Exam 11: Expanded Analysis

Presently, no regulatory agency, such as the Securities and Exchange Commission or the Financial Accounting Standards Board, accepts responsibility for determining either the content of financial ratios or the format of presentation in annual reports.

Most of the ratios given a high significance rating by commercial loan officers have a primary measure of liquidity or debt.

Which of the following variables indicates a measure of cumulative profitability over time?

There are many definitions or descriptions given to financial failure.Which of the following does not appear to be a reasonable definition or description:

The interest rate that is assumed to be earned on pension funds can have a material influence on the pension expense and the pension liability.The higher the rate of interest assumed to be earned on pension funds, the higher the pension expense and the higher the pension liability.

Which of the following ratios is given the highest significance rating by controllers?

Visually, a pie graph can mislead because of an illusion.

Which of the following is not a multiple approach to valuation?

Profitability ratios are the most likely ratios to be selected for corporate objectives.

A review of the computational methodology used to compute the ratios for annual reports indicated that there were wide differences of opinion on how many of the ratios should have been computed.

A column graph has columns in horizontal form.

In general, controllers rate profitability ratios to have a higher significance than debt ratios.

Under inflationary conditions, the least conservative inventory method is lifo.

Usually, a company must make estimates in the preparation of financial statements as of a given date.

Tom Copeland, Tim Keller, and Jack Morrin, on their book Valuation, Measuring and Managing the Value of Companies, observed that acquirers paid too much for companies because of all but one of the following reasons:

The studies cited [(Barker, 1999), (Demirakos et al, 2003), and (Asquith et al, 2004)], all agree on the fact that multi-period discounted valuation models seem to play a significant role in analysts' normal valuation activity.

The completed-contract method recognizes all income when the contract is completed, while the percentage-of-completion method recognizes income as work progresses on the contract.The completed-contract method is the conservative method.

The straight-line depreciation method recognizes depreciation in equal amounts over each year of the life of the asset.Therefore, the straight-line depreciation method is a conservative depreciation method.

Which of the following statements is not true?

Which of the following ratios is given the highest significance rating by Certified Public Accountants?