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Exam 14: Financial Statement Analysis Available Online in Connect

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Question 61

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Two ratios that provide insight on the relationship between credit sales and receivables are:

A) Current ratio and inventory turnover ratio.
B) Accounts receivable turnover and average days to collect receivables.
C) Average days to collect receivables and asset turnover.
D) Accounts receivable turnover and current ratio.

E) B) and D)
F) None of the above

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Question 62

True/False

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Indicate whether each of the following statements about financial statement analysis is true or false.________ a)The value of a corporation's price-earnings ratio indicates how optimistic investors are about a company's growth potential.________ b)The dividend yield ratio indicates the percentage of a company's net income that it paid out in dividends.________ c)Conservatism produces a positive bias in a company's financial statements and thus in the ratios calculated from the financial statements.________ d)Changes in general economic conditions (such as rate of inflation)can cause the values for a company's financial statement ratios to change from one year to the next.________ e)Comparing financial statement ratios of companies in different industries can give misleading results.

A) True
B) False

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Question 63

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Solvency ratios are used to analyze the long-term debt-paying ability and the composition of the financing structure of the firm.

Milton Company has total current assets of $46,000, including inventory of $10,000, and current liabilities of $20,000. The company's current ratio is:

Which of the following is not included in the computation of the quick ratio?

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000 net credit sales of $1,300,000, beginning accounts receivable of $65,000 and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover?

If a company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank. Immediately after this transaction what is the expected impact on the components of the current ratio?

Which ratio measures how effectively a company is using assets to generate revenue?

Dennis Company reported net income of $50,000 on sales of $300,000. The company has average total assets of $500,000 and average total liabilities of $100,000. What is the company's return on equity ratio?

An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:

You are considering an investment in IBM stock and wish to assess the firm's long-term debt-paying ability and its use of debt financing. All of the following ratios can be used to assess solvency except:

Crestar Company reported net income of $87,400 on 18,000 average outstanding common shares. Preferred dividends total $11,800. On the most recent trading day, the preferred shares sold at $48 and the common shares sold at $78. What is this company's current price-earnings ratio? (Do not round your intermediate calculations.)

The following balance sheet information was provided by O'Connor Company: If net credit sales for Year 2 totaled $149,000, what is the company's most recent accounts receivable turnover?

Vertical analysis always involves comparing financial statement elements over a span of time.

Which of the following statements regarding ratio analysis is not true?

The following balance sheet information is provided for Duke Company for Year 2: What is the company's current ratio? (Round your answer to 2 decimal places.)

Select the term from the list provided that best matches each of the following descriptions or definitions:

The following balance sheet information is provided for Santana Company for Year 2: What is the company's debt to equity ratio? (Rounded to nearest whole percent.)

Rialto Company collected $5,000 on account. What impact will this transaction have on the firm's current ratio?

Which of the following statements is true?