Deck 14: Financial Statement Analysis

Question 1

The quick ratio is considered more useful than the current ratio for:

A) Evaluating the profitability of a business that sells inventory very quickly, such as a restaurant.
B) Evaluating the solvency of a business that turns inventory into cash very slowly, such as a shipbuilder.
C) Evaluating long-term credit risk.
D) Evaluating investors' expectations concerning future earnings.

Answer 1

Evaluating the solvency of a business that turns inventory into cash very slowly, such as a shipbuilder.

Question 2

The debt ratio is a measure of:

A) Net cash flows relating to financing activities.
B) Long-term credit risk.
C) Short-term solvency.
D) Profitability, independent of the manner in which assets are financed.

Answer 2

Long-term credit risk.

Question 3

In the long-run, it is most important for a business to generate an inflow of cash from its:

A) Operating activities.
B) Stockholders.
C) Investing activities.
D) Creditors.

Answer 3

Operating activities.

Question 4

Return on assets measures the efficiency with which management:

A) Generates earnings from the assets under its control, regardless of how these assets are financed.
B) Generates earnings from the assets under its control, giving consideration to any costs of financing these assets.
C) Generates cash from the assets under its control, regardless of accrual-based measures of profitability.
D) Converts its current assets into cash.

Question 5

A transaction that will increase the quick ratio but cause the current ratio to decline is:

A) Short-term borrowing.
B) Investing cash in plant assets.
C) Sale of inventory at a price below cost.
D) Collection of an account receivable.

Question 6

Shown below are data taken from a recent annual report of Falcon Co. (Dollar amounts in millions.)
Based upon the above information, indicate the best answer in the space provided.

-The current ratio at year?end (rounded to the nearest tenth) is:

A) 2.3 to 1.
B) .6 to 1.
C) 3.5 to 1.
D) Some other answer.

Question 7

Shown below are data taken from a recent annual report of Falcon Co. (Dollar amounts in millions.)
Based upon the above information, indicate the best answer in the space provided.

-The amount of working capital at the beginning of the year (in millions) was:

A) $785.
B) $1,193.
C) $479.
D) Some other answer.

Question 8

Shown below are data taken from a recent annual report of Falcon Co. (Dollar amounts in millions.)
Based upon the above information, indicate the best answer in the space provided.

-The gross profit rate for the year (rounded to the nearest 1 percent) was:

A) 46%.
B) 54%.
C) 69%.
D) Some other answer.

Question 9

Shown below are data taken from a recent annual report of Falcon Co. (Dollar amounts in millions.)
Based upon the above information, indicate the best answer in the space provided.

-The return on average total assets during the year (rounded to the nearest percent) was:

A) 24%.
B) 34%.
C) 79%.
D) Some other answer.

Question 10

Shown below are data taken from a recent annual report of Falcon Co. (Dollar amounts in millions.)
Based upon the above information, indicate the best answer in the space provided.

-The return on average total stockholders' equity during the year (rounded to the nearest 1 percent) was:

A) 50%.
B) 41%.
C) 38%.
D) Some other answer.

Question 11

Shown below are data taken from a recent annual report of, Topaz, Inc. (Dollar amounts in millions.)
Compute the following:
a. Current ratio at year-end (round to nearest tenth ________ to 1
b. Working capital at the beginning of the year (in millions) $____________
c. Gross profit rate for the year (round to the nearest 1 percent) ______%
d. Return on average total assets for the year (round to the nearest 1 percent)______%
e. Return on average total equity for the year (round to the nearest 1 percent) ______%

Question 12

Given below are comparative balance sheets and an income statement for the Copper Corporation:
All sales were made on account. Cash dividends declared during the year totaled $29,300. Compute the following:
a) Average accounts receivable turnover ______times
b) Book value per share at the end of the current year $______________
c) Earnings per share of capital stock $______________
d) Return on assets (round to the nearest percent) __________%
e) Return on common stockholders' equity is computed by dividing $ ____________ by $______________