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Exam 13: Financial Statement Analysis

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Question 41

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The assumption that a business is capable of continuing its operations long enough to meet its obligations is called the:

A) solvency assumption.
B) going-concern assumption.
C) profitability assumption.
D) liquidity assumption.

E) A) and D)
F) B) and D)

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Question 42

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Which of the following is calculated by dividing net revenue by average net fixed assets?

A) Net profit margin
B) Fixed asset turnover
C) Total asset turnover
D) Current ratio

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

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Question 43

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The income statements for Urban Outfits, Inc. are presented below: Required: Part a. Prepare a horizontal analysis of the income statement above. Round to the nearest whole percent. Part b. Interpret your analysis. Comment on significant changes.

The going-concern assumption is also known as the continuity assumption

Which of the following statements about trend analysis is correct?

If earnings per share (EPS) decreases, it must mean that the company's net income has fallen

Which of the following ratios is used to evaluate a company's liquidity?

Horizontal analysis is the comparison of each financial statement amount to another amount on the same financial statement

If cost of goods sold remains unchanged, an increase in the inventory turnover ratio is indicative of a(n) :

Which of the following measures would assist in assessing the profitability of a company?

The following information is taken from the financial statements ofB. Darin Company: Expenses include interest of $10,000 and income tax of $90,000. There was an average of 40,000 shares of common stock outstanding during the year and the market price of the stock is $15 per share at the end of the year. There was no preferred stock outstanding during the year. Required: Calculate the following ratios for the current year: Part a. Fixed asset turnover Part b. Return on equity (ROE) Part c. Earnings per share (EPS) Part d. Times interest earned Part e. Price/Earnings ratio Part f. Debt-to-assets ratio Part g. Net profit margin

If an analyst wants to examine a company's short-run ability to survive, which of the following would best be considered?

A current ratio of less than one is not so much of a concern when the company has a:

The fixed asset turnover ratio is a profitability ratio

A company had 10,000 shares of common stock outstanding throughout the year. The following information is also available: Required: Calculate the Price/Earnings ratio at the end of the current year.

In a common size balance sheet, each item on the balance sheet is expressed as a percentage of:

The higher the times interest earned ratio, the greater the risk of nonpayment of interest

Which of the following is calculated by dividing (net income less preferred dividends) by average common stockholders' equity?

The principle that requires companies to include notes to their financial statements is the:

Which of the following ratios is a solvency ratio?