Chapter 6 Flashcards
When analyzing financial statements, prognosis is
- the prediction of how many employees will lose their jobs in the coming year
- Identification of the trends in past numbers
- the prediction of business will perform in the future
- the identification of where a business has problems
The prediction of business will perform in the future
Which of the following is one of the purposes of financial statement analysis?
- Prognosis
- diagnosis
- Neither diagnosis nor prognosis
- Both diagnosis and prognosis
Both diagnosis and prognosis
Relationships between financial statement amounts are called
- Liquidity ratios
- Financial statement analysis
- financial ratios
- Dupont ratios
Financial ratios
External users of financial statements use financial statement analysis for
- operating and financing decisions
- Investing decisions
- Financing decisions
- operating investing and financing decisions
Investing decisions
When analyzing financial statements, diagnosis is
- the identification of the trans and future numbers
- the prediction of how business will perform in the future
- the identification of where a business has problems
- the prediction of how many employees will lose their jobs in the coming years
The identification of where our business has problems
Which of the following ratios is calculated using only balance sheet numbers?
- Current ratio
- Asset turnover
- Return on sales
- price earnings ratio
Current ratio
Which of the following ratios is used to measure a firms leverage?
- Current ratio
- Asset turnover
- Return on equity
- Debt ratio
Debt ratio
The ability accompany has to pay its debts in the short run is its
- profitability
- Leverage
- Efficiency
- Liquidity
Liquidity
Which of the following ratios represents an indication of investors expectations concerning a firms growth potential?
- Return on equity
- Asset turnover
- price earnings ratio
- earnings per share
Price earnings ratio
Which of the following ratios represents the proportion of borrowed funds used to acquire companies assets?
- Debt ratio
- Return on sales
- Return on assets
- Current ratio
Debt ratio
In general, most companies have significant noncash expenses that reduce net income, and also caused the cash flow-to-net income ratio to be
- Greater than one
- Equal to one
- Less than one
- None of these are correct
Greater than one
Which cash flow ratio reflects the extent to which accrual accounting adjustments and assumptions have been included in net income
- cash flow-to-net income
- cash flow frequency
- cash flow adequacy
- Cash flow-to-operating profit
Cash flow-to-net income
The following data came from the financial statements of the green company…
Cash for operations $900,000
Cash from investing activities $350,000
Cash from financing activities $220,000
Cash paid for capital expenditures $55,000
Net income $425,000
Compute the cash flow-to-net income ratio
- 2.12
- 16.36
- 4.09
- 2.57
2.12
$900,000 / $425,000 = 2.12
The following data came from the financial statements of the green company…
Cash for operations $900,000
Cash from investing activities $350,000
Cash from financing activities $220,000
Cash paid for capital expenditures $55,000
Net income $425,000
Compute the cash flow adequacy ratio
- 16.36
- 2.57
- 2.12
- 4.09
16.36
$900,000 / $55,000 = 16.36
Which cash flow ratio reflects the companies ability to finance its capital expansion through cash from operations?
- cash flow adequacy
- cash flow to operating profit
- cashflow net income
- cash flow frequency
Cash flow adequacy
