Chapter 03
Financial Statements Analysis and Long-Term Planning
Multiple Choice Questions
1. One key reason a long-term financial plan is developed is because:
A. the plan determines your financial policy.
B. the plan determines your investment policy.
C. there are direct connections between achievable corporate growth and the financial policy.
D. there is unlimited growth possible in a well-developed financial plan.
E. None of the above.
2. Projected future financial statements are called:
A. plug statements.
B. pro forma statements.
C. reconciled statements.
D. aggregated statements.
E. none of the above.
3. The percentage of sales method:
A. requires that all accounts grow at the same rate.
B. separates accounts that vary with sales and those that do not vary with sales.
C. allows the analyst to calculate how much financing the firm will need to support the predicted sales level.
D. Both A and B.
E. Both B and C.
4. A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.
A. tax reconciliation statement
B. statement of standardization
C. statement of cash flows
D. common-base year statement
E. common-size statement
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Chapter 03 - Financial Statements Analysis and Long-Term Planning
5. Relationships determined from a firm's financial information and used for comparison purposes are known as:
A. financial ratios.
B. comparison statements.
C. dimensional analysis.
D. scenario analysis.
E. solvency analysis.
6. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios.
A. asset management
B. long-term solvency
C. short-term solvency
D. profitability
E. market value
7. The current ratio is measured as:
A. current assets minus current liabilities.
B. current assets divided by current liabilities.
C. current liabilities minus inventory, divided by