Question 1

The merchandise turnover ratio:

Accepted Answer

A)   Measures how quickly a firm sells its merchandise inventory.
B)   Is used to measure solvency.
C)   Depends on the type of inventory valuation method.
D)   Validates the acid-test ratio.
E)   Is used to analyze profitability.F) A) and B)
G) C) and D)

Question 2

Because debt can have the effect of increasing the return to shareholders, the use of debt is sometimes described as financial leverage.

Accepted Answer

A) True 
 B)False

Question 3

Francesco earned $3,000 profit for October. Its net revenues were $10,000. Its profit margin is:

Accepted Answer

A)   200%.
B)   2%.
C)   30%.
D)   500%.
E)   $7,000.F) A) and B)
G) B) and E)

Question 4

Changes in the profit margin ratio could indicate changes in any of the following exceptchanges in:

Accepted Answer

A)   The company's pricing practices
B)   The profitability of the company's product
C)   The company's costing structure
D)   The company's sales volume
E)   None of the answers are correct.F) C) and E)
G) A) and B)

Question 5

Guidelines or rules of thumb should be always be applied in financial analysis.

Accepted Answer

A) True 
 B)False

Question 6

Graphical analysis is useful in assessing sources of financing and identification of investing activities.

Accepted Answer

A) True 
 B)False

Question 7

Snow Sales Ltd's net sales were $856,600. Its cost of goods sold was $226,810. Its profit was $33,750. Its gross profit ratio was:

Accepted Answer

A)   285.7%.
B)   14.9%.
C)   35%.
D)   3.9%.
E)   73.5%.F) All of the above
G) B) and C)

Question 8

Working capital is current liabilities minus current assets.

Accepted Answer

A) True 
 B)False

Question 9

Return on total assets is a profitability measure.

Accepted Answer

A) True 
 B)False

Question 10

The price-earnings ratio is calculated by:

Accepted Answer

A)   Dividing dividends by earnings per share.
B)   Dividing earnings per share by market price per share.
C)   Dividing market price per share by earnings per share.
D)   Dividing market price per share by dividends.
E)   Dividing dividends by market price per share.F) B) and C)
G) C) and E)

Question 11

The current ratio is calculated by dividing current liabilities by current assets.

Accepted Answer

A) True 
 B)False

Question 12

Common-size statements:

Accepted Answer

A)   Reveal changes in the relative importance of each financial statement item.
B)   Do not emphasize the relative importance of each item.
C)   Compare financial statements over time.
D)   Reveal changes in the relative importance of each financial statement item and show the dollar amount of change for financial statement items.
E)   Show the dollar amount of change for financial statement items.F) C) and D)
G) A) and B)

Question 13

Intracompany standards for financial statement analysis:

Accepted Answer

A)   Are set by the company's industry.
B)   Are based on a company's prior performance and on rules of thumb.
C)   Are based on rules of thumb.
D)   Are based on a company's prior performance.
E)   Are set by competitors.F) A) and E)
G) All of the above

Question 14

A total asset turnover ratio of 3.5 indicates that:

Accepted Answer

A)   For every $1 in sales, the firm acquired $3.50 in assets during the year.
B)   For every $1 in assets, the firm earned gross profit of $3.50 during the year.
C)   For every $1 in assets, the firm produced $3.50 in net sales during the year.
D)   For every $1 in assets, the firm paid $3.50 in dividends per share.
E)   For every $1 in assets, the firm earned $3.50 in earnings per share.F) None of the above
G) All of the above

Question 15

Profit margin reflects the portion of profit in each dollar of revenue.

Accepted Answer

A) True 
 B)False

Question 16

The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings, dividends, and opportunities.

Accepted Answer

A) True 
 B)False

Question 17

Staley Tile Company has assets with a book value of $350,000 pledged against loans with a balance of $190,000. Its pledged assets to secured liabilities ratio is 1.8 to 1.

Accepted Answer

A) True 
 B)False

Question 18

Oyster Company's sales in 2012 were $145,000. Sales in 2013 were $167,600. Using 2012 as the base year, the trend percentage for 2013 is:

Accepted Answer

A)   147.6%.
B)   100.0%.
C)   115.6%.
D)   12.3%.
E)   81.3%.F) None of the above
G) B) and E)

Question 19

When evaluating the profit margin of a sole proprietorship, the formula should bemodified by subtracting owner's equity from profit. This will factor in the value of the owner's efforts in running the business.

Accepted Answer

A) True 
 B)False

Question 20

Return on total assets can be separated into profit margin and total asset turnover.

Accepted Answer

A) True 
 B)False

Exam 17: Analyzing Financial Statements

When evaluating the profit margin of a sole proprietorship, the formula should bemodified by subtracting owner's equity from profit. This will factor in the value of the owner's efforts in running the business.

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The merchandise turnover ratio:

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Francesco earned $3,000 profit for October. Its net revenues were $10,000. Its profit margin is:

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Staley Tile Company has assets with a book value of $350,000 pledged against loans with a balance of $190,000. Its pledged assets to secured liabilities ratio is 1.8 to 1.

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Working capital is current liabilities minus current assets.

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Graphical analysis is useful in assessing sources of financing and identification of investing activities.

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Profit margin reflects the portion of profit in each dollar of revenue.

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A total asset turnover ratio of 3.5 indicates that:

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Oyster Company's sales in 2012 were $145,000. Sales in 2013 were $167,600. Using 2012 as the base year, the trend percentage for 2013 is:

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Because debt can have the effect of increasing the return to shareholders, the use of debt is sometimes described as financial leverage.

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Changes in the profit margin ratio could indicate changes in any of the following exceptchanges in:

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Snow Sales Ltd's net sales were $856,600. Its cost of goods sold was $226,810. Its profit was $33,750. Its gross profit ratio was:

Correct AnswerverifiedShow Answer

Intracompany standards for financial statement analysis:

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Guidelines or rules of thumb should be always be applied in financial analysis.

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The price-earnings ratio reveals information about the stock market's expectations for a company's future growth in earnings, dividends, and opportunities.

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The current ratio is calculated by dividing current liabilities by current assets.

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Return on total assets can be separated into profit margin and total asset turnover.

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Return on total assets is a profitability measure.

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Common-size statements:

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The price-earnings ratio is calculated by:

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