Question 1

The primary difference between the debt to equity ratio and the times interest earned ratio is:

Accepted Answer

A)  The debt to equity ratio uses elements from the balance sheet; the times interest earned ratio uses elements from the income statement. 
B)  The debt to equity ratio is a long-term solvency measure; the times interest earned ratio is a short term solvency ratio. 
C)  The debt to equity ratio is a long-term solvency measure; the times interest earned ratio is a performance ratio. 
D)  The debt to equity ratio can be compared to industry averages; the times interest earned ratio varies too widely from firm to firm to permit comparisons to the industry.

Question 2

Describe the warnings managers should note when using industry averages or norms.

Accepted Answer

The answer of Describe the warnings managers should note when...

Question 3

Because of its relationship to earnings and market price, which ratio is important to investors?

Accepted Answer

A)  Dividend index 
B)  Dividend equity ratio 
C)  Dividend yield ratio 
D)  Price earnings ratio

Question 4

Presented below are selected data from the financial statements of Hamilton Corp. for 2017 and 2016.
 The price/earnings ratio for 2017 is:

Accepted Answer

A)  0.30 to 1 
B)  5.20 to 1 
C)  2.43 to 1 
D)  0.10 to 1

Question 5

Because it relates elements from the income statement and balance sheet, the asset turnover ratio is ideal as a single financial indicator.

Accepted Answer

A) True 
 B)False

Question 6

Explain the purpose for financial statement analysis and why ratio analysis is helpful.

Accepted Answer

The answer of Explain the purpose for financial statement analysis...

Question 7

Which of the following statements is false regarding vertical analysis?

Accepted Answer

A)  Common-size financial statements cannot be used to compare businesses of different sizes. 
B)  Vertical analysis can only be used with balance sheet accounts. 
C)  Vertical analysis can only be used with income statement accounts. 
D)  All of these are false.

Question 8

-Using common-size analysis, what percentage would be attributable to the 2016 inventories of Joshua Company?

Accepted Answer

A)  34.5 percent 
B)  36.1 percent 
C)  31.3 percent 
D)  21.5 percent

Question 9

Because the income statement shows aggregated amounts such as sales, gross profit, and net income, a change in product mix can distort ratios and comparisons of financial statements.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements describe the principal reasons why stockholders and credit analysts use financial statement analysis?
1) To assess the risks associated with payments on debt and return on investment
2) To predict the amount of expected returns
3) To establish recommended dividend and interest payments
4) To evaluate top and middle level management

Accepted Answer

A)  1 and 2 
B)  1 and 4 
C)  3 and 4 
D)  1, 2, and 3

Question 11

With respect to credit analysts and managers, which of the following statements is incorrect?

Accepted Answer

A)  Both credit analysts and managers are concerned about security prices. 
B)  Credit analysts are concerned with assessing the short-term liquidity of a company. 
C)  Credit analysts are concerned with assessing the long-term solvency of a company. 
D)  Managers are concerned about interest, principal, and dividend payments.

Question 12

-Which of the following would result from a horizontal analysis of Robbins Corporation's income statement?

Accepted Answer

A)  Cost of goods sold increased $40,000 or 19.05% during 2017 
B)  Accounts receivable is 7.78% of total assets for 2017. 
C)  Gross margin is 40.48% of net sales for 2017. 
D)  Cost of goods sold is 59.52% of net sales for 2017.

Question 13

Consignment Shipments, Inc. had a times interest earned ratio of 11 to 1 in 2016. In 2017 the company incurred a substantial increase in interest expense with no overall effect on net income or taxes. The effect of the transaction is:

Accepted Answer

A)  The ratio increased. 
B)  The ratio remained the same. 
C)  The ratio decreased. 
D)  There is insufficient information to predict the effect.

Question 14

Vertical and horizontal analyses are limited in that they involve comparisons of financial measures only for a single firm.

Accepted Answer

A) True 
 B)False

Question 15

Select the ratio that each statement below most properly satisfies.
●Dividend yield ratio
●Days sales in receivables
●Acid test ratio
●Return on equity ratio
●Times interest earned ratio
●Asset turnover ratio
●Debt-to-equity ratio
●Dividend payout ratio
●Price/earnings ratio
●Working capital

Accepted Answer

The answer of Select the ratio that each statement below...

Question 16

-The dividend yield ratio for 2017 is:

Accepted Answer

A)  28.00 percent 
B)  13.00 percent 
C)  5.87 percent 
D)  5.00 percent

Question 17

Inflation or deflation does not affect comparisons of financial statements between periods because the statements are based on historical dollars.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is an efficiency measure of solvency?

Accepted Answer

A)  Working capital 
B)  Current ratio 
C)  Days sales in receivables ratio 
D)  Inventory turnover ratio

Question 19

-Using common-size analysis, what percentage would be attributable to the 2017 wages payable of Joshua Company?

Accepted Answer

A)  2.8 percent 
B)  3.1 percent 
C)  3.8 percent 
D)  17.2 percent

Question 20

By-George Products is considered "very liquid" or highly solvent for the year ended December 31, 2017. This means that By-George

Accepted Answer

A)  Is able to pay its current debts using its current assets as they convert to cash 
B)  Must decrease its solvency in order to appear favorable to stockholders 
C)  Should sell plant assets in order to remain in business 
D)  Has a small current ratio

Exam 13: Appendix: Managerial Analysis of Financial Statements

The primary difference between the debt to equity ratio and the times interest earned ratio is:

Describe the warnings managers should note when using industry averages or norms.

Because of its relationship to earnings and market price, which ratio is important to investors?

Presented below are selected data from the financial statements of Hamilton Corp. for 2017 and 2016. The price/earnings ratio for 2017 is:

Because it relates elements from the income statement and balance sheet, the asset turnover ratio is ideal as a single financial indicator.

Explain the purpose for financial statement analysis and why ratio analysis is helpful.

Which of the following statements is false regarding vertical analysis?

-Using common-size analysis, what percentage would be attributable to the 2016 inventories of Joshua Company?

Because the income statement shows aggregated amounts such as sales, gross profit, and net income, a change in product mix can distort ratios and comparisons of financial statements.

With respect to credit analysts and managers, which of the following statements is incorrect?

-Which of the following would result from a horizontal analysis of Robbins Corporation's income statement?

Consignment Shipments, Inc. had a times interest earned ratio of 11 to 1 in 2016. In 2017 the company incurred a substantial increase in interest expense with no overall effect on net income or taxes. The effect of the transaction is:

Vertical and horizontal analyses are limited in that they involve comparisons of financial measures only for a single firm.

-The dividend yield ratio for 2017 is:

Inflation or deflation does not affect comparisons of financial statements between periods because the statements are based on historical dollars.

Which of the following is an efficiency measure of solvency?

-Using common-size analysis, what percentage would be attributable to the 2017 wages payable of Joshua Company?

By-George Products is considered "very liquid" or highly solvent for the year ended December 31, 2017. This means that By-George