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61)
Working capital is computed as current liabilities minus current assets.
A)
True
B)
False
62)
The current ratio is calculated as current liabilities divided by current assets.
A)
True
B)
False
63)
Total asset turnover reflects a company's ability to use its assets to generate sales and is an
important indication of operating efficiency.
A)
True
B)
False
64)
Capital structure refers to a company's long-run financial viability and its ability to cover long-term
obligations.
A)
True
B)
False
65)
The use of debt is sometimes described as financial leverage because debt can have the effect of
increasing the return on equity.
A)
True
B)
False
66)
The greater the times interest earned ratio, the greater the risk a company is exposed to.
A)
True
B)
False
67)
Efficiency refers to how productive a company is in using its assets, and is usually measured
relative to how much revenue is generated from a certain level of assets.
A)
True
B)
False
68)
The higher the accounts receivable turnover, the less quickly accounts receivable are collected.
A)
True
B)
False
69)
A company with a high inventory turnover requires a smaller investment in inventory than one
producing the same sales with a lower turnover.
A)
True
B)
False
70)
A company with a low inventory turnover requires a smaller investment in inventory than one
producing the same sales with a higher turnover.
A)
True
B)
False
71)
A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days
implies that inventory will be converted to cash in about 12 days.
A)
True
B)
False
72)
The return on total assets can be calculated as profit margin times total asset turnover.
A)
True
B)
False
73)
The return on common stockholder's equity measures a company's success in earning net income
for its owners.
A)
True
B)
False
74)
A high level of expected risk suggests a low price-earnings (PE) ratio.
A)
True
B)
False
75)
The return on total assets ratio is a profitability measure.
A)
True
B)
False
76)
A company reports basic earnings per share of $3.50, cash dividends per share of $0.75, and a
market price per share of $64.75. The company's dividend yield equals 21.4%.
A)
True
B)
False
77)
Financial statement analysis involves all of the following except:
A)
Assuring that the company will be more profitable in the future.
B)
Helping to reduce uncertainty in decision-making.
C)
Helping users to make better decisions.
D)
The application of analytical tools to general-purpose financial statements and related data for
making business decisions.
E)
Transforming accounting data into useful information for decision-making.
78)
Evaluation of company performance can include comparison and/or assessment of all but which of
the following:
A)
External user needs and demands.
B)
Current financial position.
C)
Future performance and risk.
D)
Current performance.
E)
Past performance.
79)
External users of financial information:
A)
Make operating decisions for a company.
B)
Are not directly involved in operating the company.
C)
Make strategic decisions for a company.
D)
Include internal auditors and consultants.
E)
Are those individuals involved in managing and operating the company.
80)
Internal users of financial information:
A)
Are those individuals involved in managing and operating the company.
B)
Are not directly involved in operating a company.
C)
Include directors and customers.
D)
Include suppliers, regulators, and the press.
E)
Include shareholders and lenders.
81)
The building blocks of financial statement analysis do not include:
A)
Profitability.
B)
Solvency.
C)
External analyst services.
D)
Market prospects.
E)
Liquidity and efficiency.
82)
Financial reporting refers to:
A)
Profitability.
B)
Ratio analysis only.
C)
The application of analytical tools to general-purpose financial statements.
D)
General-purpose financial statements only.
E)
The communication of financial information useful for decision making.
83)
The ability to meet short-term obligations and to efficiently generate revenues is called:
A)
Creditworthiness.
B)
Solvency.
C)
Profitability.
D)
Liquidity and efficiency.
E)
Market prospects.
84)
The ability to generate future revenues and meet long-term obligations is referred to as:
A)
Liquidity and efficiency.
B)
Profitability.
C)
Solvency.
D)
Market prospects.
E)
Creditworthiness.
85)
The ability to provide financial rewards sufficient to attract and retain financing is called:
A)
Profitability.
B)
Market prospects.
C)
Solvency.
D)
Liquidity and efficiency.
E)
Creditworthiness.
86)
The ability to generate positive market expectations is called:
A)
Profitability.
B)
Market prospects.
C)
Creditworthiness.
D)
Liquidity and solvency.
E)
Liquidity and efficiency.
87)
Standards for comparisons in financial statement analysis do not include:
A)
Management standards.
B)
Guidelines (rules of thumb).
C)
Competitors' standards.
D)
Intra-company standards.
E)
Industry standards.
88)
Intra-company standards for financial statement analysis:
A)
Are set by the company's industry through published statistics.
B)
Are often set by competitors.
C)
Are published by analyst services such as Standard & Poor's.
D)
Are based on a company's prior performance and relations between its financial items.
E)
Are based on rules of thumb.
89)
Industry standards for financial statement analysis:
A)
Are based on a single competitor's financial performance.
B)
Are set by the government.
C)
Are based on rules of thumb.
D)
Are available for the financial performance and condition of the company's industry.
E)
Compare a company's income with its prior year's income.
90)
Guidelines (rules-of-thumb) are general standards of comparison developed from:
A)
Industry statistics from the government.
B)
Relations between financial items.
C)
Analysis of competitors.
D)
Past experience.
E)
Dun and Bradstreet.
91)
Three of the most common tools of financial analysis are:
A)
Financial reporting, ratio analysis, vertical analysis.
B)
Horizontal analysis, vertical analysis, ratio analysis.
C)
Trend analysis, financial reporting, ratio analysis.
D)
Ratio analysis, horizontal analysis, financial reporting.
E)
Vertical analysis, political analysis, horizontal analysis.
92)
The comparison of a company's financial condition and performance across time is known as:
A)
Political analysis.
B)
Investment analysis.
C)
Financial reporting.
D)
Horizontal analysis.
E)
Vertical analysis.
93)
The measurement of key relations among financial statement items is known as:
A)
Horizontal analysis.
B)
Financial reporting.
C)
Investment analysis.
D)
Ratio analysis.
E)
Risk analysis.
94)
The comparison of a company's financial condition and performance to a base amount is known as:
A)
Vertical analysis.
B)
Investment analysis.
C)
Risk analysis.
D)
Financial reporting.
E)
Horizontal ratios.
95)
A financial statement analysis report does not include:
A)
Evidential matter.
B)
Qualitative and quantitative key factors.
C)
An analysis overview.
D)
Inferences such as forecasts.
E)
An auditor statement.
96)
The background on a company, its industry, and its economic setting is usually included in which
of the following sections of a financial statement analysis report?
A)
Inferences.
B)
Factor analysis.
C)
Executive summary.
D)
Analysis overview.
E)
Evidential conclusions.
97)
A brief focus on important analysis results and conclusions is usually included in which of the
following sections of a financial statement analysis report:
A)
Executive summary.
B)
Evidential conclusions.
C)
Factor analysis.
D)
Analysis overview.
E)
Inferences.
98)
All of the following are true of a financial statement analysis report, except:
A)
Forces preparers to organize their reasoning and to verify the logic of analysis.
B)
Helps users and preparers to refine conclusions based on evidence from key building blocks.
C)
Serves as a method of communication to users.
D)
Contains ambiguities and qualifications.
E)
Enables readers to see the process and rationale of analysis.
99)
Gains and losses that are neither unusual nor infrequent are reported as:
A)
A prior period adjustment on the statement of retained earnings.
B)
A gain or loss from disposing of the discontinued segment's net assets.
C)
Part of continuing operations in before tax dollars.
D)
A gain or loss from operation of a discontinued segment.
E)
Part of continuing operations in after-tax dollars.
100)
Which of the following items is typically not included as a separate item after normal revenues and
expenses?
A)
Expropriation of property by a foreign government.
B)
Loss of use of property due to a new and unexpected environmental regulation.
C)
Write down of inventories.
D)
Condemnation of property by the city government.
E)
Loss due to an unusual and infrequent calamity.
101)
Financial statements with data for two or more successive accounting periods placed in columns
side by side, sometimes with changes shown in both dollar amounts and percentages, are referred
to as:
A)
Comparative statements.
B)
Successive statements.
C)
Controlling statements.
D)
Period-to-period statements.
E)
Serial statements.
102)
Horizontal analysis:
A)
Evaluates financial data across industries.
B)
Is the presentation of financial ratios.
C)
Is a tool used to evaluate financial statement items relative to industry statistics.
D)
Is a method used to evaluate changes in financial data across time.
E)
Is also called vertical analysis.
103)
The dollar change for a comparative financial statement item is calculated by:
A)
Subtracting the base period amount from the analysis period amount.
B)
Subtracting the base period amount from the analysis period amount, dividing the result by
the base period amount, then multiplying that amount by 100.
C)
Subtracting the analysis period amount from the base period amount.
D)
Subtracting the base period amount from the analysis amount, then dividing the result by the
base amount.
E)
Subtracting the analysis period amount from the base period amount, dividing the result by
the base period amount, then multiplying that amount by 100.
104)
A company's sales in Year 1 were $250,000 and in Year 2 were $287,500. Using Year 1 as the base
year, the percent change for Year 2 compared to the base year is:
A) 100%. B) 13%. C) 15%. D) 87%. E) 115%.
105)
Yeats Corporation's sales in Year 1 were $396,000 and in Year 2 were $380,000. Using Year 1 as
the base year, the percent change for Year 2 compared to the base year is:
A) 4.2% B) -104% C) -4% D) 96% E) 100%
