Chapter 16-Financial Statement Analysis: Multiple Choice

Chapter 16—Financial Statement Analysis
MULTIPLE CHOICE
1. The two major techniques for financial analysis are

a. horizontal analysis and circular analysis.
b. receivable analysis and profitability analysis.
c. vertical analysis and budget analysis.
d. common-size analysis and ratio analysis.
ANS: D PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 16-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: FSA | ACBSP: APC-23-Financial Statement Analysis
KEY: Bloom's: Knowledge NOT: 2 min.
2. Horizontal analysis is also known as

a. linear analysis.
b. vertical analysis.
c. trend analysis.
d. budget analysis.
ANS: C PTS: 1 DIF: Difficulty: Easy
3. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of
time
a. that has been arranged from the highest amount to the lowest amount.
b. that has been arranged from lowest amount to the highest amount.
c. to determine which items are in error.
d. to determine the amount and/or percentage increase or decrease that has taken place.
4. In horizontal analysis, each item is expressed as a percentage of the

a. retained earnings figure.
b. total assets figure.
c. net income figure.
d. base year figure.
5. In vertical analysis, line items on the balance sheet are generally expressed as a percentage of
a. total liabilities.
b. net income.
c. total assets.
d. cost of goods sold.
6. In vertical analysis, line items on the income statement are generally expressed as a percentage of
a. net income.
b. net sales.
c. cost of goods sold.
d. total assets.
ANS: B PTS: 1 DIF: Difficulty: Easy
7. Vertical analysis is a technique that expresses each item in a financial statement

a. in dollars and cents.
b. as a percent of the item in the previous year.
c. as a percent of a base amount.
d. starting with the highest value down to the lowest value.
8. In vertical analysis
a. a base amount is required.
b. a base amount is optional.
c. the same base is used across all financial statements analyzed.
d. the results of the horizontal analysis are necessary inputs for performing the analysis.
ANS: A PTS: 1 DIF: Difficulty: Easy
9. The type of analysis that is concerned with the relationships among the components of the financial
statements is to prepare a
a. vertical analysis.
b. trend analysis.
c. profitability analysis.
d. ratio analysis.
KEY: Bloom's: Comprehension NOT: 2 min.
10. Horizontal analysis is analysis

a. of percentage changes over several years.
b. in which all items are presented as a percentage of one selected item on a financial
statement.
c. in which a statistic is calculated for the relationship between two items on a single
financial statement or for two items on different financial statements.
d. of all ratios that increased or decreased over past accounting periods.
11. Trend analysis is analysis

a. of percentage changes over several years.
b. in which all items are presented as a percentage of one selected item on a financial
statement.
c. in which a statistic is calculated for the relationship between tow items on a single
financial statement or for two items on different financial statements.
d. of all ratios that increased or decreased over past accounting periods.
12. If year one equals $800,000, year two equals $840,000, and year three equals $896,000, the percentage
to be assigned for year three in a trend analysis, assuming that year 1 is the base year, is
a. 100%.
b. 89%.
c. 105%.
d. 112%.
KEY: Bloom's: Application NOT: 2 min.
13. Assume the following sales data for a company:
2014 $1,000,000
2013 900,000
2012 750,000
2008 500,000
If 2008 is the base year, what is the percentage increase in sales from 2008 to 2012?
a. 100%
b. 180%
c. 50%
d. 55.5%
14. Which one of the following is not a characteristic generally evaluated in ratio analysis?
a. liquidity
b. profitability
c. leverage
d. marketability
15. Many industrial averages and figures are published in the each of the following except?
a. Key Business Ratios, Dun and Bradstreet
b. The Almanac of Business and Industrial Financial Ratios, Prentice-Hall
c. Annual Random Studies, Robert Morris Associates
d. Standard and Poor's Industry Survey, Standard & Poor's
e. Dow Jones-Irwin Business and Investment Almanac, Dow Jones-Irwin
ANS: C
Industrial Averages and/or figures are found in Annual Statement Studies by Robert Morris Associates.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 16-2

NAT: BUSPROG: Analytic
16. For meaningful analysis, ratios are best compared with

a. historical company averages.
b. industrial averages.
c. historical and industrial averages.
d. no standard.
17. Short-term creditors are usually most interested in assessing

a. leverage.
b. liquidity.
c. marketability.
d. profitability.
ANS: B PTS: 1 DIF: Difficulty: Moderate
18. A common measure of liquidity is

a. return on total assets.
b. accounts receivable turnover.
c. return on sales.
d. debt to equity ratio.
19. The current ratio is a

a. liquidity ratio.
b. profitability ratio.
c. leverage ratio.
d. cash flow ratio.
20. The quick ratio

a. is used to quickly determine a company's leverage and long-term debt-paying ability.
b. relates cash, marketable securities, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from the balance
sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.
21. The accounts receivable turnover and inventory turnover ratios are used to analyze
a. long-term debt-paying ability.
b. profitability.
c. leverage.
d. liquidity.
22. A high accounts receivable turnover ratio indicates

a. customers are making payments quickly.
b. a large portion of the company's sales are on credit.
c. many customers are not paying their receivables.
d. the company's sales have increased.
ANS: A PTS: 1 DIF: Difficulty: Moderate
23. Which one of the following would not be considered a liquidity ratio?
a. current ratio
b. inventory turnover ratio
c. quick ratio
d. return on total assets ratio
24. The ratios that are used to determine a company's short-term debt paying ability are
a. asset turnover, times interest earned, current ratio, and account receivable turnover.
b. times interest earned, inventory turnover, current ratio, and accounts receivable turnover.
c. times interest earned, quick ratio, current ratio, and inventory turnover.
d. current ratio, quick ratio, accounts receivable turnover, and inventory turnover.
ANS: D PTS: 1 DIF: Difficulty: Moderate
25. Swanson Company had $250,000 of current assets and $90,000 of current liabilities before borrowing
$60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have
on Swanson Company's current ratio?
a. The ratio remained unchanged.
b. The change in the current ratio cannot be determined.
c. The ratio decreased.
d. The ratio increased.
ANS: C PTS: 1 DIF: Difficulty: Moderate
26. If equal amounts are added to the numerator and the denominator of a current ratio equal to one, the
ratio will
a. increase.
b. decrease.
c. remain the same.
d. equal zero.
27. The quick ratio

a. does not include inventory as part of the numerator.
b. does not include all current liabilities in the calculation.
c. is a quick calculation of an approximation of the current ratio.
d. includes prepaid expenses as part of the numerator.
28. The inventory turnover is calculated by dividing

a. cost of goods sold by the ending inventory.
b. cost of goods sold by the beginning inventory.
c. cost of goods sold by the average inventory.
d. average inventory by cost of goods sold.
29. A successful grocery store would probably have

a. a low inventory turnover.
b. a high inventory turnover.
c. zero profit margin.
d. low volume.
30. An aircraft company would most likely have

a. a high inventory turnover.
b. a low profit margin.
c. high volume.
d. a low inventory turnover.
31. Which of the following is an example of liquidity analysis?

a. Bonds payable are divided by total liabilities and stockholders' equity.
b. Current assets are divided by current liabilities.
c. Net income is divided by the number of shares of stock outstanding.
d. Net income is divided by total assets.
32. Which of the following is considered a liquidity analysis ratio?

a. return on total assets ratio
b. quick ratio
c. dividend yield ratio
d. return on sales ratio
33. The Gift Shoppe's inventory turned over five times during the year. Similar gift shops have an
inventory turnover equal to ten times per year. What explains the Gift Shoppe's inventory
management?
a. The Gift Shoppe sold too much inventory during the year.
b. The Gift Shoppe needs to increase sales and decrease the amount of goods on hand.
c. The Gift Shoppe is performing twice as well as it competitors.
d. The Gift Shoppe should increase the amount of goods on hand to accommodate the
additional inventory demand.
34. The quick ratio differs from the current ratio in that it
a. represents the amount of cash on hand instead of the amount of working capital.
b. is a stricter test of a company's ability to pay its current debts as they are due.
c. excludes inventories and accounts receivable from the numerator of the fraction because
of obsolescence and possible default on payment.
d. is more difficult to calculate.
35. Which of the following formulas would be used to determine the inventory turnover ratio?
a. Net credit sales/Average inventory
b. Average inventory/Net credit sales
c. Cost of goods sold/Average inventory
d. Average inventory/Cost of goods sold
36. Toller Drug Store had net credit sales of $6,000,000 and cost of goods sold of $2,000,000 for the year.
The Accounts Receivable balances at the beginning and end of the year were $350,000 and $250,000,
respectively. The accounts receivable turnover ratio was
a. 17.1 times.
b. 10.0 times.
c. 13.3 times.
d. 20.0 times.
37. The Grand Department Store had net credit sales of $12,000,000 and cost of goods sold of $8,000,000
for the year. The average inventory for the year amounted to $1,600,000.
The inventory turnover ratio for the year is

a. 4.0 times.
b. 7.2 times.
c. 5.0 times.
d. 2.5 times.
38. A company has an account receivable turnover ratio of 6. The average accounts receivable during the
period are $350,000. What is the amount of net sales for the period?
a. $350,000
b. $2,100,000
c. $58,333
d. Cannot be determined from the information given.
39. If the accounts receivable turnover is 42 days, what is the account receivable turnover ratio (assuming
a 365 day year)?
a. 7.14 times
b. 8.69 times
c. 4.52 times
d. None of these
40. Dartmouth Company has a quick ratio of 2.5 to 1. It has current liabilities of $40,000 and noncurrent
assets of $70,000. If Dartmouth's current ratio is 3.1 to 1, its inventory and prepaid expenses must be
a. $12,400.
b. $24,000.
c. $30,000.
d. $40,000.
ANS: B
= $24,000
100,000 = cash + securities + receivables {2.5 = (cash + securities + receivables)/$40,000}

124,000 = current assets {3.1 = current assets/$40,000}
Current Assets = (cash + securities receivables) + (Inventory + prepaid)

$124,000 = 100,000 + ?
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 16-3

41. Eagle Company has $9,000 in cash, $11,000 in marketable securities, $26,000 in current receivables,
$34,000 in inventories, and $40,000 in current liabilities. The company's quick ratio is closest to
a. 1.35.
b. 1.15.
c. 2.00.
d. 1.73.
42. Siri Company has $20,000 in cash, $8,000 in marketable securities, $36,000 in current receivables,
$18,000 in inventories, and $68,000 in current liabilities. The company's quick ratio is closest to
a. .94.
b. .41.
c. 1.88.
d. 1.21.
43. Phillips Company had $300,000 in sales on account last year. The beginning accounts receivable
balance was $25,000 and the ending accounts receivable balance was $18,000. The company's
accounts receivable turnover ratio was closest to
a. 16.67.
b. 12.00.
c. 3.85.
d. 13.95.
44. Miller Company had $120,000 in sales on account last year. The beginning accounts receivable
balance was $8,000 and the ending accounts receivable balance was $14,000. The company's accounts
receivable turnover ratio was closest to
a. 5.45.
b. 8.57.
c. 10.91.
d. 15.00.
45. Arnold Company had $650,000 in sales on account last year. The beginning accounts receivable
balance was $24,000 and the ending accounts receivable balance was $36,000. The company's
accounts receivable turnover ratio was closest to
a. 21.67.
b. 10.83.
c. 27.08.
d. 18.06.
46. Kringle Company, a retailer, had cost of goods sold of $1,400,000 last year. The beginning inventory
balance was $125,000 and the ending inventory balance was $142,000. The company's inventory
turnover ratio was closest to
a. 10.49.
b. 5.24.
c. 11.20.
d. 9.86.
47. Lost Shoe Company, a retailer, had cost of goods sold of $220,000 last year. The beginning inventory
balance was $30,000 and the ending inventory balance was $21,000. The company's inventory
turnover ratio was closest to
a. 10.48.
b. 7.33.
c. 4.31.
d. 8.63.
48. Jackson Company, a retailer, had cost of goods sold of $140,000 last year. The beginning inventory
balance was $8,000 and the ending inventory balance was $11,000. The company's inventory turnover
ratio was closest to
a. 12.73.
b. 14.73.
c. 7.37.
d. 17.50.
49. Lisa's Dress Company, a retailer, had cost of goods sold of $180,000 last year. The beginning
inventory balance was $13,000 and the ending inventory balance was $18,000. The company's average
inventory turnover in days was closest to
a. 36.50 days.
b. 26.36 days.
c. 31.43 days.
d. 62.86 days.
50. Mike’s Sportswear Company, a retailer, had cost of goods sold of $420,000 last year. The beginning
inventory balance was $31,000 and the ending inventory balance was $28,000. The company's average
inventory turnover in days was closest to
a. 25.64 days.
b. 51.27 days.
c. 26.94 days.
d. 24.33 days.
51. The following information pertains to Barkley Company.:
Merchandise purchased $1,800,000

Cost of goods sold $2,000,000
Inventory at the end of the year $ 400,000
The inventory turnover ratio for the year was

a. 10.
b. 5.
c. 4.
d. 3.6.
ANS: C
4 = $2,000,000/$500,000
Calculate Beginning Inventory = 1,800,000 + 2,000,000 + 400,000 = 600,000

Average Inventory (600,000 + 400,000)/2 = 500,000

52. A liquidity ratio measures the
a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its obligations and to meet unexpected needs for
cash.
d. number of times interest is earned.
53. Parr Hardware Store had net credit sales of $5,200,000 and cost of goods sold of $4,000,000 for the
year. The Accounts Receivable balances at the beginning and end of the year were $600,000 and
$700,000, respectively. The accounts receivables turnover was
a. 7.4 times.
b. 8.7 times.
c. 6.2 times.
d. 8 times.
54. The current assets of Caitlin Company are $360,000. The current liabilities are $240,000. The current
ratio is
a. 1.25.
b. 1.50.
c. 0.67.
d. cannot be determined from the information provided.
55. If a company has an acid-test ratio of 1.2, what respective effects will the borrowing of cash by short-
term debt and the collection of accounts receivable have on the ratio?
Short-term Collection of
Borrowing Receivable
a. Increase No effect
b. Increase Increase
c. Decrease No effect
d. Decrease Decrease
56. A company has a receivables turnover of 15 times. The average net receivables during the period are
$430,000. What is the amount of net credit sales for the period?
a. $430,000
b. $6,450,000
c. $6,000,000
d. $500,000
57. A company has an average inventory on hand of $100,000 and the days in inventory are 73 days. What
is the cost of goods sold?
a. $500,000
b. $7,300,000
c. $1,000,000
d. $3,650,000
ANS: A
Supporting calculations:
365/73 = 5
5 x $100,000 = $500,000

58. Which one of the following would be considered a leverage ratio?

a. accounts receivable turnover
b. return on total assets
c. quick ratio
d. debt ratio
59. Grant Company reported the following on its income statement:
Income before income taxes $420,000

Income tax expense 120,000
Net income $300,000
An analysis of the income statement revealed that interest expense was $60,000. Grant Company's
times-interest-earned ratio was
a. 8.
b. 7.
c. 6.
d. 5.
60. Last year Neil Company had a net income of $170,000, income tax expense of $37,000, and interest
expense of $24,000. The company's times-interest-earned ratio was closest to
a. 8.63.
b. 7.08.
c. 9.63.
d. 6.24.
61. Last year Fuller Company had a net income of $410,000, income tax expense of $50,000, and interest
expense of $34,000. The company's times-interest-earned ratio was closest to
a. 12.06.
b. 9.88.
c. 14.53.
d. 13.53.
62. Cottle Company has total assets of $180,000 and total liabilities of $54,000. The company's debt-to-
equity ratio is closest to
a. 0.32.
b. 2.3.
c. 0.30.
d. 0.43.
ANS: D
.43 = 54,000/126,000
Assets  Liabilities = Equity

$180,000  $54,000 = $126,000

63. Opis Company has total assets of $475,000 and total liabilities of $130,000. The company's debt-to-
equity ratio is closest to
a. 0.32.
b. 0.21.
c. 0.38.
d. 0.27.
ANS: C
0.38 = $130,000/$345,000
Assets  Liabilities = Equity

$475,000  $130,000 = $345,000

64. Holt Company reported the following on its income statement:
Income before income taxes $420,000

Income tax expense 120,000
Net income $300,000
An analysis of the income statement revealed that interest expense was $52,500. Holt Company's
times-interest-earned ratio was
a. 9.
b. 8.
c. 7.
d. 6.
65. Presented below are selected data from the financial statements of Russell Corp. for 2014 and 2013.
2014 2013
Net income $100,000 $123,000
Cash dividends paid on preferred stock $12,000 $15,000
Cash dividends paid on common stock $42,000 $38,000
Weighted average number of common shares outstanding $105,000 $95,000
Earnings per share is reported on the 2014 income statement as

a. $ 0.44.
b. $ 0.55.
c. $ 0.84.
d. $ 0.95.
ANS: C
Earnings per share = (Net Income  Preferred Dividends)/Average Common Shares
EPS = ($100,000  $12,000)/105000 = 0.84

66. Presented below are selected data from the financial statements of Korn Corp. for 2014 and 2013.
2014 2013
Net income $100,000 $123,000
Weighted average number of common shares outstanding 105,000 95,000
Market price per share of common stock at the end of the year $12.00 $10.00
Earnings per share $ 2.00 $ 1.83
The price-earnings ratio for 2014 is

a. 1.09.
b. 5.46.
c. 6.0.
d. 11.0.
67. Presented below are selected data from the financial statements of DeBruce Corp. for 2014 and 2013.
2014 2013
Net income $110,000 $123,000
Cash dividends paid on common stock $ 42,000 $ 38,000
Market price per share of common stock at the end of the year $16.00 $13.00
Earnings per share $ 0.84 $ 0.74
Shares of common stock outstanding 140,000 100,000
The dividend payout ratio for 2014 is

a. 0.382.
b. 0.05.
c. 0.28.
d. 0.50.
Figure 16-1.
Starbuck Corporation had net income of $250,000 and paid dividends to common stockholders of
$50,000 in 2013. The weighted average number of shares outstanding in 2013 was 50,000 shares.
Starbuck Corporation's common stock is selling for $40 per share on the New York Stock Exchange.
68. Refer to Figure 16-1. Starbuck's price-earnings ratio is
a. 2.
b. 5.
c. 10.
d. 8.
69. Refer to Figure 16-1. Starbuck's dividend payout ratio for 2013 is
a. $5 per share.
b. 0.25.
c. 0.20.
d. 0.125.
70. Goslier Company's net income last year was $130,000. The company paid preferred dividends of
$42,000 and its average common stockholders' equity was $610,000. The company's return on
common stockholders' equity for the year was closest to
a. 15.8%.
b. 28.1%.
c. 21.3%.
d. 14.4%.
71. Fastlane Company has 50,000 shares of common stock and 20,000 shares of preferred stock
outstanding. There was no change in the number of common or preferred shares outstanding during the
year. Preferred stockholders received dividends this year totaling $120,000. Common stockholders
received dividends totaling $200,000. If the dividend payout ratio for the year was 80%, then the net
income was
a. $400,000.
b. $370,000.
c. $160,000.
d. $250,000.
72. The following data have been taken from your company's financial records for the current year:
Earnings per share $ 4.50

Market price per share $46.00
Dividend per share $ 3.00
Book value per share $31.00
The price-earnings ratio is

a. 10.2.
b. 6.9.
c. 1.5.
d. 15.3.
73. Last year the return on total assets in Justin Company was 8.5%. The total assets were $2,900,000 at
the beginning of the year and $3,100,000 at the end of the year. The tax rate was 30%, interest expense
totaled $110,000, and sales were $5,200,000. Net income for the year was
a. $145,000.
b. $222,000.
c. $332,000.
d. $178,000.
74. Dowling Company's net income last year was $40,000 and its interest expense was $8,000. Total assets
at the beginning of the year were $260,000 and total assets at the end of the year were $315,000. The
company's income tax rate was 35%. The company's return on total assets for the year was closest to
a. 14.5%.
b. 15.7%.
c. 16.7%.
d. 7.9%.
75. Selected financial data from Harlow Company for the most recent year appear below:
Sales $100,000
Cost of goods sold $ 60,000
Dividends declared and paid $ 5,000
Interest expense $ 8,000
Operating expenses $ 18,000
The income tax rate is 30%.
The return on sales ratio was closest to

a. 14%.
b. 40%.
c. 22%.
d. 10%.
76. Clover Company's net income last year was $80,000. The company paid preferred dividends of
$12,000 and its average common stockholders' equity was $340,000. The company's return on
common stockholders' equity for the year was closest to
a. 27.1%.
b. 3.5%.
c. 20.0%.
d. 23.5%.
77. The average stockholders’ equity for Holloway Co. last year was $2,000,000. Included in this figure
was $200,000 par value of 8% preferred stock. If the return on common stockholders' equity was
12.5% for the year, net income was
a. $225,000.
b. $250,000.
c. $241,000.
d. $234,000.
ANS: C
$241,000
$225,000 + $16,000* = Net Income
0.125 = (Net income  $16,000)/($2,000,000  $200,000)

0.125  $1,800,000 = Net Income  $16,000
*16,000 = Preferred Dividend ($200,000  8%)

78. Wellston Company's net income last year was $300,000. The company has 100,000 shares of common
stock and 30,000 shares of preferred stock outstanding. There was no change in the number of
common or preferred shares outstanding during the year. The company declared and paid dividends
last year of $1.90 per share on the common stock and $1.70 per share on the preferred stock. The
earnings per share of common stock is closest to
a. $2.49.
b. $1.10.
c. $3.51.
d. $3.00.
79. Lew Company's net income was $80,000 last year. The company has 20,000 shares of common stock
and 5,000 shares of $100 par value, 7% preferred stock outstanding. There was no change in the
number of common or preferred shares outstanding during the year. The earnings per share of common
stock was
a. $4.00.
b. $3.20.
c. $2.25.
d. $3.72.
80. Data concerning Bouerneuf Company's common stock follow:
Book value per share $24.00

Market value per share $18.00
Earnings per share $ 6.00
Par value per share $ 4.00
Dividend per share $ 1.00
The price-earnings ratio would be

a. 2.0.
b. 2.7.
c. 3.0.
d. 4.0.
81. Bogart Company has 40,000 shares of common stock outstanding. The book value per share of this
stock was $60 and the market value per share was $75 at the end of the year. Net income for the year
was $400,000. Interest on long-term debt was $40,000. Dividends paid to common stockholders were
$3 per share. The tax rate was 30%. The company's price-earnings ratio at the end of the year was
a. 7.5.
b. 20.
c. 25.
d. 6.
ANS: A
7.5
Market price/Earnings per share = $75/$10
Earnings Per Share = $10 = ($400,000  $0)/40,000

82. A common measure of profitability is

a. the quick ratio.
b. times-interest-earned ratio.
c. return on common stockholders' equity ratio.
d. debt ratio.
83. Return on sales is calculated by dividing

a. sales by cost of goods sold.
b. gross profit by net sales.
c. net income by stockholders' equity.
d. net income by sales.
84. Which of the following is considered a profitability ratio?

a. earnings per share
b. debt ratio
c. quick ratio
d. inventory turnover ratio
85. Which profitability ratio requires the use of earnings per share in its calculation?
a. price-earnings ratio
b. return on common stockholders' equity
c. dividend yield
d. return on sales
86. Which profitability ratio requires the use of earnings per share and the current market price?
a. return on common stockholders' equity
b. dividend payout ratio
c. dividend yield
d. price-earnings ratio
87. Earnings per share is an indication of how much

a. the company paid as dividends for each share of stock.
b. the company earned for each share of outstanding common and preferred stock.
c. the company earned for each share of outstanding common stock
d. cash the company has for each share of all outstanding stock.
88. Chaney Inc. wants to measure the relationship between profitability and the investment made by
stockholders. Chaney should use
a. return on common stockholders' equity.
b. earnings per share.
c. return on sales.
d. the statement of retained earnings.
89. ABC Company issued additional shares of stock for cash. The effect of the transaction is
a. the earnings per share increased.
b. the current ratio was increased.
c. the debt-to-equity ratio increased.
d. the return on total assets increased.
OBJ: LO: 16-3 | LO: 16-4 | LO: 16-5 NAT: BUSPROG: Analytic

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Chapter 16-Financial Statement Analysis: Multiple Choice

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Chapter 16—Financial Statement Analysis

1. The two major techniques for financial analysis are

2. Horizontal analysis is also known as

4. In horizontal analysis, each item is expressed as a percentage of the

7. Vertical analysis is a technique that expresses each item in a financial statement

10. Horizontal analysis is analysis

11. Trend analysis is analysis

13. Assume the following sales data for a company:

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 16-2

16. For meaningful analysis, ratios are best compared with

17. Short-term creditors are usually most interested in assessing

18. A common measure of liquidity is

19. The current ratio is a

20. The quick ratio

22. A high accounts receivable turnover ratio indicates

27. The quick ratio

28. The inventory turnover is calculated by dividing

29. A successful grocery store would probably have

30. An aircraft company would most likely have

31. Which of the following is an example of liquidity analysis?

32. Which of the following is considered a liquidity analysis ratio?

The inventory turnover ratio for the year is

100,000 = cash + securities + receivables {2.5 = (cash + securities + receivables)/$40,000}

Current Assets = (cash + securities receivables) + (Inventory + prepaid)

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 16-3

51. The following information pertains to Barkley Company.:

Merchandise purchased $1,800,000

The inventory turnover ratio for the year was

Calculate Beginning Inventory = 1,800,000 + 2,000,000 + 400,000 = 600,000

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 16-3

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 16-3

58. Which one of the following would be considered a leverage ratio?

59. Grant Company reported the following on its income statement:

Income before income taxes $420,000

Assets  Liabilities = Equity

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 16-4

Assets  Liabilities = Equity

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 16-4

64. Holt Company reported the following on its income statement:

Income before income taxes $420,000

Earnings per share is reported on the 2014 income statement as

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 16-5

The price-earnings ratio for 2014 is

The dividend payout ratio for 2014 is

Earnings per share $ 4.50

The price-earnings ratio is

The income tax rate is 30%.

The return on sales ratio was closest to

0.125 = (Net income  $16,000)/($2,000,000  $200,000)

*16,000 = Preferred Dividend ($200,000  8%)

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 16-5

80. Data concerning Bouerneuf Company's common stock follow:

Book value per share $24.00

The price-earnings ratio would be

Market price/Earnings per share = $75/$10

Earnings Per Share = $10 = ($400,000  $0)/40,000

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 16-5

82. A common measure of profitability is