Question 1

Component percentages indicate the relative size of each item included in a total. Which of the following statements is true?

Accepted Answer

A)   Income statement items are expressed as a percentage of net income, while balance sheet items are expressed as a percentage of total assets.
B)   Income statement items are expressed as a percentage of net sales, while balance sheet items are expressed as a percentage of total assets.
C)   Income statement items are expressed as a percentage of net income, while balance sheet items are expressed as a percentage of net worth.
D)   Both income statement and balance sheet items are expressed as a percentage of net worth.E) B) and D)
F) None of the above

Question 2

From a creditor's point of view, the lower the debt ratio; the safer the creditor's position.

Accepted Answer

A) True 
 B)False

Question 3

The return on assets ratio usually is computed as:

Accepted Answer

A)   Net sales divided by average total assets.
B)   Gross profit divided by average total assets.
C)   Operating income divided by average total assets.
D)   Net income divided by average total assets.E) None of the above
F) C) and D)

Question 4

The debt ratio is used primarily as a measure of:

Accepted Answer

A)   Short-term liquidity.
B)   Creditors' long-term risk.
C)   Profitability.
D)   Return on Investment.E) A) and D)
F) None of the above

Question 5

Below are eight ratios. Match each equation to the correct ratio. If there is no match, use "None" as your response.
$$\begin{array} { | l | l | } 
\hline \text { Current ratio } & \text { Working capital } \
\hline \text { A/R turnover rate } & \text { Debt ratio } \
\hline \text { Earnings per share } & \text { Return on assets } \
\hline \text { Return on equity } & \text { Price-earnings ratio } \
\hline
\end{array}$$
________ (a.) Net income - preferred dividends divided by average number of common shares outstanding.
________ (b.) Net sales divided by average accounts receivable.
________ (c.) Operating income divided by average total assets.
________ (d.) Current assets divided by current liabilities.
________ (e.) Annual dividend divided by current stock price.
________ (f). Current assets minus current liabilities.
________ (g.) Total liabilities divided by total assets.
________ (h.) Net income divided by average total equity.
________ (i.) Common stockholder's equity divided by shares of common stock outstanding.
________ (j ) Current stock price divided by earnings per share.

Accepted Answer

(a.) Earnings per share (b.) A/R turnove...

Question 6

What is the quick ratio?

Accepted Answer

A)   5%.
B)   1.5 to 1.
C)   20%.
D)   1.09 to 1.E) C) and D)
F) A) and B)

Question 7

What is Compro's debt ratio?

Accepted Answer

A)   75%.
B)   25%.
C)   60%.
D)   33%.E) A) and D)
F) B) and C)

Question 8

A transaction that will increase the quick ratio but cause the current ratio to decline is:

Accepted Answer

A)   Short-term borrowing.
B)   Investing cash in plant assets.
C)   Sale of inventory at a price below cost.
D)   Collection of an account receivable.E) A) and B)
F) None of the above

Question 9

ROE - return on equity - is measured by dividing net income by average number of shares outstanding.

Accepted Answer

A) True 
 B)False

Question 10

Use and interpretation of financial measurements
Shown below are various financial measurements for two companies which are similar in size and sell similar products:

Instructions: You are to enter code letters in the spaces provided in the two right-hand columns.
In the first column, indicate which of the following three groups probably would be most interested in the specified financial measurement. Identify one group, using the following code letters: STC = indicating short-term creditors, LTC = indicating long-term creditors, and S = indicating stockholders.
In the second column, enter an X or a Y to indicate whether your "most interested group" would prefer the measurement results reported by Co. X or Co. Y.
Consider each financial measurement independently of the others.

Accepted Answer

The answer of Use and interpretation of financial measurements
Shown below...

Question 11

One number expressed as a percentage of another is called:

Accepted Answer

A)   Money changes.
B)   Trend percentages.
C)   Component percentages.
D)   Ratios.E) A) and B)
F) A) and C)

Question 12

Which of the following is considered a quick asset?

Accepted Answer

A)   Accounts receivable.
B)   Inventory.
C)   Automobiles.
D)   Prepaid expenses.E) A) and B)
F) A) and C)

Question 13

All of the following ratios are considered measures of profitability except:

Accepted Answer

A)   Earnings per share.
B)   Gross profit rate.
C)   Price earnings ratio.
D)   Return on assets.E) A) and C)
F) A) and B)

Question 14

Noble's operating income was:

Accepted Answer

A)   $1,610.
B)   $675.
C)   $935.
D)   $115.E) None of the above
F) All of the above

Question 15

The lower the current ratio, the more liquid the company appears.

Accepted Answer

A) True 
 B)False

Question 16

The return on equity ratio usually is computed as:

Accepted Answer

A)   Net income divided by average total assets.
B)   Net income divided by average total stockholders' equity.
C)   Gross profit divided by average total stockholders' equity.
D)   Net income less preferred dividends, divided by average common stockholders' equity.E) None of the above
F) B) and C)

Question 17

If the return on total assets ratio is substantially below the cost of borrowing, common stockholders will benefit from a high debt ratio.

Accepted Answer

A) True 
 B)False

Question 18

Inventory is an example of a quick asset.

Accepted Answer

A) True 
 B)False

Question 19

The current ratio may be less than, equal to, or greater than the quick ratio.

Accepted Answer

A) True 
 B)False

Question 20

Effects of events on financial measurements
Indicate the probable effects of each of the following strategies or events upon the financial measurements of Lindsay Corp. listed below. Use the code letters I = Increase, D = Decrease, and NE = No Effect.

Accepted Answer

The answer of Effects of events on financial measurements
Indicate the...

Exam 14: Financial Statement Analysis

Correct Answer
verified
(a.) Earnings per share (b.) A/R turnove...
View Answer

If the return on total assets ratio is substantially below the cost of borrowing, common stockholders will benefit from a high debt ratio.

Correct Answer
verified

From a creditor's point of view, the lower the debt ratio; the safer the creditor's position.

Correct Answer
verified

One number expressed as a percentage of another is called:

Correct Answer
verified

What is Compro's debt ratio?

Correct Answer
verified

The debt ratio is used primarily as a measure of:

Correct Answer
verified

Which of the following is considered a quick asset?

Correct Answer
verified

All of the following ratios are considered measures of profitability except:

Correct Answer
verified

The return on equity ratio usually is computed as:

Correct Answer
verified

Effects of events on financial measurements Indicate the probable effects of each of the following strategies or events upon the financial measurements of Lindsay Corp. listed below. Use the code letters I = Increase, D = Decrease, and NE = No Effect.

Correct Answer
verified

Correct Answer
verified

The lower the current ratio, the more liquid the company appears.

Correct Answer
verified

Inventory is an example of a quick asset.

Correct Answer
verified

What is the quick ratio?

Correct Answer
verified

Noble's operating income was:

Correct Answer
verified

A transaction that will increase the quick ratio but cause the current ratio to decline is:

Correct Answer
verified

ROE - return on equity - is measured by dividing net income by average number of shares outstanding.

Correct Answer
verified

The return on assets ratio usually is computed as:

Correct Answer
verified

The current ratio may be less than, equal to, or greater than the quick ratio.

Correct Answer
verified

Component percentages indicate the relative size of each item included in a total. Which of the following statements is true?

Correct Answer
verified

Exam 14: Financial Statement Analysis

Correct Answerverified(a.) Earnings per share (b.) A/R turnove...View AnswerShow Answer

If the return on total assets ratio is substantially below the cost of borrowing, common stockholders will benefit from a high debt ratio.

Correct AnswerverifiedShow Answer

From a creditor's point of view, the lower the debt ratio; the safer the creditor's position.

Correct AnswerverifiedShow Answer

One number expressed as a percentage of another is called:

Correct AnswerverifiedShow Answer

What is Compro's debt ratio?

Correct AnswerverifiedShow Answer

The debt ratio is used primarily as a measure of:

Correct AnswerverifiedShow Answer

Which of the following is considered a quick asset?

Correct AnswerverifiedShow Answer

All of the following ratios are considered measures of profitability except:

Correct AnswerverifiedShow Answer

The return on equity ratio usually is computed as:

Correct AnswerverifiedShow Answer

Effects of events on financial measurements Indicate the probable effects of each of the following strategies or events upon the financial measurements of Lindsay Corp. listed below. Use the code letters I = Increase, D = Decrease, and NE = No Effect.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The lower the current ratio, the more liquid the company appears.

Correct AnswerverifiedShow Answer

Inventory is an example of a quick asset.

Correct AnswerverifiedShow Answer

What is the quick ratio?

Correct AnswerverifiedShow Answer

Noble's operating income was:

Correct AnswerverifiedShow Answer

A transaction that will increase the quick ratio but cause the current ratio to decline is:

Correct AnswerverifiedShow Answer

ROE - return on equity - is measured by dividing net income by average number of shares outstanding.

Correct AnswerverifiedShow Answer

The return on assets ratio usually is computed as:

Correct AnswerverifiedShow Answer

The current ratio may be less than, equal to, or greater than the quick ratio.

Correct AnswerverifiedShow Answer

Component percentages indicate the relative size of each item included in a total. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct Answer
verified
(a.) Earnings per share (b.) A/R turnove...
View Answer

Correct Answer
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