changes in significant balance totals are examined.
c. Financial statement balances are converted to percentages
d. Total revenues are compared to total expenses.
Question 2. Horizontal analysis is different from vertical analysis in that:
a. There is no difference between horizontal and vertical analysis.
b. Horizontal analysis calculates the percentage change in balance sheet and income statement numbers from one period to the next, while vertical analysis converts balances in a single period to percentages.
c. Horizontal analysis converts balances in a single period to percentages, while vertical analysis calculates the percentage change in balance sheet & income statement numbers from one period to the next.
d. Key ratios are compared from one period to the next.
Question 3. When conducting financial statement analysis, which ratio will be the most useful in determining whether a company has erroneously inflated accounts receivable?
a. Current ratio
b. Profit margin
c. Accounts receivable turnover
d. Debt percentage