Question 1

Financial stability refers to the ability of an entity to:

Accepted Answer

A) Improve sales 
B) Meet its long-term obligations 
C) Earn a high rate of profit 
D) Pay its rent 
A) Improve sales 
B) Meet its long-term obligations 
C) Earn a high rate of profit 
D) Pay its rent

Question 2

A high dividend payout ratio means that management is reinvesting a high/low_______ proportion of its profits internally.

Accepted Answer

The answer of A high dividend payout ratio means that...

Question 3

Cash flows from operating activities divided by repayments of long-term borrowings + assets acquired + dividends paid)is the formula for:

Accepted Answer

A) Cash flow adequacy ratio 
B) Repayment of long-term borrowing ratio 
C) Debt coverage ratio 
D) Operations index 
A) Cash flow adequacy ratio 
B) Repayment of long-term borrowing ratio 
C) Debt coverage ratio 
D) Operations index

Question 4

In a trend analysis of K Company which of these changes appears to be the most significant in requiring further investigation?

Accepted Answer

A) An increase of 13% in revenues 
B) An increase of 11% in bad debts written off 
C) An increase of 7% in total assets 
D) An increase of 8% in accounts receivable 
A) An increase of 13% in revenues 
B) An increase of 11% in bad debts written off 
C) An increase of 7% in total assets 
D) An increase of 8% in accounts receivable

Question 5

A company has a current ratio of 3:1.Which action will decrease this ratio?

Accepted Answer

A) Issue of long-term debentures 
B) Sale of equipment for cash 
C) Declaration of a dividend 
D) Collection of an account receivable 
A) Issue of long-term debentures 
B) Sale of equipment for cash 
C) Declaration of a dividend 
D) Collection of an account receivable

Question 6

The quick ratio acid test ratio)reflects:

Accepted Answer

A) The belief that not all current assets can be liquidated immediately 
B) The same information as the debt ratio 
C) The relationship of quick assets to fixed assets 
D) Management's reaction time to avoid losses 
A) The belief that not all current assets can be liquidated immediately 
B) The same information as the debt ratio 
C) The relationship of quick assets to fixed assets 
D) Management's reaction time to avoid losses

Question 7

$\begin{array} { l c } 
& \text { Per share } \
\text { Carrying value on 31 Decem ber, current year } & \$ 16 \
\text { Quoted market value on 31 December, current year } & 12 \
\text { Earnings per share for the current year } & 4 \
\text { Dividend per share for the current year } & 2
\end{array}$
-Which P/E ratios and earnings yields do not match?

Accepted Answer

A) P/E ratio 5; earnings yield 20% 
B) P/E ratio 8; earnings yield 12.5% 
C) P/E ratio 9; earnings yield 12 % 
D) P/E ratio 10; earnings yield 10% 
A) P/E ratio 5; earnings yield 20% 
B) P/E ratio 8; earnings yield 12.5% 
C) P/E ratio 9; earnings yield 12 % 
D) P/E ratio 10; earnings yield 10%

Question 8

Financial ratios are used for all of the following purposes except:

Accepted Answer

A) By taxation authorities to determine the amount of tax payable 
B) By shareholders to assess profitability 
C) By creditors to monitor liquidity 
D) By management for planning and control 
A) By taxation authorities to determine the amount of tax payable 
B) By shareholders to assess profitability 
C) By creditors to monitor liquidity 
D) By management for planning and control

Question 9

How many of these are limitations of financial analysis?
I The past is an imperfect guide to the future
II The effect of inflation is not considered
III Undisclosed changes in accounting policies
IV Inconsistent classification

Accepted Answer

A) One 
B) Two 
C) Three 
D) Four 
A) One 
B) Two 
C) Three 
D) Four

Question 10

Dividend yield on ordinary shares is calculated as:

Accepted Answer

A) Market price/dividend per share 
B) Dividend per share/market price per share 
C) Annual dividend/earnings 
D) Annual dividend/number of ordinary shares 
A) Market price/dividend per share 
B) Dividend per share/market price per share 
C) Annual dividend/earnings 
D) Annual dividend/number of ordinary shares

Question 11

The ________________ ratio is a more rigorous measure of short-term liquidity than the current ratio.

Accepted Answer

The answer of The ________________ ratio is a more rigorous...

Question 12

The ratio which would be most helpful to an investor who is investing in ordinary shares primarily for dividends rather than for appreciation in market price,is:

Accepted Answer

A) Return on total assets 
B) Dividend yield 
C) Rate of return on ordinary equity 
D) Current ratio 
A) Return on total assets 
B) Dividend yield 
C) Rate of return on ordinary equity 
D) Current ratio

Question 13

The t_________ interest earned ratio measures the ability of a firm to meet its interest payments out of current earnings.

Accepted Answer

The answer of The t_________ interest earned ratio measures the...

Question 14

Mercer Company Ltd had a profit of $100 000 before tax,after deducting $16 000 in interest expense.Mercer's liabilities and equity total $1 000 000.Return on total assets,before finance costs and tax is:

Accepted Answer

A) 8.4% 
B) 10.0% 
C) 11.0% 
D) 11.6% 
A) 8.4% 
B) 10.0% 
C) 11.0% 
D) 11.6%

Question 15

Of the following firms the one that would be expected to have the fastest inventory turnover is:

Accepted Answer

A) Used car lot 
B) Jewellery store 
C) Clothing store 
D) Bakery 
A) Used car lot 
B) Jewellery store 
C) Clothing store 
D) Bakery

Question 16

The formula,total assets divided by total equity,measures the l__________ ratio,which is a variation of the debt ratio and the equity ratio.

Accepted Answer

The answer of The formula,total assets divided by total equity,measures...

Question 17

Fricker's financial records reveal this information at 31 December 2014. $$\begin{array} { l c } 
\text { Net Sales for } 2014 & \$ 90000 \
\text { Cost of Sales for } 2014 & 60000 \
\text { Ending Inv entory } & 12500 \
\text { B eginning Inventory } & 17500
\end{array}$$ The number of days taken to turn over average inventory for 2014 is:

Accepted Answer

A) 91 days 
B) 71 days 
C) 76 days 
D) 61 days 
A) 91 days 
B) 71 days 
C) 76 days 
D) 61 days

Question 18

Why is interest added back to profit before tax when calculating the rate of return on total assets?

Accepted Answer

A) To reflect the fact that the efficient use of resources should be examined independently from the method of financing 
B) Because it must be paid regardless of profits 
C) Because interest rates are variable over time 
D) To indicate to lenders that some risk is involved 
A) To reflect the fact that the efficient use of resources should be examined independently from the method of financing 
B) Because it must be paid regardless of profits 
C) Because interest rates are variable over time 
D) To indicate to lenders that some risk is involved

Question 19

The incorrect statement is:

Accepted Answer

A) Fundamental analysis assumes that an analyst can study all the published information in relation to an entity and determine whether its shares are under/over-valued 
B) Fundamental analysis assumes that an analyst should concentrate on studying data about an entity from a primary source and give little weight to secondary sources of information 
C) Fundamental analysis is engaged in by many analysts 
D) Fundamental analysis assumes that an analyst can study all the published information in relation to an entity and determine whether its shares are correctly valued 
A) Fundamental analysis assumes that an analyst can study all the published information in relation to an entity and determine whether its shares are under/over-valued 
B) Fundamental analysis assumes that an analyst should concentrate on studying data about an entity from a primary source and give little weight to secondary sources of information 
C) Fundamental analysis is engaged in by many analysts 
D) Fundamental analysis assumes that an analyst can study all the published information in relation to an entity and determine whether its shares are correctly valued

Question 20

To be useful for decision-making ratio results need to be compared with other information to provide standards or y__________ against which to measure the results.

Accepted Answer

yardsticks

Exam 25: Analysis and Interpretation of Financial Statements

Financial stability refers to the ability of an entity to:

A high dividend payout ratio means that management is reinvesting a high/low_______ proportion of its profits internally.

Cash flows from operating activities divided by repayments of long-term borrowings + assets acquired + dividends paid)is the formula for:

In a trend analysis of K Company which of these changes appears to be the most significant in requiring further investigation?

A company has a current ratio of 3:1.Which action will decrease this ratio?

The quick ratio acid test ratio)reflects:

Per share Carrying value on 31 Decem ber, current year \ 16 Quoted market value on 31 December, current year 12 Earnings per share for the current year 4 Dividend per share for the current year 2 -Which P/E ratios and earnings yields do not match?

Financial ratios are used for all of the following purposes except:

How many of these are limitations of financial analysis? I The past is an imperfect guide to the future II The effect of inflation is not considered III Undisclosed changes in accounting policies IV Inconsistent classification

Dividend yield on ordinary shares is calculated as:

The ________________ ratio is a more rigorous measure of short-term liquidity than the current ratio.

The ratio which would be most helpful to an investor who is investing in ordinary shares primarily for dividends rather than for appreciation in market price,is:

The t_________ interest earned ratio measures the ability of a firm to meet its interest payments out of current earnings.

Mercer Company Ltd had a profit of $100 000 before tax,after deducting $16 000 in interest expense.Mercer's liabilities and equity total $1 000 000.Return on total assets,before finance costs and tax is:

Of the following firms the one that would be expected to have the fastest inventory turnover is:

The formula,total assets divided by total equity,measures the l__________ ratio,which is a variation of the debt ratio and the equity ratio.

Fricker's financial records reveal this information at 31 December 2014. Net Sales for 2014 \ 90000 Cost of Sales for 2014 60000 Ending Inv entory 12500 B eginning Inventory 17500 The number of days taken to turn over average inventory for 2014 is:

Why is interest added back to profit before tax when calculating the rate of return on total assets?

The incorrect statement is:

To be useful for decision-making ratio results need to be compared with other information to provide standards or y__________ against which to measure the results.

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Internal Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis,profitability Analysis and Capital Budgeting

Partnerships: Formation,operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation,disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Liabilities

Filters