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Question 1

What is the first step in financial analysis?

A

Calculate the current ratio.

B

Isolate potential problems and identify possible solutions.

C

Prepare the financial statements.

D

Learn about the entity itself and its operations.

Question 2

Some asset management ratios include

I.

Inventory turnover

II.

Average accounts receivable

III.

Accounts payable turnover

IV.

Working capital

V.

Number of days of inventory

A

I, II, and V only.

B

I, II, III, and V only.

C

II, III, and V only.

D

I, II, IV, and V only.

Question 3

Derry Company’s beginning inventory was $19,000, and ending inventory was $21,000. Its total cost of sales was $150,000. Using a 365-day year, what is Derry’s inventory turnover?

A

7.5

B

100

C

50

D

365

Question 4

Trading on the equity

A

Is measured by valuation ratios.

B

Means using fixed charge securities to finance assets.

C

Equals total liabilities divided by total equity.

D

Measures the ability of an entity to generate income.

Question 5

Tower Corp. has total assets of $500,000, of which $200,000 are current assets; total liabilities of $300,000, of which $100,000 are current liabilities; and equity of $200,000. What is Tower’s debt ratio?

A

0.5

B

0.6

C

1.5

D

2

Question 6

Ratios that measure an entity’s change in performance are

A

Liquidity ratios.

B

Leverage ratios.

C

Asset management ratios.

D

Profitability ratios.

Question 7

Haven, Inc. has total assets of $5 million and liabilities of $3.5 million. Haven had net sales of $750,000 for the year, and its net profit was $250,000. What is Haven’s profit margin on sales?

A

0.33

B

1.43

C

0.7

D

6.25

Question 8

Book value per share

A

Is market price per common share divided by earnings per share.

B

Is a leverage ratio.

C

Assigns value to an entity based on its value as recorded in its accounting system.

D

Applies to only certain industries.

Question 9

Which of the following is not a limitation of ratio analysis?

A

The incentive to make financial statements appear better than they really are.

B

Inflation.

C

Differences in economies of scale.

D

Liquidity.

Question 10

Horizontal analysis refers to

A

Analysis of several lines across a financial statement.

B

Analysis that makes comparisons between several entities at one point in time.

C

Analysis that compares data over time.

D

Analysis using a base amount.