Exam 25: Analysis and Interpretation of Financial Statements

Besides the information in annual reports, how many of these are sources of financial information about companies that are useful for analysing their performance and financial position? The Internet The Stock Exchange Financial newspapers and journals Stock brokers Information on competitors

Leverage measures:

How many of these are possible uses of financial analysis? By shareholders to assess future profitability and financial stability By management for planning and control By financial analysts to predict future share price By the government to estimate taxation payable

A profit ratio for a retailer of 4.1% in year 2 compared to 5.5% for the previous year indicates:

Profit less income tax, divided by revenue, is the formula for:

Of these businesses the one that is likely to have the highest inventory turnover ratio is a:

Which of these are limitations of financial analysis? I. The past is an imperfect guide to the future II. Historical cost financial reports are not adjusted for inflation III. Non-quantitative factors are not considered IV. Ratio results often contain errors in calculations V Comparisons may not be valid

When calculating the quick (acid test) ratio, which of these is normally deducted from current assets?

Belfast Water Works had a profit of $300 000 before tax, after deducting $27 000 in interest expense. Belfast's liabilities and equity total $2 725 000. Return on total assets, before finance costs and tax is:

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

The profit margin ratio measures:

Of the following firms, would be expected to have the fastest inventory turnover?

Profit before finance costs is used in calculating return on total assets because:

Trends in ratios that measure the relationship between debt and equity provide information about how many of the following? Long term stability Degree of risk in using debt financing Margin of safety to creditors in the event of liquidation

To calculate the current (working capital) ratio it is necessary to:

The use of borrowed funds in an attempt to earn a return greater than the cost of borrowing is known as:

If the interim dividend was 5c per ordinary share, the final dividend 7c per share and the market price per share on 30 June 2014 $3.20, the dividend yield is:

Buyer Co has ordered goods on credit from Seller Co. Before Seller ships the goods it would like to be sure that Buyer will be able to pay for them within the normal credit period. Assuming Seller has access to Buyer's financial statements, in which of the following ratios will Seller be most interested?

The price-earnings ratio of the shares for the current year is:

Analysis of an entity's financial structure and its ability to continue to operate into the future and meet its long term cash obligations is known as: