1. In conducting a common-size income statement analysis, every income statement account is divided by

__________

1. its corresponding base year balance sheet item.
2. its corresponding base year income statement item.
3. net sales or revenues.
4. total liabilities and equity.
5. total liabilities.
6. None of the above.

1. In conducting a common-size balance sheet analysis, every account on the balance sheet is divided by

__________

1. its corresponding base year balance sheet item.
2. total assets minus current assets.
3. net sales or revenues.
4. total liabilities.
5. total liabilities and equity.
6. None of the above.

1. The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n)
   1. accrued expense.
   2. account receivable.
   3. account payable.
   4. sales revenue.
   5. operating expense.
   6. None of the above.

1. Which group of ratios measure a firm's ability to meet short-term obligations? a.Liquidity ratios.
   1. Debt ratios.
   2. Coverage ratios.
   3. Profitability ratios.
   4. Activity ratios.
   5. None of the above.

1. Which group of ratios measure how effectively the firm is using its assets? a.Liquidity ratios.
   1. Debt ratios.
   2. Coverage ratios.
   3. Profitability ratios.
   4. Activity ratios.
2. Assume that for a given firm, the gross profit margin in 2021 was equal to the gross profit margin in 2020, but the net profit margin in 2021 was greater than the net profit margin in 2020. This could have happened if __________.
   1. The company's cost of goods sold increased in 2021 relative to sales.
   2. The company's sales increased in 2021 relative to COGS.
   3. The company decreased dividends paid to common stockholders in 2021.
   4. The company increased the number of shares of common stock outstanding in 2021.
   5. The U.S. Congress decreased the tax rate in 2021.
   6. None of the above.

1. Which of the following would increase a company's current ratio (note: assume that the company's current ratio is presently equal to 2.0)? Choose ALL that apply (this is an all or nothing question - you must correctly choose all correct answers to receive any credit for this question).
   1. Increase notes payable (i.e., borrow short term) to finance additional fixed assets.
   2. Issue long-term debt to buy inventory.
   3. Sell common stock to pay off the company's long-term loan balance.
   4. Sell fixed assets to reduce accounts payable.
   5. Implement a "just-in-time" inventory policy that reduces the company's average inventory balance by 50 percent. The reduction in inventory will be matched with an equal decrease in accounts payable.
   6. An increase in annual sales that increases the company's accounts receivable balance. This increase in accounts receivable will be matched by an equal increase in notes payable.

1. Which of the following ratios is considered a profitability measure?
   1. Inventory turnover ratio.
   2. Net profit margin.
   3. Price-earnings ratio.
   4. Cash conversion period.
   5. Return on Inventory (ROIN).
   6. Debt ratio (D/A).

1. Crimpton, Inc. had a current ratio of 2.0 at the end of 2019. Current assets and current liabilities increased by equal amounts during 2020. The effects on net working capital and on the current ratio, respectively, were: a.no effect; decrease.
   1. no effect; increase.
   2. increase; increase.
   3. decrease; decrease.
   4. None of the combinations listed above are always correct.

1. Which of the following steps is most likely to decrease a company's cash conversion cycle (assume that none of the following actions has any impact on sales or COGS)? Note: there more be more than one answer for this question - record the letter of all that apply (this is an all or nothing answer).
2. Change its receivables policy from net 45 to net 30 (note that this action will decrease the firm's average collection period from 45 days to 30 days).
3. Change its payables policy to pay bills in 40 days instead of in 30 days.
4. Decrease the inventory conversion period from 50 days to 40 days.
5. Reduce the firm's notes payable (i.e., bank loan) balance by 20%.
6. None of the actions listed above will decrease the firm's cash conversion cycle.