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Exam 14: Financial Statement Analysis

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Question 1

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

A) Debt to assets ratio
B) Earnings per share
C) Return on investment
D) Number of times interest is earned

E) B) and C)
F) A) and B)

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Question 2

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Which ratio compares the earnings per share of a company to the market price for a share of the company's stock?

A) Price-earnings ratio
B) Dividend yield
C) Book value per share
D) Return on equity

E) B) and C)
F) All of the above

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Question 3

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All of the following are considered to be measures of a company's short-term debt-paying ability except:

Financial ratio analysis is a form of horizontal analysis in that comparisons are made between different accounts in the same set of financial statements.

The accounting profession assumes that financial statement users have an expert knowledge of business.

Which of the following is not included in the computation of the quick ratio?

The following balance sheet information is provided for Duke Company for Year 2: $\begin{array}{lr}\text { Assets }\\\text { Cash }&\$5,400\\\text { Accounts receivable }&15,500\\\text { Inventory }&18,000\\\text { Prepaid expenses }&1,600\\\text { Plant and equipment, net of depreciation }&20,200\\\text { Land }&19,950\\\text { Total assets }&\$80,650\\\text { Liabilities and Stockholders' Equity }\\\text { Accounts payable } & 4,500 \\\text { Salaries payable } & 11,500 \\\text { Bonds payable (due in ten years) } &19,000 \\\text { Common stock, no par } & 30,000 \\\text { Retained earnings } &15,650\\\text { Total liabilities and stockholders' equity }&\$80,650\end{array}$ What is the company's current ratio? (Round your answer to 2 decimal places.)

Phips Company paid total cash dividends of $200,000 on 25,000 outstanding common shares.On the most recent trading day,the common shares sold at $80.What is this company's dividend yield?

The current ratio is one of the most common measures of solvency.

Which ratio measures how effectively a company is using assets to generate revenue?

Which of the following statements is generally not true from an investor's perspective?

The study of an individual item or account over several periods in the same financial year or over many years is known as:

Financial statement analysis involves forms of comparison including:

Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $95.What is this company's current price-earnings ratio?

Current financial reporting standards assume that users of accounting information:

Financial ratios can be used to assess which of the following aspects of a firm's performance?

Two ratios that provide insight on the relationship between credit sales and receivables are:

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing.All of the following ratios can be used to assess solvency except:

The accounts receivable turnover ratio can be used to assess a firm's solvency.

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