CHAPTER 3
ANALYSIS AND INTERPRETATION OF
FINANCIAL STATEMENTS
TRUE OR FALSE QUESTIONS
(Correct answer indicated by T for True answers and F for False answers)
and total balance changes from one balance sheet date to the next. Changes are
described in both dollars and percentages.
operations of a business.
one period to the next are absolute changes for percent differences, and relative
changes for dollar differences.
sales revenue.
period by the sales revenue for that period.
$2.50, than 4,200 guests each spending $2.40.
average net income per guest would be $1.10.
for two consecutive periods only.
100.
During the same period the accounts receivable trend index shows an increase of 75%.
This would normally be a desirable trend.
adjusting for the effects of inflation.
index number for the historic period and then divides that result by the trend index
number for the current period.
revenue (current year) is $360,000 and its trend index number is 150. Year 1 sales
revenue converted to current dollars is $300,000.
trend index numbers.
viewed over multiple periods can identify the direction in which a business is going.
statements analysis.
MULTIPLE CHOICE QUESTIONS
(Correct answer indicated by asterisk)
1. Financial statement analysis is carried out by:
2. Comparative horizontal balance sheets show the:
3. In doing comparative horizontal analysis:
4. Common-size vertical income statements:
5. Average check is calculated by dividing:
6. Average guest check has increased from $12.50 to $14.00. Average operating income per
guest has increased from $1.00 to $1.50. From this information it is obvious that:
7. Sales revenue in Period 1 is $100,000 and food cost is 40%. Sales revenue in Period 2 is
$104,000 and food cost is 44%. The percent change in food cost percentage from Period 1 to
Period 2 is:
8. Sales revenue in Period 1 is $3,000 and in Period 2 it is $4,000. The trend index figure for
Period 2 (assuming Period 1 is given the value of 100) will be:
9. Sales revenue in Year 1 is $120,000 with a trend index number of 110. Sales revenue in Year
2 is $140,000 with a 121 trend index number. Year 1 sales revenue converted to current
dollars is:
10. A restaurant’s average check in Year 1 is $20.00, in Year 2 is $21.00, and in Year 3 is
$22.00. Using this as a basis, calculate the trend index numbers. The trend index numbers for
the three years respectively, would be: