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 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. 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 working capital and on the current ratio, respectively, were Select one: a. Decrease, decrease. b. No effect, increase. c. No effect, decrease. d. Increase, increase. 10. What is the most widely used liquidity ratio? Select one: a. Inventory turnover. b. Debt ratio. c. Quick ratio. d. Current ratio
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.
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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