Question 1

A retailing firm has which type of inventory?

Accepted Answer

A) Raw materials 
B) Work in process 
C) Merchandise 
D) Raw materials and merchandise 
E) Raw materials, work in process, and merchandise

Question 2

Absolute figures usually have more meaning than ratio comparisons.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a government document that provides industry statistics?

Accepted Answer

A) The Wall Street Journal 
B) Business Week 
C) Dun's 
D) The Department of Commerce Financial Report 
E) Standard and Poor's Industry Survey

Question 4

The descriptive information in annual reports is not useful in statement analysis; only the financial statements themselves are of value.

Accepted Answer

A) True 
 B)False

Question 5

Suppose you are comparing two firms in the steel industry.One firm is large and the other is small.Which type of numbers would be most meaningful for statement analysis?

Accepted Answer

A) Absolute numbers would be most meaningful for both the large and small firm. 
B) Absolute numbers would be most meaningful in the large firm; relative numbers would be most meaningful in the small firm. 
C) Relative numbers would be most meaningful for the large firm; absolute numbers would be most meaningful for the small firm. 
D) Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons. 
E) It is not meaningful to compare a large firm with a small firm.

Question 6

Liquidity ratios measure the degree of protection of long-term suppliers of funds.

Accepted Answer

A) True 
 B)False

Question 7

Financial statement analysis is a judgmental process.

Accepted Answer

A) True 
 B)False

Question 8

In financial statement analysis, ratios are:

Accepted Answer

A) the only type of analysis where industry data are available. 
B) absolute numbers converted to a common base. 
C) fractions usually expressed in percent or times. 
D) the only indication of the financial position of the firm. 
E) None of the answers are correct.

Question 9

Which of these statements is false?

Accepted Answer

A) Many companies will not clearly fit into any one industry. 
B) A financial service uses its best judgment as to which industry the firm best fits. 
C) The analysis of an entity's financial statements can be more meaningful if the results are compared with industry averages and with results of competitors. 
D) When using industry averages, it is often necessary to use an industry that the firm best fits. 
E) A company comparison should not be made with industry averages if the company does not clearly fit into any one industry.

Question 10

A given ratio is always computed the same way, no matter what the source.

Accepted Answer

A) True 
 B)False

Question 11

In order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a source of industry statistics?

Accepted Answer

A) Annual Statement Studies 
B) Mergent Dividend Record 
C) Value Line 
D) Standard and Poor's Industry Surveys 
E) The Department of Commerce Financial Report

Question 13

In vertical common-size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year.

Accepted Answer

A) True 
 B)False

Question 14

Typically, the largest expense to a manufacturing firm is cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would not be a user of financial statements?

Accepted Answer

A) Management 
B) Bankers 
C) Employee unions 
D) Investment analysts 
E) All of the answers are users.

Question 16

A service firm will usually have a low amount of inventory, consisting primarily of supplies.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following can offer a type of comparison in financial statement analysis?

Accepted Answer

A) Past ratios and figures 
B) Industry averages 
C) Statistics of competitors 
D) All of the answers are correct. 
E) None of the answers are correct.

Question 18

The principal asset of a merchandising firm will usually be accounts receivable.

Accepted Answer

A) True 
 B)False

Exam 5: Basics of Analysis

A retailing firm has which type of inventory?

Absolute figures usually have more meaning than ratio comparisons.

Which of the following is a government document that provides industry statistics?

The descriptive information in annual reports is not useful in statement analysis; only the financial statements themselves are of value.

Suppose you are comparing two firms in the steel industry.One firm is large and the other is small.Which type of numbers would be most meaningful for statement analysis?

Liquidity ratios measure the degree of protection of long-term suppliers of funds.

Financial statement analysis is a judgmental process.

In financial statement analysis, ratios are:

Which of these statements is false?

A given ratio is always computed the same way, no matter what the source.

In order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful.

Which of the following is not a source of industry statistics?

In vertical common-size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year.

Typically, the largest expense to a manufacturing firm is cost of goods sold.

Which of the following would not be a user of financial statements?

A service firm will usually have a low amount of inventory, consisting primarily of supplies.

Which of the following can offer a type of comparison in financial statement analysis?

The principal asset of a merchandising firm will usually be accounts receivable.