Acc411 Finacial Statement Analysis - Test Bank - Ch 5

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CHAPTER 5—BASICS OF ANALYSIS

MULTIPLE CHOICE

1.Statements in which all items are expressed only in relative terms (percentages of a base) are termed: a.Vertical Statements
b.Horizontal Statements
c.Funds Statements
d.Common-Size Statements
e.none of the answers are correct

ANS:DPTS:1

2.In financial statement analysis, ratios are:
a.the only type of analysis where industry data are available b.absolute numbers converted to a common base
c.fractions usually expressed in percent or times
d.the only indication of the financial position of the firm e.none of the answers are correct

ANS:CPTS:1

3.Denver Dynamics has net income of $2,000,000. Oakland Enterprises has net income of $2,500,000. Which of the following best compares the profitability of Denver and Oakland? a.Oakland Enterprises is 25% more profitable than Denver Dynamics. b.Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified. c.Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics. d.Further information is needed for a reasonable comparison. e.Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.

ANS:DPTS:1

4.Which of the following can offer a type of comparison in financial statement analysis? a.past ratios and figures
b.industry averages
c.statistics of competitors
d.all of the answers are correct
e.none of the answers are correct

ANS:DPTS:1

5.Which of the following is not a source of industry statistics? a.Annual Statement Studies
b.Mergent Dividend Record
c.Value Line
d.Standard and Poor's Industry Surveys
e.The FTC Quarterly Report

ANS:BPTS:1

6.Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt. The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2. Which best describes these three numbers? a.One third of each of the companies experienced each of the ratios. b.The average ratio was 1.3. The best firm had 1.6; The worst had 1.2. c.The median was 1.3. 1.6 is the figure for the upper quartile; 1.2 is the figure for the lower quartile. d.The median was 1.3. 1.6 is the figure for the lower quartile; 1.2 is the figure for the upper quartile. e.None of the answers are correct.

ANS:CPTS:1

7.A manufacturing firm will most likely have the heaviest investment in which type of assets? a.cash
b.inventory
c.accounts receivable
d.investments
e.plant, property, and equipment

ANS:EPTS:1

8.A retailing firm has which type of inventory?
a.raw materials
b.work in process
c.merchandise
d.raw materials and merchandise
e.raw materials, work in process, and merchandise

ANS:CPTS:1

9.Which of the following would not be a user of financial statements? a.management
b.bankers
c.employee unions
d.investment analysts
e.all of the answers are correct

ANS:EPTS:1

10.Which of the following is a government document that provides industry statistics? a.The Wall Street Journal
b.Business Week
c.Dun's
d.The Department of Commerce Financial Report
e.Standard and Poor's Industry Survey

ANS:DPTS:1

11.Suppose you are comparing two firms in the steel industry. One firm is large and the other is small. Which type of numbers would be most meaningful for statement analysis? a.Absolute numbers would be most meaningful for both the large and small firm. b.Absolute numbers would be most meaningful in the large firm; relative numbers would be most meaningful in the small firm. c.Relative numbers would be most meaningful for the large firm; absolute numbers would be most meaningful for the small firm. d.Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons. e.It is not meaningful to compare a large firm...
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