Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Common-size analysis involves expressing comparisons in percentages.

Accepted Answer

A) True 
 B)False

Question 3

Financial statement analysis is a judgmental process.

Accepted Answer

A) True 
 B)False

Question 4

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

Accepted Answer

A) Ratio analysis 
B) Common-size analysis 
C) Theory consistency 
D) Examination of relative size among firms 
E) Review of descriptive material

Question 5

Liquidity ratios can be used:

Accepted Answer

A) to measure the degree of protection of long-term suppliers of funds. 
B) to measure borrowing capacity. 
C) to measure the earning ability of a firm. 
D) to measure the firm's ability to meet its current obligations. 
E) to measure the worth of the firm.

Question 6

There is a standard list of ratios.

Accepted Answer

A) True 
 B)False

Question 7

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 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

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 10

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 11

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 12

Which of the following statements is incorrect?

Accepted Answer

A) The North American Industry Classification System (NAICS)was created jointly by the United States,Canada,and Mexico. 
B) For the NAICS,economic units with similar production processes are classified in the same industry,and the lines drawn between industries demarcate differences in production processes. 
C) NAICS provides enhanced industry comparability among the three NAFTA trading partners. 
D) NAICS divides the economy into twenty sectors. 
E) In most sectors,NAICS provides for compatibility at the industry (six-digit)level.

Question 13

Which of the following is a false statement as it relates to analysis?

Accepted Answer

A) Profitability may not be a major consideration as long as the resources for repayment can be projected. 
B) Equity capital provides creditors with a cushion against loss. 
C) There is a difference between the objectives that are sought by short-term grantors of credit and those sought by long-term grantors of credit. 
D) If merchandise with a 20% markup is sold on credit,it would take ten successful sales of the same amount to make up for one sale not collected. 
E) The financial structure of the entity is of interest to creditors.

Question 14

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 15

Statements in which all items are expressed only in relative terms (percentages of a base)are termed:

Accepted Answer

A) vertical Statements. 
B) horizontal Statements. 
C) funds Statements. 
D) common-Size Statements. 
E) None of the answers are correct.

Question 16

Denver Dynamics has net income of $2,000,000.Oakland Enterprises has net income of $2,500,000.Which of the following best compares the profitability of Denver and Oakland?

Accepted Answer

A) Oakland Enterprises is 25% more profitable than Denver Dynamics. 
B) Oakland Enterprises is more profitable than Denver Dynamics,but the comparison can't be quantified. 
C) Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics. 
D) Further information is needed for a reasonable comparison. 
E) Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Dissimilar year ends will have no impact on the results of ratios.

Accepted Answer

A) True 
 B)False

Exam 5: Basics of Analysis

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

Common-size analysis involves expressing comparisons in percentages.

Financial statement analysis is a judgmental process.

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm.Which of the following is not one of the techniques used in analysis?

Liquidity ratios can be used:

There is a standard list of ratios.

Which of these statements is false?

In financial statement analysis,ratios are:

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

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

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

Which of the following statements is incorrect?

Which of the following is a false statement as it relates to analysis?

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

Statements in which all items are expressed only in relative terms (percentages of a base) are termed:

Denver Dynamics has net income of $2,000,000.Oakland Enterprises has net income of $2,500,000.Which of the following best compares the profitability of Denver and Oakland?

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

Dissimilar year ends will have no impact on the results of ratios.