Questions 1-10 True or False only:
1. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its assets.
2. Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.
3. Profitability ratios show the combined effects of liquidity, asset management, and debt management on operating results.
4. Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one method of measuring changes in a firm's performance over time.
5. The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity.
6. The primary reason the annual report is important in finance is that it's used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows.
7. Net operating working capital is equal to operating current assets minus operating current liabilities.
8. Net operating profit after taxes (NOPAT) is the amount of net income a company would generate from its operations if it had no interest income or interest expense.
9. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value.
10. To estimate the cash flow from operations, depreciation must be added back to net income because it is a non-cash charge that has been deducted from revenue.