question

The first step in a financial statement analysis is to calculate ratios

answer

false

question

Before beginning the analysis of a firm's financial statements, it is necessary to specify the objectives of the analysis

answer

true

question

A creditor is ultimately concerned with the ability of the borrower to make interest and principal payments on borrowed funds

answer

true

question

The investor attempts to arrive at an estimation of a company's future earnings stream in order to attach a value to the securities being considered for purchase or liquidation.

answer

true

question

Financial statement analysis from the standpoint of management does not relate to the same questions raised by investors and creditors

answer

false

question

Sources of information outside the company's annual report should not be relied upon in a financial statement analysis

answer

false

question

Sources of information for analysts include the Form 10-K, proxy statement, auditor's report, and management discussion and analysis

answer

true

question

Using comparative statistical ratios to help determine a company's relative position within its industry is misleading due to the many accounting choices and techniques firms choose to report information.

answer

false

question

Tools and techniques used to evaluate a firm's financial condition should include common size financial statements, financial ratios, trend and structural analysis and industry comparisons

answer

true

question

Financial ratios do not provide answers in and of themselves, and they are not predictive

answer

true

question

Liquidity ratios measure the extent of a firm's financing with debt relative to equity

answer

false

question

The current and quick ratios measure the short-run solvency of a firm.

answer

true

question

The current and quick ratio may contradict the cash flow liquidity ratio, requiring the analyst to explore the underlying components of each ratio

answer

true

question

An increasing average collection period implies the firm has tightened its credit policies

answer

false

question

A low number of days inventory held is usually a sign of efficient management; however, too low a number could indicate understocking and lost orders

answer

true

question

To improve the cash conversion cycle a firm would want to decrease the average collection period, decrease days inventory held and increase days payable outstanding

answer

true

question

The smaller the fixed asset turnover ratio is the lower the investment in property, plant and equipment

answer

false

question

In order for a firm to benefit from debt financing, the fixed interest payments must be greater than the operating earnings

answer

false

question

The cash interest coverage ratio can be misleading if a company generates high profits, but no cash flow from operations

answer

false

question

Cash flow ratios add to a financial statement analysis by ensuring that profits are being translated into cash flows.

answer

true

question

The accounting and finance scandals, including Lehman Brothers, Enron, and WorldCom, illustrated the importance to investors of earnings numbers and market ratios based on those earnings numbers

answer

false

question

Short-term liquidity focuses on assessment of the key components of the income statement.

answer

false

question

An upward trend in asset turnover ratios indicates improved operating efficiency.

answer

true

question

When the financial leverage index is less than one, this indicates the firm is employing debt beneficially.

answer

false

question

The Du Pont System helps the analyst see how a firm's decisions and activities over an accounting period interact to produce an overall return to the firm's shareholders, the return on equity.

answer

true

question

Which of the following items is an outside source of information from the corporate annual report? a. Auditor's report. b. Supplementary schedule of segment information. c. Comparative statistical ratios from Annual Statement Studies. d. Management's discussion and analysis

answer

c. Comparative statistical ratios from Annual Statement Studies.

question

Which of the following tools and techniques are the least useful to the financial statement analyst? a. Financial ratios. b. Public relations material and pro forma statements prepared by the firm. c. Trend and structural analysis. d. Common size financial statements

answer

b. Public relations material and pro forma statements prepared by the firm.

question

What type of ratios measure the firm's ability to meet cash needs as they arise? a. Activity ratios. b. Liquidity ratios. c. Leverage ratios. d. Profitability ratios

answer

b. Liquidity ratios.

question

What type of ratios measure the liquidity of specific assets and the efficiency of managing those assets? a. Activity ratios. b. Liquidity ratios. c. Leverage ratios. d. Profitability ratios.

answer

a. Activity ratios

question

What type of ratios measure the extent of a firm's financing with debt relative to equity and its ability to cover interest and fixed charges? a. Activity ratios. b. Liquidity ratios. c. Market ratios. d. Leverage ratios

answer

d. Leverage ratios

question

Which of the following statements is false? a. Financial ratios can indicate areas of potential strength and weakness. b. Financial ratios can serve as screening devices. c. Financial ratios are predictive. d. No rules of thumb apply to the interpretation of financial ratios.

answer

c. Financial ratios are predictive.

question

Which of the following ratios would be useful in assessing short-term liquidity? a. Current ratio, inventory turnover, fixed asset turnover. b. Quick ratio, average collection period, cash conversion cycle. c. Average collection period, debt ratio, return on assets. d. Current ratio, cash interest coverage, cash-flow liquidity ratio.

answer

b. Quick ratio, average collection period, cash conversion cycle

question

What relationship exists between the average collection period and accounts receivable turnover? a. There is a direct and proportional relationship. b. Both ratios are expressed in number of times receivables are collected per year. c. Both ratios are expressed in number of days. d. As average collection period increases (decreases) the accounts receivable turnover decreases (increases).

answer

d. As average collection period increases (decreases) the accounts receivable turnover decreases (increases).

question

What is the cash conversion or net trade cycle? a. The amount of time needed to complete the normal operating cycle of a firm. b. The amount of time it takes to manufacture or buy inventory. c. The amount of time it takes to sell inventory. d. The amount of time it takes to be profitable.

answer

a. The amount of time needed to complete the normal operating cycle of a firm.

question

If a firm is using financial leverage successfully what would be the impact of doubling operating earnings? a. The return on equity will double. b. The return on equity will increase, but not double. c. The return on equity will more than double. d. The return on equity will decline by half.

answer

c. The return on equity will more than double.

question

Lazy O Corporation Selected Financial Data Current assets $85,000 Current liabilities 70,000 Accounts receivable 35,000 Inventories 40,000 Accounts payable 25,000 Net sales 425,000 Cost of goods sold 258,000 Lazy O's current ratio is: a. 2.1 to 1 b. 0.1 to 1 c. 0.8 to 1 d. 1.2 to 1

answer

d. 1.2 to 1

question

Lazy O Corporation Selected Financial Data Current assets $85,000 Current liabilities 70,000 Accounts receivable 35,000 Inventories 40,000 Accounts payable 25,000 Net sales 425,000 Cost of goods sold 258,000 Lazy O's quick ratio is: a. 0.88 to 1 b. 0.64 to 1 c. 1.2 to 1 d. 0.71 to 1

answer

b. 0.64 to 1

question

Lazy O Corporation Selected Financial Data Current assets $85,000 Current liabilities 70,000 Accounts receivable 35,000 Inventories 40,000 Accounts payable 25,000 Net sales 425,000 Cost of goods sold 258,000 Lazy O's average collection period is: a. 30 days b. 24 days c. 12 days d. 4 days

answer

a. 30 days

question

Lazy O Corporation Selected Financial Data Current assets $85,000 Current liabilities 70,000 Accounts receivable 35,000 Inventories 40,000 Accounts payable 25,000 Net sales 425,000 Cost of goods sold 258,000 Lazy O's days inventory held is: a. 34 times b. 9 times c. 57 times d. 18 times

answer

c. 57 times

question

Lazy O Corporation Selected Financial Data Current assets $85,000 Current liabilities 70,000 Accounts receivable 35,000 Inventories 40,000 Accounts payable 25,000 Net sales 425,000 Cost of goods sold 258,000 Lazy O's net trade cycle is: a. 122 days b. 52 days c. 35 days d. 72 days

answer

b. 52 days

question

Net sales $500,000 Cost of goods sold 300,000 Operating expenses 100,000 Net income 30,000 Total assets 180,000 Total liabilities 120,000 Cash flow from operating activities 10,000 Crazy A's debt ratio is: a. 8% b. 60% c. 67% d. 150%

answer

c. 67%

question

Net sales $500,000 Cost of goods sold 300,000 Operating expenses 100,000 Net income 30,000 Total assets 180,000 Total liabilities 120,000 Cash flow from operating activities 10,000 Crazy A's cash flow margin is: a. 2.0% b. 16.7% c, 5.5% d. 33.0%

answer

a. 2.0%

question

Net sales $500,000 Cost of goods sold 300,000 Operating expenses 100,000 Net income 30,000 Total assets 180,000 Total liabilities 120,000 Cash flow from operating activities 10,000 Crazy A's operating profit margin is: a. 33% b. 20% c. 40% d. 55%

answer

b. 20%

question

Net sales $500,000 Cost of goods sold 300,000 Operating expenses 100,000 Net income 30,000 Total assets 180,000 Total liabilities 120,000 Cash flow from operating activities 10,000 Crazy A's return on equity is: a. 25% b. 40% c. 50% d. 33%

answer

c. 50%

question

Net sales $500,000 Cost of goods sold 300,000 Operating expenses 100,000 Net income 30,000 Total assets 180,000 Total liabilities 120,000 Cash flow from operating activities 10,000 Crazy A's net profit margin is: a. 2.5% b. 5.5% c. 2.0% d. 6.0%

answer

d. 6.0%

question

10-K

answer

annual document filed with the SEC by companies that sell securities to the public

question

10-Q

answer

less extensive document filed quarterly with the SEC

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