Question 1

In vertical analysis:

Accepted Answer

A)   a base amount is optional.
B)   a base amount is required.
C)   comparative statements are optional.
D)   comparative statements are required. B

Question 2

Matrix analysis expresses each item on a financial statement in terms of a percent of a base amount.

Accepted Answer

A) True 
 B)False  False

Question 3

The cost of capital:

Accepted Answer

A)   is lower for a start-up company since it is untested.
B)   can be obtained from the financial statements.
C)   is the same for all companies.
D)   is higher for a start-up company since it is untested. D

Question 4

Economic value added (EVA) is computed as:

Accepted Answer

A)   net income + long-term debt + interest expense.
B)   net income + interest expense - capital charge.
C)   net income - interest expense + capital charge.
D)   net income - long-term debt + interest expense.

Question 5

If a company has sales of $150 in 2010 and $225 in 2011, the percentage change from 2010 to 2011 is 50%.

Accepted Answer

A) True 
 B)False

Question 6

On a statement of cash flows, which is NOT considered a financing activity?

Accepted Answer

A)   Deferred income tax
B)   Proceeds from long-term debt
C)   Repayment of long-term debt
D)   Foreign currency effect on cash

Question 7

If the sale of plant assets is a company's major source of cash, it may be a sign of financial difficulty.

Accepted Answer

A) True 
 B)False

Question 8

On the statement of cash flows of a healthy company, net cash from operating activities generally exceeds net income because of the reduction for depreciation.

Accepted Answer

A) True 
 B)False

Question 9

On a statement of cash flows, which is considered an investing activity?

Accepted Answer

A)   Depreciation
B)   Increase in inventory
C)   Sale of securities
D)   Repayment of debt

Question 10

The horizontal analysis formula is the current year amount:

Accepted Answer

A)   divided by the base year amount.
B)   minus the base year amount divided by the base year amount.
C)   minus the base year amount divided by current year amount.
D)   added to the base year amount divided by the base year amount.

Question 11

When computing trend percentages:

Accepted Answer

A)   the current year is always equal to 100%.
B)   the base year is always the latest year.
C)   the base year is always equal to 100%.
D)   the base year is equal to the current year plus the previous year divided by two.

Question 12

A measure of a company's ability to collect cash from credit customers is the:

Accepted Answer

A)   accounts receivable turnover.
B)   earnings per share.
C)   inventory turnover.
D)   acid-test ratio.

Question 13

Economic value added is a measure of change in corporation's total assets.

Accepted Answer

A) True 
 B)False

Question 14

The percentage change in financial statement balances is computed by dividing the dollar amount of the most recent period by the base period dollar amount.

Accepted Answer

A) True 
 B)False

Question 15

A high inventory turnover may indicate that a company is experiencing difficulty selling its inventory.

Accepted Answer

A) True 
 B)False

Question 16

Horizontal analysis of financial statements is an:

Accepted Answer

A)   analysis tool.
B)   analysis theory
C)   analysis principle.
D)   analysis requirement.

Question 17

A company's net income as a percentage of sales is 15%. Using vertical analysis, the cost of goods sold as a percentage of sales must be 85%.

Accepted Answer

A) True 
 B)False

Question 18

The ratio that measures a company's success in using its assets to earn income for the persons who finance the business is the:

Accepted Answer

A)   leverage.
B)   rate of return on total assets.
C)   debt ratio.
D)   times-interest-earned ratio.

Question 19

A ratio analysis, horizontal analysis, and vertical analysis are all financial analysis tools.

Accepted Answer

A) True 
 B)False

Question 20

Vertical analysis is a less sophisticated analysis tool than horizontal analysis.

Accepted Answer

A) True 
 B)False

Exam 13: Financial Statement Analysis

In vertical analysis:

Matrix analysis expresses each item on a financial statement in terms of a percent of a base amount.

The cost of capital:

Economic value added (EVA) is computed as:

If a company has sales of $150 in 2010 and $225 in 2011, the percentage change from 2010 to 2011 is 50%.

On a statement of cash flows, which is NOT considered a financing activity?

If the sale of plant assets is a company's major source of cash, it may be a sign of financial difficulty.

On the statement of cash flows of a healthy company, net cash from operating activities generally exceeds net income because of the reduction for depreciation.

On a statement of cash flows, which is considered an investing activity?

The horizontal analysis formula is the current year amount:

When computing trend percentages:

A measure of a company's ability to collect cash from credit customers is the:

Economic value added is a measure of change in corporation's total assets.

The percentage change in financial statement balances is computed by dividing the dollar amount of the most recent period by the base period dollar amount.

A high inventory turnover may indicate that a company is experiencing difficulty selling its inventory.

Horizontal analysis of financial statements is an:

A company's net income as a percentage of sales is 15%. Using vertical analysis, the cost of goods sold as a percentage of sales must be 85%.

The ratio that measures a company's success in using its assets to earn income for the persons who finance the business is the:

A ratio analysis, horizontal analysis, and vertical analysis are all financial analysis tools.

Vertical analysis is a less sophisticated analysis tool than horizontal analysis.