Financial Statement Analysis, Quiz 5.2

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

Financial analysis can be used to detect apparent liquidity problems.

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.

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.

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.

Dissimilar year ends will have no impact on the results of ratios.

false

Liquidity ratios can be used:

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

Absolute figures and ratios are close to being meaningless unless compared to another figure.

true

Financial statement analysis is a judgmental process.

true

Typically, the largest expense to a manufacturing firm is cost of goods sold.

true

When performing year-to-year change analysis, a meaningful percent change cannot be computed when one number is positive and the other number is negative.

true