Question 1

The price-earnings, or P/E, ratio is sometimes called the earnings residual.

Accepted Answer

A) True 
 B)False

Question 2

Which one of the following is not a basic component of the DuPont method of ratio analysis?

Accepted Answer

A)   profit margin
B)   total asset turnover
C)   equity multiplier
D)   liquidity margin

Question 3

If a firm's inventories on hand are $200,000, its cost of goods sold is $600,000, and its sales are $800,000, what is the inventory turnover?

Accepted Answer

A)   2 times
B)   3 times
C)   4 times
D)   5 times

Question 4

Trend or time series analysis is used to compare the performance of different firms at the same point in time.

Accepted Answer

A) True 
 B)False

Question 5

Given the following financial data: net income/sales = 6%; sales/total assets = 3.5; debt/total assets = 30%. The return on total assets is:

Accepted Answer

A)   15%
B)   21%
C)   30%
D)   36%

Question 6

An analyst should be careful when conducting ratio analysis to ensure that

Accepted Answer

A)   the overall performance of the firm is not judged on a single ratio.
B)   the dates of the financial statements being compared are different.
C)   audited statements are not being used.
D)   different accounting procedures are used.

Question 7

Ratios used to compare different firms at the same point in time belong to a category of analysis called:

Accepted Answer

A)   time series analysis
B)   cross-sectional analysis
C)   industry comparative analysis
D)   just-in-time analysis

Question 8

In cost-volume-profit analysis, a firm "breaks even" when its total revenues:

Accepted Answer

A)   equal variable costs
B)   equal total costs
C)   equal fixed costs
D)   are less than the sum of variable and fixed costs

Question 9

Ratio analysis is a financial technique that involves dividing various financial statements numbers into one another.

Accepted Answer

A) True 
 B)False

Question 10

The quick ratio is always greater than or equal to one.

Accepted Answer

A) True 
 B)False

Question 11

A low current ratio (low relative to, say, industry norms) may indicate a company may face low difficulty in paying its bills.

Accepted Answer

A) True 
 B)False

Question 12

Using the DuPont system of analysis and holding other factors constant, decrease in total asset turnover will result in ________ in the return on equity.

Accepted Answer

A)   an increase
B)   a decrease
C)   no change
D)   an undetermined change

Question 13

Debt to asset ratios are one of the five basic categories of ratios.

Accepted Answer

A) True 
 B)False

Question 14

Because debt obligations are paid with cash, the firm's cash flows ultimately determine solvency.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is false?

Accepted Answer

A)   Time series analysis evaluates a firm's performance over time.
B)   Industry comparative analysis compares a firm's ratios against average ratios against average ratios for other companies in the industry.
C)   The average collection period is calculated as the year-end accounts receivable divided by the net sales.
D)   Ratio analysis allows for comparison of firms of different sizes.

Question 16

A 100-Q is a standard filing with the Securities and Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

Question 17

The quick ratio is always positive.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is most correct?

Accepted Answer

A)   Higher levels of fixed costs result in lower levels of operating leverage.
B)   Higher variable costs result in larger contribution margin.
C)   Higher fixed costs result in larger break-even quantity.
D)   Higher leverage results in lower interest costs.

Question 19

Financial planning begins with a sales forecast for one or more years.

Accepted Answer

A) True 
 B)False

Question 20

The ________ method of developing a pro forma income statement forecasts sales and values for the cost of goods sold, operating expenses, and interest expense that are expressed as a ratio of projected sales.

Accepted Answer

A)   percent of sales
B)   accrual
C)   judgmental
D)   cash

Exam 14: Financial Analysis and Long-Term Financial Planning

Financial planning begins with a sales forecast for one or more years.

Correct AnswerverifiedShow Answer

Given the following financial data: net income/sales = 6%; sales/total assets = 3.5; debt/total assets = 30%. The return on total assets is:

Correct AnswerverifiedShow Answer

The price-earnings, or P/E, ratio is sometimes called the earnings residual.

Correct AnswerverifiedShow Answer

Debt to asset ratios are one of the five basic categories of ratios.

Correct AnswerverifiedShow Answer

An analyst should be careful when conducting ratio analysis to ensure that

Correct AnswerverifiedShow Answer

Which one of the following is not a basic component of the DuPont method of ratio analysis?

Correct AnswerverifiedShow Answer

The quick ratio is always positive.

Correct AnswerverifiedShow Answer

Ratio analysis is a financial technique that involves dividing various financial statements numbers into one another.

Correct AnswerverifiedShow Answer

Which of the following statements is most correct?

Correct AnswerverifiedShow Answer

Ratios used to compare different firms at the same point in time belong to a category of analysis called:

Correct AnswerverifiedShow Answer

Using the DuPont system of analysis and holding other factors constant, decrease in total asset turnover will result in ________ in the return on equity.

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

A low current ratio (low relative to, say, industry norms) may indicate a company may face low difficulty in paying its bills.

Correct AnswerverifiedShow Answer

A 100-Q is a standard filing with the Securities and Exchange Commission (SEC).

Correct AnswerverifiedShow Answer

Trend or time series analysis is used to compare the performance of different firms at the same point in time.

Correct AnswerverifiedShow Answer

The ________ method of developing a pro forma income statement forecasts sales and values for the cost of goods sold, operating expenses, and interest expense that are expressed as a ratio of projected sales.

Correct AnswerverifiedShow Answer

The quick ratio is always greater than or equal to one.

Correct AnswerverifiedShow Answer

In cost-volume-profit analysis, a firm "breaks even" when its total revenues:

Correct AnswerverifiedShow Answer

If a firm's inventories on hand are $200,000, its cost of goods sold is $600,000, and its sales are $800,000, what is the inventory turnover?

Correct AnswerverifiedShow Answer

Because debt obligations are paid with cash, the firm's cash flows ultimately determine solvency.

Correct AnswerverifiedShow Answer

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