Chapter 13 Questions

Question 1

Financial statement analysis applies _____ tools to financial statements for decision-making.

Answer 1

analytical

Question 2

Financial statement analysis provides information to internal users to improve:

Answer 2

efficiency and effectiveness

Question 3

This building block reveals a company’s ability to generate future revenues and meet long-term obligations.

Answer 3

solvency

Question 4

General-purpose financial statements do NOT include general ledger accounts. True or False?

Answer 4

True

Question 5

Apple Company compares its first quarter sales revenue for the current year with its previous year’s first quarter sales revenue. This is an example of what type of comparison?

Answer 5

Intracompany

Question 6

Comparison of a company’s financial condition and performance to a base amount is an example of what type of analysis?

Answer 6

Vertical analysis

Question 7

Horizontal analysis is the review of financial statement data across time and the term horizontal comes from the _____ movement of our eyes as we review comparative financial statements:

Answer 7

left-to-right

Question 8

A tool used to evaluate individual financial statement items or a group of items is called:

Answer 8

Vertical analysis

Question 9

Comparative financial statements show:

Answer 9

changes in relative importance of each financial statement item

Question 10

A pie chart graphic of a common-size income statement will show:

Answer 10

each cost as a component of net sales.

Question 11

All of the following are one of the building blocks of financial statement analysis except:
solvency
profitability
marketing prospects
liquidity
efficiency

Answer 11

marketing prospects

Question 12

Liquidity is the availability of resources to pay _____________ term cash requirements.

Answer 12

short

Question 13

Current liabilities are greater than the quick assets of the company.

Answer 13

Current liabilities are greater than the quick assets of the company.

Question 14

Which of the following is not a solvency ratio?
Price earnings ratio
Equity ratio
Debt ratio
Debt-to-equity ratio

Answer 14

Price earnings ratio

Question 15

Profitability measures a company’s ability to:

Answer 15

earn an adequate return

Question 16

Current ratio

Answer 16

Liquidity and efficiency

Question 17

Return on equity

Answer 17

Profitability

Question 18

Days’ sales uncollected

Answer 18

Liquidity and efficiency

Question 19

Total asset turnover

Answer 19

Liquidity and efficiency

Question 20

Acid-test ratio

Answer 20

Liquidity and efficiency

Question 21

Dividend yield

Answer 21

Market prospects

Question 22

Return on total assets

Answer 22

Profitability

Question 23

Equity ratio

Answer 23

Solvency

Question 25

Accounts receivable turnover

Answer 25

Liquidity and efficiency

Question 26

Which ratio summarizes the components of Profit Margin and Total Asset Turnover?

Answer 26

Return on total assets Correct

Question 27

What measure reflects the difference between current assets and current liabilities?

Answer 27

Working capital

Question 28

Which of the following short-term liquidity ratios measure how frequently a company collects its accounts?

Answer 28

Day's sales uncollected Account receivable turnover