Financial Statement Analysis & Understanding Financials
Financial Statement Analysis & Understanding Financials
- 1.Tick the correct answer: A firm has a higher quick (or acid test) ratio than the industry average, which implies ___________________.
- A.
The firm has a higher P/E ratio than other firms in the industry
- B.
The firm is more likely to avoid insolvency in short run than other firms in the industry
- C.
The firm may be less profitable than other firms in the industry
- D.
A and B
- E.
B and C
- 2.Tick the correct answer: A firm has a lower quick (or acid test) ratio than the industry average, which implies _________________.
- A.
The firm has a lower P/E ratio than other firms in the industry
- B.
The firm is less likely to avoid insolvency in short run than other firms in the industry
- C.
The firm may be more profitable than other firms in the industry
- D.
B and C
- E.
A and B
- 3.State True or False: Internal users use the financial statements for Planning, Evaluation, promotion and controlling business operations.
- A.
True
- B.
False
- 4.State True or False: External users uses the financial statement for Assessing past performance and current financial position and making predictions about the future profitability and solvency of the company as well as evaluating the effectiveness of management.
- A.
True
- B.
False
- 5.State True or False: Income Statement- A summary of a firm’s financial position on a given date that shows total assets = total liabilities + owners’ equity.
- A.
True
- B.
False
- 6.State True or False: Balance Sheet- A summary of a firm’s revenues and expenses over a specified period, ending with net income or loss for the period.
- A.
True
- B.
False
- 7.State True or False: Statement of Retained Earnings: A statement of all transactions affecting the balance of a company's retained earnings account.
- A.
True
- B.
False
- 8.State True or False: Annual Report: Yearly record of a publicly held company's financial condition. It includes a description of the firm's operations, as well as balance sheet, income statement, and cash flow statement information. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.
- A.
True
- B.
False
- 9.State True or False: Ratio analysis of a firm’s financial statements is of interest to shareholders, creditors, and the firm’s management. Stockholders are interested in the firm’s current and future level of risk and return, which directly affect the stock price.
- A.
True
- B.
False
- 10.State True or False: Liquidity Ratios: Indicator of short-term debt-paying ability. Determined by dividing current assets by current liabilities. The higher the ratio, the more liquid the company.
- A.
True
- B.
False
- 11.State True or False: Current Ratio: Ratios that measure a firm's ability to meet its short-term financial obligations on time.
- A.
True
- B.
False
- 12.Tick the correct answer: An example of a liquidity ratio is _____________.
- A.
Fixed Asset Turnover
- B.
Current Ratio
- C.
Acid Test or Quick Ratio
- D.
A and C
- E.
B and C
- 13.Tick the correct answer: ____________ provides a snapshot of the financial condition of the firm at a particular time.
- A.
The balance sheet
- B.
The statement of cash flows
- C.
The income statement
- D.
All of these
- E.
None of these
- 14.Tick the correct answer: __________ is a report of the cash flow generated by the firm's operations, investments and financial activities.
- A.
The balance sheet
- B.
The statement of cash flows
- C.
The income statement
- D.
The auditor's statement of financial condition
- E.
None of these
- 15.Tick the correct answer: A firm has a higher asset turnover ratio than the industry average, which implies ______________.
- A.
The firm has a higher P/E ratio than other firms in the industry
- B.
The firm is more likely to avoid insolvency in the short run than other firms in the industry
- C.
The firm is more profitable than other firms in the industry
- D.
The firm is utilizing assets more efficiently than other firms in the industry
- E.
The firm has higher spending on new fixed assets than other firms in the industry
- 16.Tick the correct answer: A firm has a lower asset turnover ratio than the industry average, which implies ________________.
- A.
The firm has a lower P/E ratio than other firms in the industry
- B.
The firm is less likely to avoid insolvency in the short run than other firms in the industry
- C.
The firm is less profitable than other firms in the industry
- D.
The firm is utilizing assets less efficiently than other firms in the industry
- E.
The firm has lower spending on new fixed assets than other firms in the industry
- 17.Tick the correct answer: If you wish to compute economic earnings and are trying to decide how to account for inventory, ______________.
- A.
FIFO is better than LIFO
- B.
LIFO is better than FIFO
- C.
FIFO and LIFO are equally good
- D.
FIFO and LIFO are equally bad
- E.
None of these
- 18.Tick the correct answer: ____________ is a summary of the profitability of the firm over a period of time such as a year.
- A.
The balance sheet
- B.
The income statement
- C.
The statement of cash flows
- D.
The audit report
- E.
None of these
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