Chapter 5 Basics of Analysis

15. Which of these statements is false?

A company comparison should not be made with industry averages if the company does not clearly fit into any one industry.

4. Which of the following can offer a type of comparison in financial statement analysis?

All of the answers are correct.

9. Which of the following would not be a user of financial statements?

All of the answers are users.

16. Which of the following does not represent a problem with financial analysis?

Financial analysis can be used to detect apparent liquidity problems.

3. Denver Dynamics has net income of $2,000,000. Oakland Enterprises has net income of $2,500,000. Which of the following best compares the profitability of Denver and Oakland?

Further information is needed for a reasonable comparison.

17. Which of the following is a false statement as it relates to analysis?

If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected.

19. Which of the following statements is incorrect?

In most sectors, NAICS provides for compatibility at the industry (six-digit) level.

14. Which of these statements is false?

In vertical analysis, a figure from this year's statement is compared with a base selected from the prior statement.

18. Management is a user of financial analysis. Which of the following comments does not represent a fair statement as to the management perspective?

Management is always interested in maximum profitability.

8. A retailing firm has which type of inventory?

Merchandise

5. Which of the following is not a source of industry statistics?

Mergent Dividend Record

7. A manufacturing firm will most likely have the heaviest investment in which type of assets?

Plant, property, and equipment

11. Suppose you are comparing two firms in the steel industry. One firm is large and the other is small. Which type of numbers would be most meaningful for statement analysis?

Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons.

10. Which of the following is a government document that provides industry statistics?

The Department of Commerce Financial Report

6. Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to current debt. The following figures are for a particular industry's current ratio: 1.6; 1.3; 1.2. Which best describes these three numbers?

The median was 1.3. 1.6 is the figure for the upper quartile; 1.2 is the figure for the lower quartile.

12. Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm. Which of the following is not one of the techniques used in analysis?

Theory consistency

1. Statements in which all items are expressed only in relative terms (percentages of a base) are termed:

common-Size Statements.

2. In financial statement analysis, ratios are:

fractions usually expressed in percent or times.

13. Liquidity ratios can be used:

to measure the firm's ability to meet its current obligations.