Multiple Choice Questions 1 Common size analysis is based on the preparation of common size financial statements, i e , a balance sheet presented in percentage of a base figure (indexed as 100) What is generally the base used for analyzing the statement of financial position balance sheet (a) Net i...

1 c Total assets 2 a Working capital Working capital need Net cash 3 a Shareholders equity a ...

Multiple Choice Questions 1. Common-size analysis is based on the preparation of common-size financial statements, i.e., a

Question:

Multiple Choice Questions
1. Common-size analysis is based on the preparation of common-size financial statements, i.e., a presented in percentage of a base figure (indexed as 100). What is generally the base used for analyzing the statement of financial position/balance sheet?
(a) Net income
(b) Net sales
(c) Total assets
(d) Total liabilities
(e) None of these
2. Which of the following relations is correct?
(a) Working capital €“ Working capital need = Net cash
(b) Working capital/Working capital need = Net cash
(c) Working capital Ã— Working capital need = Net cash
(d) Working capital Ã¾ Working capital need = Net cash
3. How is the working capital calculated?
(a) Shareholders€™ equity and long-term debts €“ Fixed assets
(b) Shareholders€™ equity and long-term debts + Fixed assets
(c) Fixed assets + Current assets
(d) Fixed assets €“ Current assets
4. How is the working capital need calculated?
(a) Working capital €“ Current assets (except cash)
(b) Current assets (except cash) €“ Current liabilities
(c) Long-term debt €“ Current liabilities
(d) Fixed assets €“ Current assets (except cash)
5 How is the net cash calculated?
(a) Bank borrowings + Bank overdrafts
(b) Bank borrowings + Bank overdrafts €“ Positive cash and cash equivalents
(c) Positive cash and cash equivalents €“ Bank overdrafts
(d) Fixed assets €“ Bank borrowings + Positive cash and cash equivalents
6. If you are looking at the of a manufacturing company with negative net cash, which of the following types of financial structure would you generally expect to find?
(WC = Working capital, WCN = Working capital need, NC = Net cash)
(a)

(b)

(c)

(d)

7. Which approach gives an indication of the financial short-term solidity of an entity and its state of health?
(a) The approach that considers the equation: Working capital = Shareholders€™ equity + Long-term debts €“ Fixed assets
(b) The approach that considers the equation: Working capital = Cash + Receivables + Inventories €“ Short-term liabilities
8. A positive working capital need is typical of a firm operating in the distribution sector
(a) True
(b) False
9. The cash equation and the three related concepts (working capital, working capital need and net cash) can be computed only if the balance sheet is presented by term (and not by nature).
(a) True
(b) False
10. If the balance sheet is presented by term in a decreasing format, the cash equation and the three related concepts (working capital, working capital need and net cash) cannot be computed.
(a) True
(b) False

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