Question 1

Which financial factor in the following list is most likely to be a cause of a going-concern problem?

Accepted Answer

A) Excessive reliance on debt financing. 
B) A high inventory turnover ratio. 
C) A high current ratio. 
D) Stable net income growth.

Question 2

If EPS (earnings per share)decreases,it must mean that the company's net income has fallen.

Accepted Answer

A) True 
 B)False

Question 3

If an analyst wants to examine a company's short-run ability to survive,which of the following would best be considered?

Accepted Answer

A) Liquidity 
B) Market share 
C) Profitability 
D) Solvency

Question 4

Nonrecurring items on the income statement are:

Accepted Answer

A) reported net of income tax. 
B) reported before income tax expense. 
C) not subject to income tax. 
D) none of the answers are acceptable.

Question 5

P/E ratios can be calculated using the average EPS from the last four quarters.

Accepted Answer

A) True 
 B)False

Question 6

The patent on a major drug produced by a pharmaceutical company will soon expire.Sales of the drug contribute 10% to the company's net income.Which of the following statements is most likely to be true in these circumstances?

Accepted Answer

A) The P/E ratio will probably fall when the patent ends. 
B) The P/E ratio will probably rise because the share price will rise and the earnings will fall. 
C) The P/E ratio will probably fall as investors factor in the future drop in net income. 
D) The P/E ratio will probably rise because the share price will fall and the earnings will fall.

Question 7

If a company's P/E ratio is 12.5 and the company's share price is $17.50 per share then the company's EPS is:

Accepted Answer

A) $0.71. 
B) $1.40. 
C) $5.00. 
D) $0.40.

Question 8

Changes brought about by new accounting standards have expanded the income statement reporting of comprehensive income.

Accepted Answer

A) True 
 B)False

Question 9

Use the financial information below to calculate the following:
A.gross profit for each quarter.
B.net income for each quarter.
C.EPS for each quarter.
D.P/E ratio at the end of the year.
$$\begin{array} { l | r | r | r | r | } 
\hline & \mathbf { Q 4 } & \mathbf { Q 3 } & \text { Q2 } & \text { Q1 } \
\hline \text { Sales revenue } & \$ 901,800 & \$ 911,300 & \$ 909,600 & \$ 917,4 \
\hline \text { Cost of goods sold } & 304,500 & 317,100 & 316,700 & 321,9 \
\hline \text { Operating expenses } & 247,700 & 259,100 & 257,300 & 261,4 \
\hline \text { Interest expense } & 3,600 & 3,600 & 3,600 & 3,5 \
\hline \text { Income tax expense } & 84,300 & 87,200 & 87,200 & 89,7 \
\hline \begin{array} { l } 
\text { Average number of common shares } \
\text { outstanding }
\end{array} & 793,030 & 788,064 & 789,670 & 803,0 \
\hline \text { Share price when Q4 EPS released } & \$ 24.00 & & & \
\hline
\end{array}$$

Accepted Answer

The answer of Use the financial information below to calculate...

Question 10

Which of the following measures would assist in assessing the liquidity of a company?

Accepted Answer

A) Price/earnings ratio 
B) Fixed asset turnover ratio 
C) Receivables turnover ratio 
D) Times interest earned ratio

Question 11

Match between columns
                        Premises: Times interest earned ratio
Earnings per share
Current ratio
Debt-to-assets ratio
Inventory turnover ratio
Return on equity
Receivables turnover ratio
Fixed asset turnover ratio

Accepted Answer

The Answer of L - Liquidity and P - Profitability is...

Question 12

How competitors calculate inventory cost is least likely to affect comparisons between competitors if inventory makes up a:

Accepted Answer

A) large percent of assets and inventory costs are stable. 
B) large percent of assets and inventory costs are not stable. 
C) small percent of assets and inventory costs are not stable. 
D) small percent of assets and inventory costs are stable.

Question 13

Common size statements contain only percentages,no dollar amounts.

Accepted Answer

A) True 
 B)False

Question 14

Company X has net sales revenue of $780,000,cost of goods sold of $343,200 and all other expenses of $327,600 for the current year.At the beginning of the year,503,000 shares of common shares were outstanding,and,at the end of the year,537,000 shares of common shares were outstanding.The basic EPS for the company is:

Accepted Answer

A) $1.50 
B) $0.84 
C) $0.21 
D) $0.87

Question 15

Which of the following statements is true?

Accepted Answer

A) Expenses and losses both represent decreases in assets or increases in liabilities; the terms can therefore be used interchangeably. 
B) Expenses and revenues deal with peripheral activities,while losses and gains deal with operating activities. 
C) Expenses and revenues deal with operating activities,while losses and gains deal with peripheral activities. 
D) Revenues and gains both represent increases in assets or decreases in liabilities; the terms can therefore be used interchangeably.

Question 16

Which of the following measures would assist in assessing the profitability of a company?

Accepted Answer

A) Debt-to-assets ratio 
B) Fixed asset turnover ratio 
C) Receivables turnover ratio 
D) Current ratio

Question 17

A decrease in accounts receivable turnover ratio is indicative of:

Accepted Answer

A) an increase in sales revenue. 
B) slower selling inventory. 
C) an increase in accounts receivable. 
D) a decline in cost of good sold.

Question 18

Turnover ratios are remarkably consistent from one industry to the next.

Accepted Answer

A) True 
 B)False

Question 19

Horizontal analysis is identical to trend analysis.

Accepted Answer

A) True 
 B)False

Question 20

$\begin{array}{llcc}
  \text { Net sales reverue } &\$345,000  \
 \text {Cost of goods sold  } &\$205,000\
 \text { Average accourts receivable } &\$32,500\
 \text { Average irventory } &\$9,450\
 \text { Average plart, property ard equipment } &\$81,250\
 \text { Average total assets } &\$130,000\
\end{array}$

-According to the above table.Calculate the company's inventory turnover ratio for the current year?

Accepted Answer

A) 4.61 
B) 2.44 
C) 21.69 
D) 13.76

Exam 13: Measuring and Evaluating Financial Performance

Which financial factor in the following list is most likely to be a cause of a going-concern problem?

If EPS (earnings per share)decreases,it must mean that the company's net income has fallen.

If an analyst wants to examine a company's short-run ability to survive,which of the following would best be considered?

Nonrecurring items on the income statement are:

P/E ratios can be calculated using the average EPS from the last four quarters.

The patent on a major drug produced by a pharmaceutical company will soon expire.Sales of the drug contribute 10% to the company's net income.Which of the following statements is most likely to be true in these circumstances?

If a company's P/E ratio is 12.5 and the company's share price is $17.50 per share then the company's EPS is:

Changes brought about by new accounting standards have expanded the income statement reporting of comprehensive income.

Which of the following measures would assist in assessing the liquidity of a company?

Match the letter for the following ratio measures to the category of performance that the ratio is used to measure.

How competitors calculate inventory cost is least likely to affect comparisons between competitors if inventory makes up a:

Common size statements contain only percentages,no dollar amounts.

Which of the following statements is true?

Which of the following measures would assist in assessing the profitability of a company?

A decrease in accounts receivable turnover ratio is indicative of:

Turnover ratios are remarkably consistent from one industry to the next.

Horizontal analysis is identical to trend analysis.