Related questions
1. How is it possible for a firm to be profitable and still go bankrupt?
Select one:
a. The firm has positive net income but has failed to generate cash from operations.
b. Earnings have increased more rapidly than sales.
c. Sales have not improved even though credit policies have been eased.
d. Net income has been adjusted for inflation.
2. Which ratio or ratios measure the overall efficiency of the firm in managing its investment in assets and in generating return to shareholders?
Select one:
a. Gross profit margin and net profit margin.
b. Return on investment and return on equity.
c. Total asset turnover and operating profit margin.
d. Return on investment.
3. What is the first step in an analysis of financial statements?
Select one:
a. Specify the objectives of the analysis.
b. Do a common size analysis.
c. Check references containing financial information.
d. Check the auditor’s report.
4. What information does the auditor’s report contain?
Select one:
a. The results of operations.
b. An opinion as to the fairness of the financial statements.
c. A detailed coverage of the firm’s liquidity, capital resources, and operations.
d. An unqualified opinion.
5. Why is the quick ratio a more rigorous test of short-term solvency than the
Select one:
a. The quick ratio eliminates prepaid expenses for the numerator.
b. The quick ratio eliminates prepaid expenses for the denominator.
c. The quick ratio eliminates inventories from the numerator.
d. The quick ratio considers only cash and marketable securities as current assets.
6. Why is the quick ratio a more rigorous test of short-term solvency than the current ratio?
Select one:
a. The quick ratio eliminates prepaid expenses for the numerator.
b. The quick ratio eliminates prepaid expenses for the denominator.
c. The quick ratio eliminates inventories from the numerator.
d. The quick ratio considers only cash and marketable securities as current assets.
7. What is a creditor’s objective in performing an analysis of financial statements?
Select one:
a. To determine the firm’s capital structure.
b. To decide whether or not the firm has operated profitably in the past.
c. To decide whether or not the borrower has the ability to repay interest and principal on borrowed funds.
d. To determine the company’s future earnings stream.
8. What is a serious limitation of financial ratios?
Select one:
a. Ratios indicate weaknesses only.
b. Ratios are screening devices.
c. Ratios can be used only by themselves
d. Ratios are not predictive.
9. Coroner Corporation had a current ratio of 2.0 at the end of 2020. Current assets and current liabilities increased by equal amounts during 2021. The effects on net
Select one:
a. Decrease, decrease.
b. No effect, increase.
c. No effect, decrease.
d. Increase, increase.
10. What is the most widely used
Select one:
a. Inventory turnover.
b. Debt ratio.
c. Quick ratio.
d. Current ratio
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- Which of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile? ... O A. They do not tell how the decision affects the firm's reported profits from an accounting perspective. O B. They are not easily predicted from historical financial statements of a firm and its competitors. O C. They do not show how the firm's earnings are expected to change as the result of a particular decision. O D. These earnings are not actual cash flows.arrow_forwardSeeking to maximise the current year’s profit is not a sensible objective for most businesses for several reasons. Which is the only one of the following that is not such a reason? Group of answer choices It can be achieved by increasing the number of shareholders. It ignores wealth generation. It ignores risk. It ignores longer term profitability.arrow_forwardWhich of the following may reduce the effectiveness of ratio analysis? a. Highly diversified companies may have activities that obscure trends that may appear more clearly in single function companies. b. Management may use window dressing at the end of the year to improve apparent performance. c. Companies in the same industry may use different accounting practices which may indicate differing levels of performance that don't really exist. d. Book values may not be comparable from company to company because of the age of the asset, inflation, etc. e. All of these can reduce the effectiveness of ratio analysis.arrow_forward
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