Financial Analysis

6/1/2020 Financial Analysis
Financial Analysis
Soal
Which of the following parties would perform an external financial analysis?
a firm's compensation committee
a financial analyst forecasting the next period's borrowing needs
a firm's creditors
a CFO comparing the performance of the firm's various divisions
Which of the following parties would perform an internal financial analysis?
a financial analyst forecasting the next period's borrowing needs
a firm's competitors
a firm's creditors
analysts for investment companies.
Which of the following parties would be interested in an analysis of the firm's

financial statements?
investors
creditors
the firm's managers
all of the above
https://docs.google.com/forms/d/e/1FAIpQLSfFmNZcQoYm2QYRMHFuvu2VmeagEAkbMOVgoRHVdrw6QhTheg/formResponse 1/20
If you were given the components of current assets and of current liabilities,
what ratio(s) could you compute?
Acid test or quick ratio
Average collection period
Current ratio
Both A and C
All of the above
The debt ratio is a measure of a firm's
leverage.
profitability.
liquidity.
efficiency.
If you were given the components of current assets and of current liabilities,
what ratios could you compute?
Profitability ratios
Capital structure ratios
Asset management ratios
Liquidity ratios
Which of the following transactions does NOT affect the quick ratio?
Land held for investment is sold for cash.
Equipment is purchased and is financed by a long-term debt issue.
Inventories are sold for cash.
Inventories are sold on a credit basis.
The question "Did the common stockholders receive an adequate return on their
investment?" is answered through the use of
liquidity ratios.
profitability ratios.
coverage ratios.
leverage ratios.
Based on the information in Table 1, the current ratio is
2.97.
1.46.
2.11.
2.23.
Based on the information in Table 1, the average collection period is
71 days.
84 days.
64 days.
127 days.
Based on the information in Table 1, the debt ratio is
0.70.
0.20.
0.74.
0.42.
Based on the information in Table 1, the net profit margin is
4.61%.
2.94%.
1.97%.
5.33%.
Based on the information in Table 1, the inventory turnover ratio is
0.29 times.
2.35 times.
0.43 times.
3.47 times.
Marshall Networks, Inc. has a total asset turnover of 2.5 and a net profit margin of
3.5%. The firm has a return on equity of 17.5%. Calculate Marshall's debt ratio.
30%
40%
50%
60%
A firm's average collection period has decreased significantly from the previous
year. Which of the following could possibly explain the results?
Customers are paying off their accounts quicker.
Customers are taking longer to pay for purchases.
The firm has a stricter collection policy.
Both A and C.
An increase in ________ will increase common equity.
paid in capital
retained earnings
dividends paid
both A and C
What is the reason for computing the acid test ratio in addition to the current
ratio?
inventory is the most liquid of the liquid assets.
a firm's inventory may not be particularly liquid.
inventory is the best collateral for short term loans.
compared to accounts receivable, inventory balances may be difficult to verify
Which of the following financial ratios is the best measure of the operating
effectiveness of a firm's management?
Current ratio
Gross profit margin
Quick ratio
Return on investment
Which of the following is included in the denominator of the times-interest-

earned ratio?
Lease payments
Principal payments
Interest expense
Gross profit
Which of the following is included in the numerator of the times-interest-earned

ratio?
Net income
Net Operating Income
Interest expense
Gross profit
If a company's average collection period is higher than the industry average,

then the company might be:
enforcing credit conditions upon its customers which are too stringent.
allowing its customers too much time to pay their bills.
too tough in collecting its accounts.
too liquid.
Why is the quick ratio a more refined measure of liquidity than the current ratio?
It measures how quickly cash and other liquid assets flow through the company.
Inventories are omitted from the numerator of the ratio because they are generally the
least liquid of the firm's current assets.
It is a quicker calculation to make.
Cash is the most liquid current asset.
Which of the following ratios indicates how rapidly the firm's credit accounts are
being collected?
Debt ratio
Gross profit margin
Accounts receivable turnover ratio
Fixed asset turnover
Which of the following statements is true?
As a general rule, management would want to reduce the firm's average collection
period.
As a general rule, management would want to reduce the firm's accounts receivable
turnover ratio.
As a general rule, management would want to increase the firm's average collection
period.
As a general rule, a firm is not financially affected by the amount of time required to
collect its accounts receivable.
Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin
of 3.5%. The total debt ratio for the firm is 50%. Calculate Millers's return on
equity.
17.5%
19.5%
21.5%
23.5%
Snype, Inc. has an accounts receivable turnover ratio of 7.3. Stork Company has
an accounts receivable turnover ratio of 5.0. Which of the following statements
is correct?
Snype's average collection period is less than Stork's.
Stork's average collection period is less than Snype's.
Snype has a lower accounts receivable account on average than does Stork Company.
Stork Company has (on average) a lower accounts receivable account than does
Snype.
A decrease in the return on equity ratio could be caused by an increase in
tax rate.
cost of goods sold.
total assets.
any of the above
Skrit Corporation has a net profit margin of 15% and a total asset turnover of 1.7.
What is Skrit's return on total assets?
12.3%
25.5%
8.8%
11.1%
Which of the following is the best indicator of management's effectiveness at

managing the firm's balance sheet?
Debt ratio
Total asset turnover
Times-interest-earned
Operating profit margin
Which of the following is the best indicator of management's effectiveness at

generating profits relative to the firm's assets?
Quick ratio
Fixed assets turnover
Return on assets
Accounts receivable turnover
Storm King Associates has a total asset turnover ratio of 1.90 and a return on
total assets of 7.20%. What is Storm King's net profit margin?
3.79
13.68
9.10
None of the above
A decrease in ________ will increase gross profit margin.
cost of goods sold
depreciation expense
interest expense
both A and B
Other things held constant, an increase in ________ will decrease the current
ratio. Assume an initial current ratio greater than 1.0.
accruals
common stock
average collection period
cash
Which of the following will help an analyst determine how well a firm is able to
service its debt?
Total liability turnover
Times-interest-earned
Return on debt
Asset ratio
An increase in ________ will decrease the times-interest-earned ratio.
the tax rate
gross profit
interest expense
common stock
An example of an asset management efficiency ratio is the
total asset turnover ratio.
gross profit margin.
times-interest-earned.
return on assets.
A firm that wants to know if it has enough cash to meet its bills would be most
likely to use which kind of ratio?
Liquidity
Leverage
Efficiency
Profitability
Assume that a particular firm has a total asset turnover ratio lower than the
industry norm. In addition, this firm's current ratio and fixed asset turnover ratio
also meet industry standards. Based on this information, we can conclude that
this firm must have excessive
current liabilities.
fixed assets.
long-term debt.
current assets.
Assume that a particular firm has a total asset turnover ratio lower than the
industry norm. In addition, this firm's current ratio and acid test ratio also meet
industry standards. Based on this information, we can conclude that this firm
must have excessive
accounts receivable.
fixed assets.
debt.
inventory.
A firm is conducting an analysis of trends over time and discovers that its
inventory turnover has declined. This may be due to
an increase in sales.
an increase in cost of goods sold.
an increase in inventory purchases.
a decrease in inventory purchases.
If the total asset turnover decreases, then the return on equity will
decrease.
increase.
not change.
change, but in an indeterminate way.
An increase in the current ratio would indicate an increase in
leverage.
liquidity.
return on investment.
operating income.
Which of the following is NOT a component of return on assets (ROA)?
Total assets
Cost of goods sold
Sales
Leverage
________ indicates management's effectiveness in managing the firm's income

statement.
Gross profit margin
Net profit margin
Return on assets
Holding all other variables constant, which of the following could cause a firm's
current ratio to decrease from 3.0 to 2.5? An increase in
inventory
long-term debt
accounts receivable
accounts payable
Which of the following will increase return on equity?
An increase in sales with a proportionate increase in costs and expenses
An increase in sales relative to the asset base
A decrease in leverage
Both A and C
Which of the following is NOT a driving force of the operating profit margin?
The amount of leverage a firm uses.
Cost of goods sold
General and administrative expenses
The unit price of product sold
Which of the following ratios would be the most useful in evaluating the ability of
a firm to meet its short-term obligations?
The quick ratio (acid test)
Return on equity
Total asset turnover
Which of the following financial ratios is the best measure of how effectively a
firm's management is serving its stockholders?
Current ratio
Debt ratio
ACP
Return on equity
Which of the following industries has the highest average inventory turnover
ratio?
Retail clothing stores
Jewelry stores
Automobile dealerships
Supermarkets
Which of the following comparisons are used to assess a company's current

performance?
Industry average comparisons.
Same company ratios from recent past years.
Comparisons with a selected company or group of companies having similar

characteristics.
All of the above.
Which of the following is NOT a reason why financial analysts use ratio analysis?
Ratios help to pinpoint a firm's strengths.
Ratios restate accounting data in relative terms.
Ratios are ideal for smoothing out the differences that may exist when comparing
firms that use different accounting practices.
Some of a firm's weaknesses can be identified through the usage of ratios.
Which of the following is a limitation related to the usage of ratios when

reviewing a firm's performance?
Ratios may change with economic conditions or technology.
Ratios may be similar for companies of different sizes.
Some ratios are percentages while other are multiples.
Ratios are usually calculated using end-of-period balances which may not be typical.
Which of the following statements is FALSE?
The calculation of the accounts receivable average collection period (ACP) would
generally produce a more realistic assessment of how a firm is managing its
accounts receivable if the analyst were to calculate the ACP for each month and
average the results, than if the analyst were to solely use the fiscal year-end accounts
receivable value.
If an analyst were to compare the inventory turnover of one firm to that of another, the
comparison can be distorted if the two firms use different methods of valuing ending
inventory.
Assume that two firms are in the same industry and one reports a higher debt ratio
than the other. We can safely say that the firm that has the highest debt ratio is the
riskier of the two firms.
A firm that has a current ratio that is significantly above the industry norm will, as a
direct consequence, also have a significantly better return on assets than if its current
ratio was below the industry norm.
Which of the following is a limitation related to the usage of ratios when

reviewing a firm's performance?
Ratios reveal differences in policy and performance between years.
Ratios can be used to compare firms that are in the same industry if one firm's sales
are higher than another firm’s.
Financial ratios are designed for the use of creditors, not for managers.
Different accounting practices between firms can distort comparisons.
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6/1/2020 Financial Analysis

Which of the following parties would perform an external financial analysis?

a firm's compensation committee

a financial analyst forecasting the next period's borrowing needs

a CFO comparing the performance of the firm's various divisions

Which of the following parties would perform an internal financial analysis?

a financial analyst forecasting the next period's borrowing needs

analysts for investment companies.

Which of the following parties would be interested in an analysis of the firm's

the firm's managers

all of the above

Acid test or quick ratio

Average collection period

All of the above

The debt ratio is a measure of a firm's

Capital structure ratios

Asset management ratios

Land held for investment is sold for cash.

Equipment is purchased and is financed by a long-term debt issue.

Inventories are sold for cash.

Inventories are sold on a credit basis.

Based on the information in Table 1, the current ratio is

Based on the information in Table 1, the average collection period is

Based on the information in Table 1, the debt ratio is

Based on the information in Table 1, the net profit margin is

Based on the information in Table 1, the inventory turnover ratio is

Customers are paying off their accounts quicker.

Customers are taking longer to pay for purchases.

The firm has a stricter collection policy.

An increase in ________ will increase common equity.

inventory is the most liquid of the liquid assets.

a firm's inventory may not be particularly liquid.

inventory is the best collateral for short term loans.

compared to accounts receivable, inventory balances may be difficult to verify

Gross profit margin

Which of the following is included in the denominator of the times-interest-

Which of the following is included in the numerator of the times-interest-earned

Net Operating Income

If a company's average collection period is higher than the industry average,

allowing its customers too much time to pay their bills.

too tough in collecting its accounts.

It is a quicker calculation to make.

Cash is the most liquid current asset.

Gross profit margin

Accounts receivable turnover ratio

Fixed asset turnover

Which of the following statements is true?

Snype's average collection period is less than Stork's.

Stork's average collection period is less than Snype's.

A decrease in the return on equity ratio could be caused by an increase in

cost of goods sold.

any of the above

Which of the following is the best indicator of management's effectiveness at

Total asset turnover

Operating profit margin

Which of the following is the best indicator of management's effectiveness at

Fixed assets turnover

Accounts receivable turnover

None of the above

A decrease in ________ will increase gross profit margin.

cost of goods sold

average collection period