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1. In horizontal analysis, the base year can be the immediately preceding period, or it can be a period further in the past.
a. True
b. False
2. A primary purpose of vertical analysis is to observe trends over a three-year period.
a. True
b. False
3. Common-size analysis expresses each item in a financial statement as a percent of a base amount.
a. True
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b. False
4. In vertical analysis of the income statement, cost of goods sold is represented by 100%.
a. True
b. False
5. In vertical analysis of the balance sheet, total liabilities are represented by 100%.
a. True
b. False
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6. In the vertical analysis of a balance sheet, the base for current liabilities is total liabilities.
a. True
b. False
7. The use of common-size analysis makes comparisons more meaningful because percentages eliminate the effects of
size.
a. True
b. False
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8. Two major forms of common-size analysis are horizontal analysis and vertical analysis.
a. True
b. False
9. Horizontal analysis involves comparing two or more years’ financial data for a single company.
a. True
b. False
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10. Common-size statements are statements of companies of similar size and operations.
a. True
b. False
11. An example of horizontal analysis is the increase in cost of goods sold by 25% from Year 1 to Year 2.
a. True
b. False
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12. For meaningful analysis, ratios should be compared with a standard.
a. True
b. False
13. Companies in the same industry may use different accounting methods, diminishing the usefulness of some industrial
averages.
a. True
b. False
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14. Small sample sizes for an industrial report rarely cause a comparability problem in using standards.
a. True
b. False
15. Labor markets can impact industrial statistics and standards.
a. True
b. False
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16. Industrial statistics should be taken as absolute norms as far as standards for comparability.
a. True
b. False
17. Terms of sale can produce statistical variations among companies within the same industry.
a. True
b. False
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18. A number of online sources contain competitive information on individual company’s ratios.
a. True
b. False
19. Industrial figures, standards and statistics should be used with so much care that they are not a very good reference
point to compare companies.
a. True
b. False
20. Liquidity ratios measure the ability of a company to meet its current obligations.
a. True
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b. False
21. The current ratio is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.
a. True
b. False
22. The inventory turnover ratio measures the number of days the average balance of accounts receivable is outstanding
before being converted into cash.
a. True
b. False
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23. Inventory turnover is a measure of liquidity that focuses on efficient use of inventory.
a. True
b. False
24. The quick ratio should be larger than the current ratio.
a. True
b. False
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25. All debt is considered in the computation of the quick ratio.
a. True
b. False
26. When computing the quick ratio, a short-term note receivable would be included.
a. True
b. False
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27. Jill’s Market has an inventory turnover of 120 times. Scott’s Market has a turnover of 128 times. Scott’s is more
effective in managing inventory.
a. True
b. False
28. Profitability ratios assess the ability of a company to meets its long- and short-term obligations.
a. True
b. False
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29. The dividend payout ratio is equal to common dividends divided by (Net Income − Preferred Dividends).
a. True
b. False
30. Dividing the market price of a share of stock by the earnings per share gives the price-earnings ratio.
a. True
b. False
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31. _________________ expresses a line item as a percentage of some prior-period amount.
32. _____________________ expresses a line item as a percentage of some other line item for the same period.
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33. ____________ are fractions or percentages computed by dividing one account or line-item amount by another.
34. _________________ measure the ability of a company to meet its current obligations.
35. The measures of the ability of a company to meets its long- and short-term obligations are known as
_______________.
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36. For meaningful analysis, ratios should be compared with a ____________.
37. The ________________ is a measure of the ability of a company to pay its short-term liabilities out of short-term
assets.
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38. The _________________ is a measure of liquidity that compares only the most liquid assets with current liabilities.
39. How long it takes a company to turn its receivables into cash is known as the ________________.
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40. The _____________________ gives the number of days inventory is held before being sold.
41. The _________________ uses the income statement to assess a company’s ability to service its debt.
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42. The ________________ is computed by dividing a company’s total liabilities by its total assets.
43. ______________ and ____________ are the two major sources of capital.
44. The ________________ is calculated by dividing total liabilities by total stockholders’ equity.