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Exam 9: Financial Statement Analysis

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Question 31

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Solvency analysis focuses on the ability of a business to make a profit.

A) True
B) False

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Question 32

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The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as:

A) solvency and leverage.
B) solvency and profitability.
C) solvency and liquidity.
D) solvency and equity.

E) C) and D)
F) A) and C)

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Question 33

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If a company has issued only one class of stock,the earnings per share is determined by dividing net income by the number of shares outstanding.

The excess of current liabilities over quick assets is referred to as working capital.

The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.

If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year,there has been an acceleration in the collection of receivables.

The relationship of each asset item as a percent of total assets is an example of horizontal analysis.

The ratio of current assets to current liabilities is referred to as the acid-test ratio.

Current position analysis indicates a company's ability to liquidate current liabilities.

In computing the rate earned on total assets,interest expense is added to net income before dividing by average total assets.

"Working capital" is another term for the current ratio.

A balance sheet shows cash,$75,000; marketable securities,$110,000; receivables,$90,000; and $225,000 of inventories.Current liabilities are $200,000.The current ratio is 1.375 to 1.

The following data are taken from the financial statements:

Statements in which all items are expressed as percentages with no dollar amounts are called common-sized statements.

Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long- term basis?

The comparison of the financial data of a single company for two or more years is called horizontal analysis.

The effects of differences in accounting methods are of little importance when analyzing comparable data from competing businesses.

Profitability refers to the ability of the business to:

The rate earned on total assets is one of the measures of profitability.

The number of days' sales in inventory is one means of expressing the relationship between net sales and accounts receivable.