25) How would you express a ratio as a percentage?
A) Multiply it by 100
B) Divide it by 100
C) Add a percentage sign
D) Subtract 100
E) This is impossible to do.
Learning Obj.: LO 4
AACSB: Analytical thinking
26) If you invest $1,525,000 in a business and earn a return of $775,000, what is your ROI?
A) 51%
B) 42%
C) 45%
D) 37%
E) 57%
Learning Obj.: LO 5
AACSB: Application of knowledge
27) In a balance sheet, the difference between assets and liabilities is called ________.
A) Owner’s equity
B) debt
C) Cash flow
D) Profit
E) Income
Learning Obj.: LO 2
AACSB: Analytical thinking
28) The expression, “What you made over what you paid, times one hundred,” is a device to
remember how to compute ________.
A) ROI
B) ROA
C) ROS
D) All of the above
E) None of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
7
29) Return on Sales (ROS) is also called a(n) ________.
A) Profit margin
B) Operating margin
C) Contribution margin
D) Gross margin
E) Profit scope
Learning Obj.: LO 5
AACSB: Analytical thinking
30) To create a same size analysis, calculate each line item as a percentage of ________.
A) Sales
B) Income
C) Costs
D) Units
E) None of the above
Learning Obj.: LO 5
AACSB: Analytical thinking
31) A fiscal year may differ from the calendar year.
Learning Obj.: LO 2
AACSB: Reflective thinking
32) Long-term liabilities are debts that are scheduled for payment within one year. These include
the portion of long-term debt due within the year.
Learning Obj.: LO 2
AACSB: Analytical thinking
33) Current assets are cash itself or items that could quickly be turned into cash (liquidated), or
will be used by the business within one year.
Learning Obj.: LO 2
AACSB: Analytical thinking
34) Owner’s equity is the difference between assets and liabilities.
Learning Obj.: LO 3
AACSB: Analytical thinking
8
35) Return on sales is the percentage created when sales are divided into gross margin.
Learning Obj.: LO 5
AACSB: Analytical thinking
36) Investment is something you put time, energy, or money into because you expect to gain
profit or satisfaction in return.
Learning Obj.: LO 5
AACSB: Analytical thinking
37) If revenues are greater than expenses, the income statement balance will be positive, showing
that the business has incurred loss.
Learning Obj.: LO 1
AACSB: Analytical thinking
38) COGS is an acronym for “Cost of Goods Shipped.”
Learning Obj.: LO 1
AACSB: Analytical thinking
39) Contribution margin equals revenues plus COGS and other variable costs.
Learning Obj.: LO 1
AACSB: Analytical thinking
40) Depreciation reflects the wear and tear on an asset over time or other loss of value through
obsolescence.
Learning Obj.: LO 3
AACSB: Analytical thinking
41) The double bottom line answers the question, “Are you able to make a profit and operate the
business in a way that makes you feel satisfied and fulfilled?”
Learning Obj.: LO 1
AACSB: Analytical thinking
9
42) Businesses in different countries prepare and present income statements in the same way
anywhere in the world.
Learning Obj.: LO 4
AACSB: Analytical thinking
43) A balance sheet is a financial statement that shows the assets, liabilities, and cash flow of a
business.
Learning Obj.: LO 2
AACSB: Analytical thinking
44) Revenue is income received from sales of the company’s products or services.
Learning Obj.: LO 1
AACSB: Analytical thinking
45) If cash has decreased from $10,000 to $8000 on the balance sheet, it means the company is
doing poorly.
Learning Obj.: LO 2
AACSB: Application of knowledge
46) What is the purpose of financial ratio analysis?
Learning Obj.: LO 4
AACSB: Analytical thinking
47) How does a debt-to-equity ratio help describe the financial health of a company?
Learning Obj.: LO 7
AACSB: Analytical thinking
10
48) Define debt and equity and explain the difference between them. Where does each appear on
financial statements?
Learning Obj.: LO 2
AACSB: Analytical thinking
49) Steve starts his business on January 1, and compiles all of his first month’s sales and
expenses and does his financial statements on February 1. Is Steve doing a good job with his
record keeping?
Learning Obj.: LO 1
AACSB: Analytical thinking
50) Describe the parts of an income statement.
Learning Obj.: LO 1
AACSB: Analytical thinking
11