Assignment
Question 1
The three different perspectives on financial statement analysis are those of the:
manager, regulator, and bondholder.
manager, shareholder, and creditor.
regulator, shareholder, and creditor.
shareholder, creditor, and regulator
Question 2
Shareholders analyze financial statements in order to:
assess the cash flows that the firm will generate from its operations.
focus on the value of the stock they hold.
determine the firm's profitability, their return for that period, and the dividend they are likely to receive
all of these.
Question 3
The creditors of a firm analyze financial statements so that they can focus on:
the firm's amount of debt.
the firm's ability to generate sufficient cash flows to meet its legal obligations first and still have sufficient cash flows to meet debt repayment and interest payments.
the firm's ability to meet its short-term obligations.
all of these.
Question 4
Which of the following is NOT true of common-size income statements?
Income statement accounts are represented as percentages of net sales.
Each income statement item is standardized by dividing it by net sales.
Common-size income statements analysis is a specialized application of ratio analysis.
Each income statement item is standardized by dividing it by total assets.
Question 5
Common-size financial statements:
are a specialized application of ratio analysis.
allow us to make meaningful comparisons between the financial statements of two firms that are different in size.
are prepared by having each financial statement item expressed as a percentage of some base number, such as total assets or total revenues.
all of these are true.
Question 6
Which of the following is a benefit of a common-size income statement?
It reveals a great deal of information about the adequacy of a firm's net working capital.
It is very useful to assess how effectively a firm collected its accounts receivable.
It can tell the analyst a great deal about a firm's efficiency and profitability.
It reveals how effectively a firm has increased its assets.
Question 7
Lionel, Inc., has current assets of $623,122, including inventory of $241,990, and current liabilities of $378,454.What is the quick ratio? (Round your final answer to two decimal places.)
1.65
0.64
1.01
None of these
Question 8
If Viera, Inc., has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables? (Round your final answer to the nearest dollar.)
$1,340,357
$81,234
$881,234
$13,403,567
3,436,812 / 3.9 = 881,234
Question 9
Trident Corp., has debt of $3.35 million with an interest rate of 6.875 percent. The company has an EBIT of $2,766,009. What is its times-interest-earned ratio? (Round your final answer to nearest number.)
13 times
12 times
11 times
None of these
Question 10
Sectors, Inc., has an EBIT of $7,221,643 and interest expense of $611,800. Its depreciation for the year is $1,434,500. What is its cash coverage ratio? (Round your final answer to two decimal places.)
15.42 times
18.34 times
14.15 times
None of these
Question 11
RTR Corp. has reported a net income of $812,425 for the year. The company's share price is $13.45, and the company has 312,490 shares outstanding. Compute the firm's price-earnings ratio. (Round your final answer to two decimal places.)
4.87 times
8.12 times
5.17 times
None of these
Question 12
Why is the quick ratio considered by some to be a better measure of liquidity than the current ratio?
The current ratio does not include accounts receivable.
It measures how "quickly" cash flows through the firm.
The quick ratio more accurately reflects a firm's profitability.
It omits the least liquid current asset from the numerator of the ratio
Question 13
Which of the following is true of a firm that has both debt and equity?
Its return on equity (ROE) will be greater than its return on asset (ROA).
Its return on equity (ROE) will be lesser than its return on asset (ROA).
Its return on equity (ROE) will be equal to its return on asset (ROA).
None of these.
Question 14
Which one of the following statements is NOT correct?
The DuPont system is based on two equations that relate a firm's return on asset (ROA) and return on equity (ROE).
The DuPont system is a set of related ratios that links the items of balance sheet and the income statement.
Both management and shareholders can use this tool to understand the factors that drive a firm's return on equity (ROE).
All of these are correct.
Question 15
The DuPont equation shows that a firm's (return on equity) ROE is determined by three factors:
net profit margin, total asset turnover, the return on assets (ROA).
net profit margin, total asset turnover, and the equity multiplier.
operating profit margin, return on assets (ROA), and the total assets turnover.
return on assets (ROA), total assets turnover, and the equity multiplier.
Question 16
Which one of the following is NOT an advantage of using return on equity (ROE) as a goal?
ROE is highly correlated with shareholder wealth maximization.
ROE and the DuPont analysis allow management to break down the performance and identify areas of strengths and weaknesses.
ROE does not consider risk.
All of these are advantages of using ROE as a goal.
Question 17
There are people who believe that the analysis of financial statements has limitations. Which of the statements below would qualify as a limitation of financial statement analysis?
Ratio analysis requires the analyst to evaluate a firm's performance over a period of time to be of any value.
Ratio analysis requires the analyst to utilize accounting data that is based on historical costs instead of current market values.
Proper ratio analysis requires the analyst to rely upon audited financial statements, which can be easily manipulated.
Thorough ratio analysis requires the analyst to refer to benchmarking, which is very easy to misinterpret.
Question 18
Which one of the following statements about trend analysis is NOT correct?
It allows management to examine each ratio over time and determine whether the trend is good or bad for the firm.
A ratio value that is changing typically prompts the financial manager to sort out the issues surrounding the change.
It uses the Standard Industrial Classification (SIC) System to benchmark firms.
The benchmark for trend analysis is based on a firm's historical performance.
Question 19
Which of the following is NOT a method of "benchmarking"?
Identifying a group of firms that compete with the company being analyzed.
Evaluating a single firm's performance over time.
Utilizing the DuPont system to analyze a firm's performance.
Conducting an industry group analysis.
Question 20
Which of the following is a limitation of ratio analysis?
Ratios depend on accounting data based on historical costs.
Differences in accounting practices like FIFO versus LIFO make comparison difficult.
Trend analysis could be distorted by financial statements affected by inflation.
All of these are limitations of ratio analysis.