Financial statement Analysis

Question 1

1. Analyses that provide information about an entity’s relative position within an industry are
   known as:

Answer 1

industry averages.

Question 2

Which one of the following is not a tool in financial statement analysis?
. Horizontal analysis.
B. Circular analysis.
C. Vertical analysis.
D. Ratio analysis.

Answer 2

B. Circular analysis.

Question 3

Horizontal analysis is a technique for evaluating financial statement data:
A. within a period of time.
B. over a period of time.
C. on a certain date.
D. as it may appear in the future

Answer 3

B. over a period of time.

Question 4

If year one equals $800, year two equals $840, and year three equals $896, the percentage
to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is:
A. 100%.
B. 89%.
C. 105%.
D. 112%.

Answer 4

D. 112%.

Question 5

5. In a vertical analysis of the income statement, the 100% figure is:
   A. profit.
   B. cost of sales.
   C. gross profit.
   D. net sales.

Answer 5

D. net sales.

Question 6

6. Which of the following signifies that a company may be unable to pay its current liabilities if they
   suddenly become due?
   A. High current ratio.
   B. Low gross profit percentage.
   C. High earnings per share.
   *D. Low current ratio

Answer 6

D. Low current ratio

Question 7

Which of the following ratios is used to determine how quickly and easily a company is able to sell
its inventory?
A) Receivable turnover.
B) Inventory turnover.
C) Return on net sales.
D) Current ratio.

Answer 7

Inventory turnover.

Question 8

Radiance Limited has cash of $35,000, marketable securities totaling $15,000, net
receivables amounting to $20,000, and current liabilities of $55,000. The quick ratio for this
company is:
A. 1.000.
B. 0.780.
C. 1.273.
D. 1.875.

Answer 8

C. 1.273

Question 9

Which one of the following would be considered a long-term solvency ratio?
A. Receivable turnover.
B. Return on total assets.
C. Quick ratio.
D. Debt to total asset ratio.

Answer 9

D. Debt to total asset ratio.

Question 10

A high receivables turnover ratio indicates:
A. customers are making payments quickly.
B. a large portion of the company’s sales are on credit.
C. many customers are not paying their receivables.
D. the company’s sales have increased.

Answer 10

A. customers are making payments quickly.

Question 11

Examples of estimates normally found in financial statements include all of the following
except:
A. cash.
B. provision for warranties.
C. depreciation expense.
D. allowance for doubtful debts.

Answer 11

A. cash.