Financial statement analysis is only used to determine whether a company is worth investing in.

Question 1 options:

TrueFalse

Question 2(1 point)

Information about the significant accounting policies of an entity is not necessary because GAAP prescribes uniform accounting treatment of all items, and it is widely understood

Question 2 options:

TrueFalse

Question 3(1 point)

A statement of accounting policies must be included in the annual financial statements

Question 3 options:

TrueFalse

Question 4(1 point)

a primary reason for the analysis of financial statements is identification of major changes and to provide relative relationships among dollar amounts.

Question 4 options:

TrueFalse

Question 5(1 point)

Solvency ratios are an indication of a company's long term viability.

Question 5 options:

TrueFalse

Question 6(1 point)

Creditors would be most interested in a company's liquidity and solvency

Question 6 options:

TrueFalse

Question 7(1 point)

For both the accounts receivable turnover and the inventory turnover ratios, the numerator of the fraction is credit sales

Question 7 options:

TrueFalse

Question 8(1 point)

Profit margin on sales is very relevant for purposes of comparison, both between periods and between similar companies

Question 8 options:

TrueFalse

Question 9(1 point)

Return on total assets and return on owners' equity are used to compute financial leverage

Question 9 options:

TrueFalse

Question 10(1 point)

A company which offers "n/30" credit terms would be expected to have a receivable turnover of about 12 times a year.

Question 10 options:

TrueFalse

Question 11(1 point)

A company may decide not to follow GAAP if it does not present them in a favourable position

Question 11 options:

TrueFalse

Question 12(1 point)

Liquidity ratios essentially provide information about a company's ability to meet its short term obligations, while solvency ratios evaluate a company's long-term going-concern potential

Question 12 options:

TrueFalse

Question 13(1 point)

The current ratio is a measure of the adequacy of a company's working capital

Question 13 options:

TrueFalse

Question 14(1 point)

To apply a vertical analysis to the balance sheet, the base amount usually selected is:

Question 14 options:

total assets

total liabilities

total shareholders' equity

total revenues

Question 15(1 point)

Which of the following ratios is an indicator of liquidity?

Question 15 options:

inventory turnover ratio

The Current ratio

debt to total assets ratio

age of receivables ratio

Question 16(1 point)

All of the following are examples of lending decisions except:

Question 16 options:

accepting employment

finance and takeover of another corporation

buy corporate bonds on the open market

extend normal credit terms

Question 17(1 point)

Horizontal analysis

Question 17 options:

involves the expression of each item on a particular period's financial statements as a percent of one specific item which is referred to as a base

is useful for balance sheet but not for income statement

is exactly the same as "vertical analysis"

refers to the development of percentages indicating the proportionate change in the same item over time

Question 18(1 point)

Quick assets, as usually defined, include:

Question 18 options:

cash only.

cash, accounts receivable, short term investment in marketable securities, and inventories.

cash, accounts receivable, short-term investment in marketable securities, only.

cash and accounts receivable only.

Question 19(1 point)

Which of the following represent situations where financial statements should be recast?

Question 19 options:

All of these

Interest expense is removed from net income

Amortization or depreciation is removed yielding earnings before interest taxes and depreciation

Income statement and balance sheet are revised to reflect a different capitalization policy

Question 20(1 point)

Which of the following is not known as a solvency ratio?

Question 20 options:

Debt to total assets

Times interest earned

Debt-to-equity

Defensive interval ratio