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Exam 14: Financial Statement Analysis

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Question 31

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Which of the following statements about financial statements is not true?

A) The net margin ratio is a profitability ratio.
B) The current ratio is a liquidity ratio.
C) The debt-to-assets ratio is a liquidity ratio.
D) The dividend yield is a stock market ratio.

E) B) and C)
F) None of the above

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Question 32

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In vertical analysis of an income statement,each item is expressed as a percentage of:

A) Total expenses.
B) Net income.
C) Sales.
D) None of these answers is correct.

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

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Question 33

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In vertical analysis of a balance sheet,each item is expressed as a percentage of:

When debt is used to finance the purchase of assets,the term or time span of the debt should always be shorter than the lifespan of the assets.

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 collected $5,200 of accounts receivable.As a result of this transaction,Gant's working capital will:

Bernard Company provided the following information from its financial records: $\begin{array}{lllr}\text { Net income } & \$ 250,000 & \text { Total stockholders' equity } & \$ 1,000,000 \\\text { Common dividends } & \$ 15,000& \begin{array}{l}\text { Common shares outstanding, } \\12 / 31\end{array} & 150,000 \\\text { Preferred rights } & \$ 175,000 & &\end{array}$ What is the company's book value per share?

The following balance sheet information was provided by O'Connor Company: $\begin{array}{lrr}\text { Assets } & \text { Year 2 } & \text { Year 1 } \\\text { Cash } & \$ 4,000 & \$ 2,000 \\\text { Accounts receivable } & 15,000 & 12,000 \\\text { Inventory } & \$ 35,000 & \$ 38,000\end{array}$ Assuming that net credit sales for Year 2 totaled $270,000,what is the company's most recent accounts receivable turnover?

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 sold inventory on account for $6,000.Which of the following statements is not true?

Vertical analysis always involves comparing financial statement elements over a span of time.

Starwood Corporation has current assets of $200,000,total current liabilities of $750,000 net credit sales of $1,300,000,beginning accounts receivable of $65,000 and ending accounts receivable of $69,000.What is Starwood's accounts receivable turnover?

Which of the following statement is correct regarding the quick ratio?

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

Rialto Company collected $5,000 on account.What impact will this transaction have on the firm's current ratio?

Common methods of financial statement analysis include all of the following except:

Which ratio would you use to examine a company's ability to pay its debts in the short-term?

Accrual accounting requires the use of many estimates,including:

Cost of goods sold divided by average inventory is the formula for which of these analytical measures?

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

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 paid $250 for transportation-in cost on merchandise it had received.Which of the following statements is not true?

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