Question 1

Discuss any ethical issues raised by the following actions.

Accepted Answer

General Hospital is subject to a constra

Question 2

Discuss the accounts receivable turnover ratio.

Accepted Answer

Accounts Receivable Turnover
The rate at

Question 3

(CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in computing a ratio,

Accepted Answer

A) the balance sheet amount should be converted to an average for the year. 
B) the income statement amount should be converted to an average for the year. 
C) both amounts should be converted to market value. 
D) the ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amount. 
E) none of the above. 
A) the balance sheet amount should be converted to an average for the year. 
B) the income statement amount should be converted to an average for the year. 
C) both amounts should be converted to market value. 
D) the ratio loses its historical perspective because a beginning-of-the-year amount is combined with an end-of-the-year amount. 
E) none of the above.

Question 4

Healthy mature firms typically have a cash flow from operations to current liabilities ratio of:

Accepted Answer

A) 10% or more. 
B) 20% or more. 
C) 30% or more. 
D) 40% or more. 
E) 50% or more. 
A) 10% or more. 
B) 20% or more. 
C) 30% or more. 
D) 40% or more. 
E) 50% or more.

Question 5

The accounts receivable turnover ratio indicates how quickly a firm collects its accounts receivable.

Accepted Answer

A) True 
 B)False

Question 6

A measure of short-term debt paying ability is a company's

Accepted Answer

A) return on shareholders' equity. 
B) return on assets. 
C) quick ratio. 
D) profit margin ratio. 
E) none of the above. 
A) return on shareholders' equity. 
B) return on assets. 
C) quick ratio. 
D) profit margin ratio. 
E) none of the above.

Question 7

If the firm offers terms of "net 45 days," a days receivable outstanding of 45 days indicates that the firm handles accounts receivable well.

Accepted Answer

A) True 
 B)False

Question 8

Describe the relationship between return on assets and return on common shareholders' equity.

Accepted Answer

RELATION BETWEEN RETURN ON ASSETS AND RE

Question 9

The typical first step in financial statement analysis and valuation (after selecting assumptions) is:

Accepted Answer

A) Understand the Purpose and Content of the Principal Financial Statements and Related Notes. 
B) Identify the Industry Economic Characteristics and Firm's Strategy. 
C) Calculate and Interpret Profitability and Risk Ratios. 
D) Prepare Pro Forma, or Projected, Financial Statements. 
E) Value the Firm. 
A) Understand the Purpose and Content of the Principal Financial Statements and Related Notes. 
B) Identify the Industry Economic Characteristics and Firm's Strategy. 
C) Calculate and Interpret Profitability and Risk Ratios. 
D) Prepare Pro Forma, or Projected, Financial Statements. 
E) Value the Firm.

Question 10

The capital structure leverage ratio indicates

Accepted Answer

A) the sales generated from each dollar of assets. 
B) the portion of the sales dollar left over for the common shareholders after covering all operating costs and subtracting claims of creditors and preferred shareholders. 
C) the portion of the sales dollar left over for the preferred shareholders after covering all operating costs and subtracting claims of creditors and common shareholders. 
D) the proportion of total assets, or total financing, provided by common shareholders contrasted with the financing provided by creditors and preferred shareholders. 
E) the proportion of total assets, or total financing, provided by preferred shareholders contrasted with the financing provided by creditors and common shareholders. 
A) the sales generated from each dollar of assets. 
B) the portion of the sales dollar left over for the common shareholders after covering all operating costs and subtracting claims of creditors and preferred shareholders. 
C) the portion of the sales dollar left over for the preferred shareholders after covering all operating costs and subtracting claims of creditors and common shareholders. 
D) the proportion of total assets, or total financing, provided by common shareholders contrasted with the financing provided by creditors and preferred shareholders. 
E) the proportion of total assets, or total financing, provided by preferred shareholders contrasted with the financing provided by creditors and common shareholders.

Question 11

An analyst examines changes in a firm's various ratios over a three-year period-a so-called _____ analysis and performs a _____ analysis comparing a given firm's ratios with those of other firms for a specific period.

Accepted Answer

A) cross-section; time-series 
B) time-series; cross-section 
C) profitability; time-series 
D) time-series; profitability 
E) none of the above 
A) cross-section; time-series 
B) time-series; cross-section 
C) profitability; time-series 
D) time-series; profitability 
E) none of the above

Question 12

Indicate the effects (increase, decrease, no effect) of the following independent transactions on (1) the profit margin ratio, (2) the plant asset turnover, and (3) the inventory turnover.
 $\begin{array}{lll}
&&\text { Profit Margin } & \text { Plant Asset } & \text { Inventory } \
&&\text { Ratio } & \text { Turnover } & \text { Turnover }\
a.& \text {Payment of various repair expenses }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
b.& \text {Purchase of inventory on account }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
c.& \text { Purchase of equipment}&\_\_\_\_&\_\_\_\_&\_\_\_\_\
d.& \text {Payment of bonds payable }&\_\_\_\_&\_\_\_\_&\_\_\_\_\
\end{array}$

Accepted Answer

The answer of Indicate the effects (increase, decrease, no effect)...

Question 13

Which of the following ratios is not a measure of profitability?

Accepted Answer

A) rate of return on assets 
B) rate of return on common stockholders' equity 
C) earnings per share of common stock 
D) rate of return on preferred stockholders' equity 
E) all of the above 
A) rate of return on assets 
B) rate of return on common stockholders' equity 
C) earnings per share of common stock 
D) rate of return on preferred stockholders' equity 
E) all of the above

Question 14

Why would a firm prepare pro forma financial statements?

Accepted Answer

A) to ascertain whether operations will generate sufficient cash flows to finance expenditures on long-term assets or whether the firm will need to borrow more 
B) to analyze the effect of a change its product lines or pricing policies and the impact on rates of return. 
C) to project future financial statement amounts for an acquisition target to ascertain the price it should pay 
D) all of the above 
E) none of the above 
A) to ascertain whether operations will generate sufficient cash flows to finance expenditures on long-term assets or whether the firm will need to borrow more 
B) to analyze the effect of a change its product lines or pricing policies and the impact on rates of return. 
C) to project future financial statement amounts for an acquisition target to ascertain the price it should pay 
D) all of the above 
E) none of the above

Question 15

Some analysts calculate the inventory turnover ratio by dividing sales, rather than cost of goods sold, by the average inventory. Which of the following regarding the inventory turnover ratio is/are not true?

Accepted Answer

A) Using sales in the numerator, will lead to incorrect measures of the inventory turnover ratio for calculating the average number of days that inventory is on hand until sale. 
B) As long as the ratio of selling price to cost of goods sold remains relatively constant, either measure will identify changes in the trend of the inventory turnover ratio. 
C) Using sales in the numerator, will lead to correct measures of the inventory turnover ratio for calculating the average number of days that inventory is on hand until sale. 
D) Choices a and b. 
E) None of the above. 
A) Using sales in the numerator, will lead to incorrect measures of the inventory turnover ratio for calculating the average number of days that inventory is on hand until sale. 
B) As long as the ratio of selling price to cost of goods sold remains relatively constant, either measure will identify changes in the trend of the inventory turnover ratio. 
C) Using sales in the numerator, will lead to correct measures of the inventory turnover ratio for calculating the average number of days that inventory is on hand until sale. 
D) Choices a and b. 
E) None of the above.

Question 16

Financial leverage

Accepted Answer

A) may increase the return to the common shareholders. 
B) uses lower cost borrowed funds and earns a higher rate of return on those funds than their cost. 
C) requires the common shareholders to take on more risk in their investment. 
D) all of the above 
E) none of the above 
A) may increase the return to the common shareholders. 
B) uses lower cost borrowed funds and earns a higher rate of return on those funds than their cost. 
C) requires the common shareholders to take on more risk in their investment. 
D) all of the above 
E) none of the above

Question 17

Describe the inventory turnover ratio.

Accepted Answer

Inventory Turnover
The inventory turnove

Question 18

A small leverage ratio may indicate that a company is

Accepted Answer

A) well managed. 
B) financed with a relatively large amount of common shareholders' equity. 
C) financed with a relatively large number of shares of common and preferred stock. 
D) financed with a relatively large amount of debt. 
E) financed with a relatively large amount of debt and preferred stock. 
A) well managed. 
B) financed with a relatively large amount of common shareholders' equity. 
C) financed with a relatively large number of shares of common and preferred stock. 
D) financed with a relatively large amount of debt. 
E) financed with a relatively large amount of debt and preferred stock.

Question 19

A common-size income statementpermits an analysis of changes or differences in the relations between revenues, expenses, and net income and identifies relations that the analyst should explore further, such as

Accepted Answer

A) time series analysis. 
B) economic analysis. 
C) cross-section analysis. 
D) both choices a and c. 
E) both choices b and c. 
A) time series analysis. 
B) economic analysis. 
C) cross-section analysis. 
D) both choices a and c. 
E) both choices b and c.

Question 20

Analysts deciding between investments must consider the comparative risks.Which of the following is/are not economy-wide factors that affect the risk of business firms?

Accepted Answer

A) increased inflation 
B) increased interest rates 
C) unemployment 
D) recessions 
E) increased competition 
A) increased inflation 
B) increased interest rates 
C) unemployment 
D) recessions 
E) increased competition

Discuss any ethical issues raised by the following actions.

Discuss the accounts receivable turnover ratio.

(CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in computing a ratio,

Healthy mature firms typically have a cash flow from operations to current liabilities ratio of:

The accounts receivable turnover ratio indicates how quickly a firm collects its accounts receivable.

A measure of short-term debt paying ability is a company's

If the firm offers terms of "net 45 days," a days receivable outstanding of 45 days indicates that the firm handles accounts receivable well.

Describe the relationship between return on assets and return on common shareholders' equity.

The typical first step in financial statement analysis and valuation (after selecting assumptions) is:

The capital structure leverage ratio indicates

An analyst examines changes in a firm's various ratios over a three-year period-a so-called _ analysis and performs a _ analysis comparing a given firm's ratios with those of other firms for a specific period.

Which of the following ratios is not a measure of profitability?

Why would a firm prepare pro forma financial statements?

Some analysts calculate the inventory turnover ratio by dividing sales, rather than cost of goods sold, by the average inventory. Which of the following regarding the inventory turnover ratio is/are not true?

Financial leverage

Describe the inventory turnover ratio.

A small leverage ratio may indicate that a company is

A common-size income statementpermits an analysis of changes or differences in the relations between revenues, expenses, and net income and identifies relations that the analyst should explore further, such as

Analysts deciding between investments must consider the comparative risks.Which of the following is/are not economy-wide factors that affect the risk of business firms?

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 7: Introduction to Financial Statement Analysis

Discuss any ethical issues raised by the following actions.

Discuss the accounts receivable turnover ratio.

(CMA adapted, Dec 87 #1) When a balance sheet amount is related to an income statement amount in computing a ratio,

Healthy mature firms typically have a cash flow from operations to current liabilities ratio of:

The accounts receivable turnover ratio indicates how quickly a firm collects its accounts receivable.

A measure of short-term debt paying ability is a company's

If the firm offers terms of "net 45 days," a days receivable outstanding of 45 days indicates that the firm handles accounts receivable well.

Describe the relationship between return on assets and return on common shareholders' equity.

The typical first step in financial statement analysis and valuation (after selecting assumptions) is:

The capital structure leverage ratio indicates

An analyst examines changes in a firm's various ratios over a three-year period-a so-called _____ analysis and performs a _____ analysis comparing a given firm's ratios with those of other firms for a specific period.

Which of the following ratios is not a measure of profitability?

Why would a firm prepare pro forma financial statements?

Some analysts calculate the inventory turnover ratio by dividing sales, rather than cost of goods sold, by the average inventory. Which of the following regarding the inventory turnover ratio is/are not true?

Financial leverage

Describe the inventory turnover ratio.

A small leverage ratio may indicate that a company is

A common-size income statementpermits an analysis of changes or differences in the relations between revenues, expenses, and net income and identifies relations that the analyst should explore further, such as

Analysts deciding between investments must consider the comparative risks.Which of the following is/are not economy-wide factors that affect the risk of business firms?

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

An analyst examines changes in a firm's various ratios over a three-year period-a so-called _ analysis and performs a _ analysis comparing a given firm's ratios with those of other firms for a specific period.