2006 sales were $200,000, 2007 sales were $220,000, 2008 sales were
$240,000, and 2009 sales were $300,000. 2006 is the base year. Using the
previous information and your knowledge of trend analysis, select the
statement that is false.
The trend analysis % for 2009 is 125%.
Trend analysis is a type of horizontal analysis.
The trend analysis % for 2006 is 100%.
Amounts are always compared to, or divided by, the base year amount.
2007 net sales $200,000; 2007 Cost of Goods Sold $130,000; 2001 operating
expenses $50,000; and 2007 net income $20,000. Use this information and
your knowledge of vertical analysis to select the statement that is false.
On the income statement, all amounts are usually compared to, or divided by, net
sales.
On the balance sheet, all amounts are compared to, or divided by, total liabilities.
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6/11/2014 Multiple Choice Questions
Vertical analysis shows the relative importance of each income statement item.
2007 current assets $100,000; 2007 long-term assets $300,000; 2007 total
liabilities $150,000; and 2007 total shareholders' equity $250,000. Using the
previous information and your knowledge of common-sized statements, select
the statement that is false.
Common-size statements allow companies of different sizes to be more easily
compared.
The common-size % for total liabilities is 37.5%.
if the industry average for cost of goods sold (COGS) is 50% and your company
average is 60%, this would be considered favourable
if the industry average for gross profit is 35% and your company average is 40%,
this would be considered favourable
benchmarking includes comparing one company with the industry average
All of the following statements are true regarding ratios that measure a
company's ability to pay current liabilities except
in most industries, a current ratio of 2.0 is considered adequate
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6/11/2014 Multiple Choice Questions
inventory and prepaid expense are included in the numerator of the current ratio,
but not in the numerator of the acid-test ratio
All of the following statements are true regarding ratios that measure a
company's ability to sell inventory and collect receivables except
an increased accounts receivable turnover ratio indicates an increased ability to
collect cash from credit customers
the formula for the inventory turnover ratio is sales/average inventory
All of the following statements are true regarding ratios that measure a
company's ability to pay short-term and long-term debt except
a debt ratio of 60% indicates 60% of assets are financed with debt
a debt ratio of 90% indicates lower financial risk than a debt ratio of 60%; in
general, lower financial risk results in lower interest rates
a high times-interest-earned ratio indicates a company can pay interest expense
with relative ease
the average debt ratio is between 0.57 and 0.67 according to Robert Morris
Associates
All of the following statements are true regarding ratios that measure a
company's profitability except
return on assets includes interest expense plus net income in the numerator
because these are the returns to the two groups that have financed company
assets
companies strive for a high return on sales
earnings per share is the only ratio that must appear on the face of the income
statement
return on assets (ROA) is usually greater than return on equity (ROE) because
creditors demand a higher return than shareholders
All of the following statements are true regarding ratios that analyze a stock
investment except
in general, an increased price/earnings ratio indicates increased investor
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6/11/2014 Multiple Choice Questions
confidence in the future of the company
many experts argue that book value is the most useful ratio for investment
analysis
two ways for shareholders to earn a return on a share investment are receiving
dividends and selling the stock investment at a gain
shareholders who invest primarily to receive dividends pay special attention to the
dividend yield ratio
75%
1.01
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6/11/2014 Multiple Choice Questions
Some questions in this exercise may have more than one correct answer. To answer such questions
correctly, you must select all the correct answers. Also note that answer choices in this exercise appear in a
different order each time the page is loaded.
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