(Choose the correct answer. 1 mark is awarded for a correct response while 1.5 is deducted for an incorrect answer) 2. Why is the amount of debt in a companys capital structure important to the financial analysis? b) Debt implies risk b) Debt is less costly than equity c) Equity is riskier than debt d) Debt is equal to total assets 2. Which activity is reflected in the statement in the statement of financial position? a) Operating b) Investing c) Financing d) Investing and financing e) All of the above 3. Which of the following ratios could not be used to measure the extent of a firms debt financing? a) Debt ratio b) Debt to equity c) Times interest earned d) Long term debt to total capitalization 4. Which is a serious limitation of financial ratios? a) Ratios are screening devices b) Ratios can be used only by themselves. c) Ratios indicate weaknesses only d) Ratios are not predictive. 5. What is a common size financial statement? d) Statement based on common sales and judgement. e) Statement that relates the firm to the industry in which it operates. f) Statement that standardizes financial dates in terms of trends. g) Statement that express each account on a statement of financial position as a percentage of total assets and each account on the statements as a percentage of net sales. h) Statement that express each account on a statement of financial position as a percentage of total assets and each account on the income statement as a percentage total sales. 7. What is an investors KEY objective in financial statement analysis? a) To determine if the firm is risky b) To determine the stability of earnings. c) To determine the changes necessary to improve the future performance. d) To determine whether an investment is warranted by estimating a companys future earnings stream. e) All of the above 7. What is the first step in an analysis of financial statement? a) Gather the relevant materials for the analysis b) Specify the objectives of the analysis. c) Do a common size analysis d) Check the auditors report 8. Which of the following is not required to be discussed in the management discussion of analysis of the financial condition and the result of the operations? a) Liquidity b) Capital resources d) Operations d) Earning projections e) All of the above 9. When carrying out profitability analysis the following are looked into except? a) Return on investment b) Operating performance c) Asset utilization d) Liquidity 10. Cash flow analysis is used to arrive at the following except? a) Evaluate sources and uses of funds. b) Obtain how a company acquires and deploying its resources. c) Used in cash flow forecasting d) To gauge the solvency of the organization (Total 25 marks)