Question 1

Which of the following is a false statement as it relates to analysis?

Accepted Answer

A) Profitability may not be a major consideration as long as the resources for repayment can be projected. 
B) Equity capital provides creditors with a cushion against loss. 
C) There is a difference between the objectives that are sought by short-term grantors of credit and those sought by long-term grantors of credit. 
D) If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected. 
E) The financial structure of the entity is of interest to creditors. 
A) Profitability may not be a major consideration as long as the resources for repayment can be projected. 
B) Equity capital provides creditors with a cushion against loss. 
C) There is a difference between the objectives that are sought by short-term grantors of credit and those sought by long-term grantors of credit. 
D) If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected. 
E) The financial structure of the entity is of interest to creditors. D

Question 2

Which of the following does not represent a problem with financial analysis?

Accepted Answer

A) Financial statement analysis is an art; it requires judgment decisions on the part of the analyst. 
B) Financial analysis can be used to detect apparent liquidity problems. 
C) There are as many ratios for financial analysis as there are pairs of figures. 
D) Some industry ratio formulas vary from source to source. 
E) Adequate detailed disclosure of how the industry ratios are computed is often lacking. 
A) Financial statement analysis is an art; it requires judgment decisions on the part of the analyst. 
B) Financial analysis can be used to detect apparent liquidity problems. 
C) There are as many ratios for financial analysis as there are pairs of figures. 
D) Some industry ratio formulas vary from source to source. 
E) Adequate detailed disclosure of how the industry ratios are computed is often lacking. B

Question 3

Absolute figures and ratios are close to being meaningless unless compared to another figure.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of these statements is false?

Accepted Answer

A) A ratio can be computed from any pair of numbers. 
B) Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. 
C) Comparing ratios computed from income statement and balance sheet numbers can create difficulties due to the timing of the financial statements. 
D) Financial ratios are usually expressed in percent or times. 
E) In vertical analysis, a figure from this year's statement is compared with a base selected from the prior statement. 
A) A ratio can be computed from any pair of numbers. 
B) Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. 
C) Comparing ratios computed from income statement and balance sheet numbers can create difficulties due to the timing of the financial statements. 
D) Financial ratios are usually expressed in percent or times. 
E) In vertical analysis, a figure from this year's statement is compared with a base selected from the prior statement.

Question 5

Management is a user of financial analysis.Which of the following comments does not represent a fair statement as to the management perspective?

Accepted Answer

A) Management is interested in the view of investors. 
B) Management is interested in the view of creditors. 
C) Management is interested in the financial structure of the entity. 
D) Management is interested in the asset structure of the entity. 
E) Management is always interested in maximum profitability. 
A) Management is interested in the view of investors. 
B) Management is interested in the view of creditors. 
C) Management is interested in the financial structure of the entity. 
D) Management is interested in the asset structure of the entity. 
E) Management is always interested in maximum profitability.

Question 6

Based on the terms of the credit and the purpose, the objectives of financial statement analysis by creditors will vary.

Accepted Answer

A) True 
 B)False

Question 7

Statements in which all items are expressed only in relative terms (percentages of a base) are termed:

Accepted Answer

A) vertical Statements. 
B) horizontal Statements. 
C) funds Statements. 
D) common-Size Statements. 
E) None of the answers are correct. 
A) vertical Statements. 
B) horizontal Statements. 
C) funds Statements. 
D) common-Size Statements. 
E) None of the answers are correct.

Question 8

When performing year-to-year change analysis, a meaningful percent change cannot be computed when one number is positive and the other number is negative.

Accepted Answer

A) True 
 B)False

Question 9

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

Accepted Answer

A) True 
 B)False

Question 10

Common-size analysis involves expressing comparisons in percentages.

Accepted Answer

A) True 
 B)False

Question 11

Denver Dynamics has net income of $2,000,000.Oakland Enterprises has net income of $2,500,000.Which of the following best compares the profitability of Denver and Oakland?

Accepted Answer

A) Oakland Enterprises is 25% more profitable than Denver Dynamics. 
B) Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified. 
C) Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics. 
D) Further information is needed for a reasonable comparison. 
E) Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics. 
A) Oakland Enterprises is 25% more profitable than Denver Dynamics. 
B) Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified. 
C) Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics. 
D) Further information is needed for a reasonable comparison. 
E) Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.

Question 12

A manufacturing firm will most likely have the heaviest investment in which type of assets?

Accepted Answer

A) Cash 
B) Inventory 
C) Accounts receivable 
D) Investments 
E) Plant, property, and equipment 
A) Cash 
B) Inventory 
C) Accounts receivable 
D) Investments 
E) Plant, property, and equipment

Question 13

There is a standard list of ratios.

Accepted Answer

A) True 
 B)False

Question 14

Liquidity ratios can be used:

Accepted Answer

A) to measure the degree of protection of long-term suppliers of funds. 
B) to measure borrowing capacity. 
C) to measure the earning ability of a firm. 
D) to measure the firm's ability to meet its current obligations. 
E) to measure the worth of the firm. 
A) to measure the degree of protection of long-term suppliers of funds. 
B) to measure borrowing capacity. 
C) to measure the earning ability of a firm. 
D) to measure the firm's ability to meet its current obligations. 
E) to measure the worth of the firm.

Question 15

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

Accepted Answer

A) Ratio analysis 
B) Common-size analysis 
C) Theory consistency 
D) Examination of relative size among firms 
E) Review of descriptive material 
A) Ratio analysis 
B) Common-size analysis 
C) Theory consistency 
D) Examination of relative size among firms 
E) Review of descriptive material

Question 16

Which of the following statements is incorrect?

Accepted Answer

A) The North American Industry Classification System (NAICS) was created jointly by the United States, Canada, and Mexico. 
B) For the NAICS, economic units with similar production processes are classified in the same industry, and the lines drawn between industries demarcate differences in production processes. 
C) NAICS provides enhanced industry comparability among the three NAFTA trading partners. 
D) NAICS divides the economy into twenty sectors. 
E) In most sectors, NAICS provides for compatibility at the industry (six-digit) level. 
A) The North American Industry Classification System (NAICS) was created jointly by the United States, Canada, and Mexico. 
B) For the NAICS, economic units with similar production processes are classified in the same industry, and the lines drawn between industries demarcate differences in production processes. 
C) NAICS provides enhanced industry comparability among the three NAFTA trading partners. 
D) NAICS divides the economy into twenty sectors. 
E) In most sectors, NAICS provides for compatibility at the industry (six-digit) level.

Question 17

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

Accepted Answer

A) True 
 B)False

Question 18

Dissimilar year ends will have no impact on the results of ratios.

Accepted Answer

A) True 
 B)False

Question 19

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt.The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2.Which best describes these three numbers?

Accepted Answer

A) One third of each of the companies experienced each of the ratios. 
B) The average ratio was 1.3.The best firm had 1.6; The worst had 1.2. 
C) The median was 1.3.1.6 is the figure for the upper quartile; 1.2 is the figure for the lower quartile. 
D) The median was 1.3.1.6 is the figure for the lower quartile; 1.2 is the figure for the upper quartile. 
E) None of the answers are correct. 
A) One third of each of the companies experienced each of the ratios. 
B) The average ratio was 1.3.The best firm had 1.6; The worst had 1.2. 
C) The median was 1.3.1.6 is the figure for the upper quartile; 1.2 is the figure for the lower quartile. 
D) The median was 1.3.1.6 is the figure for the lower quartile; 1.2 is the figure for the upper quartile. 
E) None of the answers are correct.

Question 20

Different accounting methods can cause some ratios to differ substantially.

Accepted Answer

A) True 
 B)False

Which of the following is a false statement as it relates to analysis?

Which of the following does not represent a problem with financial analysis?

Absolute figures and ratios are close to being meaningless unless compared to another figure.

Which of these statements is false?

Management is a user of financial analysis.Which of the following comments does not represent a fair statement as to the management perspective?

Based on the terms of the credit and the purpose, the objectives of financial statement analysis by creditors will vary.

Statements in which all items are expressed only in relative terms (percentages of a base) are termed:

When performing year-to-year change analysis, a meaningful percent change cannot be computed when one number is positive and the other number is negative.

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

Common-size analysis involves expressing comparisons in percentages.

Denver Dynamics has net income of $2,000,000.Oakland Enterprises has net income of $2,500,000.Which of the following best compares the profitability of Denver and Oakland?

A manufacturing firm will most likely have the heaviest investment in which type of assets?

There is a standard list of ratios.

Liquidity ratios can be used:

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

Which of the following statements is incorrect?

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

Dissimilar year ends will have no impact on the results of ratios.

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt.The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2.Which best describes these three numbers?

Different accounting methods can cause some ratios to differ substantially.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters

Exam 5: Basics of Analysis

Which of the following is a false statement as it relates to analysis?

Which of the following does not represent a problem with financial analysis?

Absolute figures and ratios are close to being meaningless unless compared to another figure.

Which of these statements is false?

Management is a user of financial analysis.Which of the following comments does not represent a fair statement as to the management perspective?

Based on the terms of the credit and the purpose, the objectives of financial statement analysis by creditors will vary.

Statements in which all items are expressed only in relative terms (percentages of a base) are termed:

When performing year-to-year change analysis, a meaningful percent change cannot be computed when one number is positive and the other number is negative.

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

Common-size analysis involves expressing comparisons in percentages.

Denver Dynamics has net income of $2,000,000.Oakland Enterprises has net income of $2,500,000.Which of the following best compares the profitability of Denver and Oakland?

A manufacturing firm will most likely have the heaviest investment in which type of assets?

There is a standard list of ratios.

Liquidity ratios can be used:

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

Which of the following statements is incorrect?

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

Dissimilar year ends will have no impact on the results of ratios.

Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt.The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2.Which best describes these three numbers?

Different accounting methods can cause some ratios to differ substantially.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters