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The average number of times a company's inventory is sold during an accountingperiod, calculated by dividing cost of goods sold by the average merchandise inventory balance, is the:


A) Merchandise turnover.
B) Current ratio.
C) Price-earnings ratio.
D) Days' sales uncollected.
E) Accounts receivable turnover.

F) D) and E)
G) A) and E)

Correct Answer

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The price-earnings ratio is calculated by dividing earnings per share by the market price per share.

A) True
B) False

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Liquidity and efficiency are considered to be building blocks of financial statement analysis.

A) True
B) False

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Trend analysis is also called:


A) Financial analysis.
B) Index number analysis.
C) Trend percent analysis and index number analysis.
D) Financial analysis and index number analysis.
E) Trend percent analysis.

F) None of the above
G) B) and C)

Correct Answer

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A high accounts receivable turnover in comparison with competitors suggests that the firm should tighten its credit policy.

A) True
B) False

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The base amount for a common-size balance sheet is usually total assets.

A) True
B) False

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BuyUS Inc. plans to issue 7%, $400,000, 10-year bonds in order to finance anexpansion. The expansion is expected to increase income before interest expense from$100,000 to $175,000. BuyUS has $1,000,000 in average common equity. Calculate the expected return on common shareholders' equity. ignore income taxes)


A) 43.8%.
B) 57.1%.
C) 14.7%.
D) 7.0%.
E) 20.0%.

F) C) and E)
G) C) and D)

Correct Answer

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Profitability is the ability to generate future revenues and meet long-term obligations.

A) True
B) False

Correct Answer

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The common-size percent is calculated by:


A) Dividing the base amount by the analysis amount.
B) Dividing the analysis amount by the base amount and multiplying the result by 100.
C) Dividing the base amount by the analysis amount and multiplying the result by 100.
D) Dividing the analysis amount by the base amount.
E) Subtracting the base amount from the analysis amount and multiplying the result by 100.

F) B) and E)
G) A) and B)

Correct Answer

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Comparative analysis is used to reveal patterns in data covering successive periods.

A) True
B) False

Correct Answer

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Days' sales in inventory:


A) Is the number of days we can sell from inventory if no new items are purchased.
B) Is a ratio that tells us how much inventory a firm has on hand in terms of days' sales.
C) Focuses on ending inventory and is a ratio that tells us how much inventory a firm has on hand in terms of days' sales.
D) Focuses on ending inventory.
E) All of these answers are correct.

F) A) and D)
G) A) and B)

Correct Answer

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Chevron paid $2.10 in common dividends per share. Its earnings per share was $5.40, while its market price was $120 per share. The dividend yield was 38.9%

A) True
B) False

Correct Answer

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Total asset turnover can be calculated regardless of the type of company being evaluated.

A) True
B) False

Correct Answer

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The days' sales uncollected ratio is used to:


A) Measure the amount of layaway sales for a period.
B) Identify the likelihood of collecting sales on account.
C) Estimate how much time is likely to pass before cash receipts from credit sales equal the amount of the existing accounts receivable.
D) Measure how many days of sales remain until the end of the year.
E) Determine the number of days that have passed without collecting on accounts receivable.

F) C) and D)
G) None of the above

Correct Answer

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The days' sales uncollected ratio measures a company's ability to manage its debt.

A) True
B) False

Correct Answer

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Popeye Supply's current ratio is 3 to 1. Its quick ratio is 2 to 1. Popeye Supply is a good credit risk because the ratios reveal no liquidity problem.

A) True
B) False

Correct Answer

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The dividend yield is calculated by:


A) Dividing the market price per share by cash dividends per share.
B) Dividing earnings per share by cash dividends per share.
C) Dividing cash dividends per share by earnings per share.
D) Dividing cash dividends per share by the market price per share.
E) Dividing cash dividends by retained earnings.

F) B) and D)
G) C) and E)

Correct Answer

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Financial statement analysis is the application of analytical tools to general-purpose financial statements and related data for making business decisions.

A) True
B) False

Correct Answer

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A trend percent is calculated by dividing the analysis period amount by the base period amount and multiplying the result by 100.

A) True
B) False

Correct Answer

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The acid-test ratio is current assets divided by current liabilities.

A) True
B) False

Correct Answer

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