Exam
Name___________________________________
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1)
Vertical analysis of a balance sheet is obtained by using Total Liabilities as a constant and dividing
every figure on the balance sheet by Total Liabilities.
1)
2)
Vertical analysis of a balance sheet is obtained by using Total Assets as a constant and dividing
every figure on the balance sheet by Total Assets.
2)
3)
Vertical analysis of an income statement is obtained by using Net Sales as a constant and dividing
every figure on the income statement by Net Sales.
3)
4)
Vertical analysis of an income statement is obtained by using Net Profit as a constant and dividing
every figure on the income statement by Net Profit.
4)
5)
Horizontal Analysis is obtained by determining the percentage change in an account from a base
period to a successive time period.
5)
6)
Horizontal Analysis is obtained by determining the dollar value change in an account from a base
period to a successive time period.
6)
7)
A single ratio always provides us with meaningful information.
7)
8)
A ratio is a relationship between two numbers, expressed as a fraction.
8)
9)
The current ratio is calculated by dividing current assets minus inventory by current liabilities.
9)
10)
The current ratio is calculated by dividing current assets by current liabilities.
10)
11)
Liquidity ratios measure the ability of a firm to meet its long–term obligations.
11)
12)
Profitability ratios determine how well a firm is using its assets and sales revenue to generate a
positive return for its owners.
12)
13)
Market ratios determine how well a company is marketing its products.
13)
14)
Market ratios indicate what price investors are willing to pay for ownership in the company.
14)
15)
As long as you choose your method of financial analysis carefully, any single method will provide
you with enough information to completely evaluate your firm
15)
16)
There is more than one way to calculate the ROE.
16)
17)
As the debt to asset ratio increases, the ROE decreases.
17)
18)
It is advantageous for managers to increase debt financing and exhibit an increased ROE.
18)
19)
If a company has no debt financing, its return on equity equals its return on assets.
19)
20)
Operating cash flow per share is a much better predictor of company stability than earnings per
share.
20)
21)
The operating cash flow per share ratio uses information from the statement of cash flows and the
income statement.
21)
22)
Too much credit sales may overstate the earnings of a company.
22)
23)
Activity ratios indicate how efficiently a business is using its assets.
23)
24)
When comparing income statement items to balance sheet items in a single ratio, we use the
average of the items on the balance sheet.
24)
25)
When comparing income statement items to balance sheet items in a single ratio, we use the
average of the items on the income statement.
25)
26)
The higher the accounts receivable turnover, the lower the average collection period.
26)
27)
If the total asset turnover ratio is less than one, then the average total assets are not generating
enough sales.
27)
28)
Leverage ratios measure the firm’s ability to use its own money to fund operations.
28)
29)
If a company has a 70 percent debt to total assets ratio, approximately 70 cents of every dollar of
assets is owed to the company creditors.
29)
30)
If a company has a 70 percent debt to total assets ratio, approximately 70 cents of every dollar of
assets is owned by the company.
30)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
31)
We can obtain the financial reports of publicly held corporations by
31)
A)
reading trade journals.
B)
calling the company directly.
C)
using published data in sources such as Value Line.
D)
using EDGAR on the Internet.
E)
all of the above.
32)
Methods of analyzing financial statements include
32)
A)
horizontal analysis.
B)
vertical analysis.
C)
ratio analysis.
D)
all of the above.
E)
only A and C above.
Table 4–1. Income Statement January February
Total Revenues 46,062 44,759
Returns & Allowances 545 685
Net Sales 45,517 44,074
Cost of Goods Sold 13,841 11,583
Gross Profit 31,676 32,491
Operating Expenses
Officer‘s Salary 2,500 2,500
Salaries 15,750 14,250
Payroll Taxes 3,623 3,278
Rent 2,000 2,000
Janitorial 150 150
Utilities 512 485
Depreciation 500 500
Sales Taxes 2,994 2,909
Total Operating Expenses 28,029 26,072
Operating Profit/Loss 3,647 6,419
Interest Expense 150 150
Net Profit/Loss 3,497 6,269
33)
Refer to Table 4–1. Using a vertical analysis of January data, Cost of Goods were approximately
________ percent.
33)
A)
30.05
B)
0.3041
C)
35.65
D)
30.41
34)
Refer to Table 4–1. Using a vertical analysis of January data, Payroll Taxes were approximately
________ percent
34)
A)
0.0796
B)
0.0737
C)
7.96
D)
7.37
35)
Refer to Table 4–1. Between January and February, the items that did not change in dollar value
included all of the following EXCEPT
35)
A)
Payroll Taxes.
B)
Depreciation.
C)
Rent.
D)
Janitorial.
E)
Officer’s Salary.
36)
Refer to Table 4–1. Using horizontal analysis, Payroll Taxes ________ by approximately ________
percent.
36)
A)
decreased; 9.52
B)
increased; 10.52
C)
decreased; 10.52
D)
increased; 9.52
37)
Refer to Table 4–1. Using horizontal analysis, Net Profit ________ by approximately ________
percent.
37)
A)
decreased; 44.22
B)
increased; 79.27
C)
decreased; 79.27
D)
increased; 44.22
38)
In 2005, the Handy Yogurt shop had $345,265 in Gross Revenues; in 2006, they had $357,388. What
is the percentage change in sales?
38)
A)
–3.39%
B)
3.39%
C)
–3.51%
D)
3.51%
39)
In 2003 the Handy Yogurt shop had $267,386 in Gross Revenues; in 2004, they had $215,398. What
is the percentage change in sales?
39)
A)
–24.14%
B)
24.14%
C)
19.44%
D)
–19.44%
40)
The U.S. Government raised the minimum wage from $4.75 to $5.25 between 1996 and 1997. What
was the percentage change in the minimum wage?
40)
A)
9.52
B)
–9.52
C)
10.53
D)
–10.53
41)
Last year Sam earned $25,000 and received no bonus. This year he earned the same amount but
received a $2,000 bonus. What was the percentage change in his annual earnings?
41)
A)
7.41
B)
8.00
C)
–92.00
D)
–11.20
42)
________ are used to measure the ability of a firm to meet its short–term creditor’s claims.
42)
A)
Activity ratios
B)
Leverage ratios
C)
Liquidity ratios
D)
Market ratios
E)
Profitability ratios
43)
________ are used to determine how well a company is managing its assets.
43)
A)
Activity ratios
B)
Leverage ratios
C)
Liquidity ratios
D)
Market ratios
E)
Profitability ratios
44)
________ indicate how much of a company’s net worth and asset commitment are being financed
with debt.
44)
A)
Activity ratios
B)
Leverage ratios
C)
Liquidity ratios
D)
Market ratios
E)
Profitability ratios
45)
________ determine how well the firm is using its assets and sales revenue to generate a positive
return for its owners.
45)
A)
Activity ratios
B)
Leverage ratios
C)
Liquidity ratios
D)
Market ratios
E)
Profitability ratios
46)
________ indicate what price investors are willing to pay for ownership in the company.
46)
A)
Activity ratios
B)
Leverage ratios
C)
Liquidity ratios
D)
Market ratios
E)
Profitability ratios
47)
Liquidity ratios include the
47)
A)
A and B above.
B)
A and C above.
C)
current ratio.
D)
inventory turnover ratio.
E)
quick ratio.
48)
Refer to Table 4–2. The current ratio for this company in 2007 was approximately
48)
A)
1.28.
B)
1.94.
C)
1.19.
D)
1.24.
49)
Refer to Table 4–2. The percentage change in sales from 2007 to 2008 was approximately
49)
A)
4.54.
B)
–4.76.
C)
–4.54.
D)
4.76.
E)
45.4.
50)
Refer to Table 4–2. The current ratio for this company in 2008 was approximately
50)
A)
1.19.
B)
1.94.
C)
1.24.
D)
1.28.
51)
Refer to Table 4–2. The percentage change in fixed assets between 2007 and 2008 was
approximately
51)
A)
6.25.
B)
–6.25.
C)
–6.66.
D)
6.66.
52)
Refer to Table 4–2. The Fixed Asset Turnover ratio for 2008 was approximately
52)
A)
2.37.
B)
2.29.
C)
1.52.
D)
2.22.
53)
Refer to Table 4–2. The Fixed Asset Turnover ratio for 2007 was approximately
53)
A)
2.12.
B)
2.09.
C)
2.37.
D)
2.26.
54)
Refer to Table 4–2. The Total Asset Turnover ratio for 2008 was approximately
54)
A)
4.16.
B)
1.52.
C)
2.37.
D)
2.22.
55)
Refer to Table 4–2. The Total Asset Turnover ratio for 2007 was approximately
55)
A)
1.44.
B)
1.49.
C)
1.54.
D)
1.47.
56)
Refer to Table 4–2. The Debt to Equity ratio for 2007 was approximately
56)
A)
0.93.
B)
0.54.
C)
2.07.
D)
1.07.
57)
Refer to Table 4–2. The Debt to Equity ratio for 2008 was approximately
57)
A)
2.05.
B)
1.05.
C)
0.51.
D)
1.95.
E)
0.95.
58)
Refer to Table 4–2. The Debt to Total Assets ratio for 2007 was approximately
58)
A)
0.84.
B)
0.52.
C)
1.19.
D)
1.94.
59)
Refer to Table 4–2. The Debt to Total Assets ratio for 2008 was approximately
59)
A)
0.51.
B)
0.36.
C)
1.95.
D)
0.71.
60)
Refer to Table 4–2. The Gross Profit Margin ratio for 2007 was approximately
60)
A)
0.55.
B)
0.44.
C)
0.53.
D)
0.45.
61)
Refer to Table 4–2. The Gross Profit Margin ratio for 2008 was approximately
61)
A)
2.04.
B)
2.11.
C)
0.49.
D)
0.47.
62)
Refer to Table 4–2. The Operating Profit Margin ratio for 2007 was approximately
62)
A)
0.18.
B)
0.22.
C)
0.17.
D)
0.12.
63)
Refer to Table 4–2. The Net Profit Margin ratio for 2007 was approximately
63)
A)
0.17.
B)
0.18.
C)
0.22.
D)
0.12.
64)
Refer to Table 4–2. The Operating Profit Margin ratio for 2008 was approximately
64)
A)
0.06.
B)
0.20.
C)
0.12.
D)
0.10.
65)
Refer to Table 4–2. The Net Profit Margin ratio for 2008 was approximately
65)
A)
0.12.
B)
0.06.
C)
0.10.
D)
0.20.
66)
Refer to Table 4–2. The Operating Return on Assets ratio for 2007 was approximately
66)
A)
0.15.
B)
0.23.
C)
0.18.
D)
0.26.
67)
Refer to Table 4–2. The Net Return on Assets ratio for 2007 was approximately
67)
A)
0.18.
B)
0.22.
C)
0.23.
D)
0.20.
68)
Refer to Table 4–2. The Operating Return on Assets ratio for 2008 was approximately
68)
A)
0.15.
B)
0.13.
C)
0.23.
D)
0.18.
69)
Refer to Table 4–2. The Net Return on Assets ratio for 2008 was approximately
69)
A)
0.03.
B)
0.15.
C)
0.13.
D)
0.09.
70)
Refer to Table 4–2. The Return on Equity ratio for 2007 was approximately
70)
A)
0.36.
B)
0.30.
C)
0.33.
D)
0.26.
71)
Refer to Table 4–2. The Return on Equity ratio for 2008 was approximately
71)
A)
0.23.
B)
0.15.
C)
0.19.
D)
0.16.
72)
Carl’s Toy Factory had the following items listed on its balance sheet. Cash, 1,590; Accounts
Receivable, 5,746; Accounts Payable, 9,563; Inventory, 7,879; Equipment, 35,743; Land, 50,000;
Buildings, 135,487; Mortgage, 125,276. Based on this information what was Carl’s current ratio?
72)
A)
2.14
B)
1.37
C)
1.59
D)
0.77
73)
Carl’s Toy Factory had the following items listed on its balance sheet. Cash, 1,590; Accounts
Receivable, 5,746; Accounts Payable, 9,563; Inventory, 7,879; Equipment, 35,743; Land, 50,000;
Buildings, 135,487; Mortgage, 125,276. Based on this information what was Carl’s quick ratio?
73)
A)
1.59
B)
2.14
C)
0.77
D)
1.37
74)
In 2005, Joan had Cost of Goods of 58,358; in 2006, they were 65,069. On the last day 2005 her
Inventory was 675, and on the last day of 2006 it was 1,559. What is the Inventory Turnover for
Joan’s Coffee Shop for 2006?
74)
A)
58.25
B)
55.25
C)
41.74
D)
52.25
75)
In 2004, James had Cost of Goods of 358,358; in 2005, they were 365,069. On the last day 2004 his
Inventory was 45,675, and on the last day of 2005 it was 51,559. What is the Inventory Turnover for
James’ Television Sales Shop for 2005?
75)
A)
7.51
B)
7.44
C)
7.34
D)
7.37
76)
In 2005, The Best Donut Shop had cash sales of 83,684 and total sales of 176,413. Accounts
Receivable were 3,275. What was Accounts Receivable Turnover?
76)
A)
28.31
B)
25.55
C)
53.37
D)
39.71
77)
In 2005, The Handy Catering Service had cash sales of 254,134, credit sales of 125,371, and total
sales of 379,505. Accounts Receivable were 9,765. What was Accounts Receivable Turnover?
77)
A)
19.43
B)
33.36
C)
12.84
D)
26.02
E)
There is not enough information provided to answer this question.
78)
In 2005, The Handy Catering Service had cash sales of 254,134, credit sales of 125,371, and total
sales of 379,505. Accounts Receivable were 9,765. If there are 365 days in 2005, what was the
Average Collection Period?
78)
A)
18.78 days
B)
9.39 days
C)
28.43 days
D)
14.03 days
E)
There is not enough information provided to answer this question.
79)
If a company has annual credit sales of 345,279 and accounts receivable of 10,000, using a 365–day
year, what is its Average Collection Period?
79)
A)
27.40 days
B)
34.43 days
C)
94.59 days
D)
10.57 days
80)
Activity ratios include
80)
A)
inventory turnover.
B)
fixed asset turnover.
C)
accounts receivable turnover.
D)
total asset turnover.
E)
all of the above.
81)
Liquidity ratios can be obtained from information on the balance sheet, while Activity Ratios
require information obtained from the
81)
A)
income statement, balance sheet, and statement of cash flows.
B)
balance sheet only.
C)
income statement only.
D)
income statement and balance sheet.
E)
none of the above
82)
Which of the following formulas is used to determine Fixed Asset Turnover?
82)
A)
fixed assets/gross sales
B)
cost of goods sold/fixed assets
C)
net sales/fixed assets
D)
fixed assets/net sales
E)
gross sales/fixed assets
83)
A company has the following information on their income statement and balance sheet: Total Sales
$345,678; Returns and Allowances $15,500; Cost of Goods Sold $175,000; Total Assets $500,000;
Current Assets $25,000. What is their Fixed Asset Turnover ratio?
83)
A)
0.691
B)
0.695
C)
0.728
D)
0.660
E)
0.368
84)
The balance sheet for Jim’s Hardware has the following items listed. Current Liabilities, $25,345;
Long–Term Debt, $100,000; Total Liabilities, $125,345; Total Assets, $325,490. What is the Debt to
Equity Ratio for this company?
84)
A)
0.385
B)
0.499
C)
0.307
D)
0.626
E)
0.198
85)
The balance sheet for Jim’s Hardware has the following items listed. Current Liabilities, $25,345;
Long–Term Debt, $100,000; Total Liabilities, $125,345; Total Assets, $325,490. What is the Owner’s
Equity for this company?
85)
A)
$200,145
B)
$25,345
C)
$225,490
D)
Cannot calculate with the information provided.
86)
The Handy Dandy Corporation has an income statement that indicates that Operating Income is
$2,375,486 and Net Profit is $1,375,486. It currently has 2 million shares of common stock
outstanding and 1 million shares of preferred stock that pays a dividend of $1.00 per share. What is
this corporation’s approximate Earnings per Share?
86)
A)
$0.69
B)
$0.19
C)
$0.79
D)
$1.18
E)
$0.46
87)
The Handy Dandy Corporation has an income statement that indicates that Operating Income is
$2,375,486 and Net Profit is $1,375,486. It currently has 2 million shares of common stock
outstanding and does not issue preferred stock. What is this corporation’s approximate Earnings
per Share?
87)
A)
$0.69
B)
$1.18
C)
$0.46
D)
$0.79
E)
$0.19
Answer:
88)
The Handy Dandy Corporation has an income statement that indicates that Earnings Before Taxes
is $2,375,486 and it pays taxes at 35% of earnings. It currently has 1 million shares of common stock
outstanding and does not issue preferred stock. What is this corporation’s approximate Earnings
per Share?
88)
A)
$1.54
B)
$0.42
C)
$0.65
D)
$2.38
Answer:
89)
If a company’s stock currently sells in the marketplace for $55 per share, and the book value of this
stock is $25 per share, what is the Price Earnings ratio if the Earnings per Share is $3.00?
89)
A)
0.12
B)
0.05
C)
8.33
D)
18.33
Answer:
90)
Earnings per share differs from operating cash flow per share in that
90)
A)
EPS uses less shares in its calculation than cash flow per share does.
B)
EPS uses net income and operating cash flow uses actual cash flow per share.
C)
EPS is a market ratio.
D)
EPS uses the balance sheet and the income statement.
Answer:
91)
Earnings per share
91)
A)
is easy to manipulate.
B)
may overstate the profitability of the company.
C)
does not separate cash sales from credit sales on the income statement.
D)
all of the above.
Answer:
92)
Operating Cash Flow per share
92)
A)
uses information from the income statement and the balance sheet.
B)
uses information from the statement of cash flows and the income statement.
C)
uses information from the balance sheet and the statement of cash flows.
D)
all of the above.
Answer:
Answer: