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Exam 13: Financial Statement Analysis

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Question 31

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Which of the following statements regarding horizontal analysis is not true?

A) Percentage analysis involves computing the percentage relationship between two amounts.
B) A horizontal analysis of cost of goods sold on the income statement includes dividing net income by total revenue.
C) Horizontal analysis attempts to eliminate the materiality problem of comparing firms of different sizes.
D) In horizontal percentage analysis,a financial statement line item is expressed as a percentage of the previous balance of the same item.

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Question 32

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Financial statement analysis involves forms of comparison including:

A) Comparing changes in the same item over a number of periods.
B) Comparing key relationships within the same year.
C) Comparing key items to industry averages.
D) All of these answers are correct.

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Question 33

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A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.

Which of the following statements regarding the return on equity (ROE) measure is not true?

Which of the following is a potential limitation of financial statement analysis?

Profitability ratios attempt to assess the company's ability to generate earnings.

You are considering an investment in Facebook stock and wish to assess the company's position in the stock market.All of the following ratios can be used except:

The only requirement involved in communicating useful information is that the information be accurate.

Benson Company declared and paid a cash dividend totaling $500,000 on its common stock.As a result of this transaction,the company's debt to assets ratio will:

Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.

A banker may perform a financial ratio analysis to assess a firm's ability to repay debt in a timely manner.

As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2,Gant recorded cost of goods sold of $4,100.As a result of this transaction,Gant's quick ratio will:

Accrual accounting requires the use of many estimates,including:

Working capital is current assets minus current liabilities.

Which ratios measure a company's long-term debt paying ability and its financing structure?

Bernard Company provided the following information from its financial records: What is the company's book value per share?

Abel Company provided the following information from its financial records: What is the amount of the company's earnings per share?

Earnings before interest and taxes divided by interest expense is the formula for which of these analytical measures?

The following balance sheet information is provided for Greene Company for Year 2: What is the company's quick (acid-test) ratio? (Round your answer to 1 decimal place. )

The following partial balance sheet is provided for Groom Company: What is the company's debt to assets ratio? (Rounded to nearest whole percent. )