financial stmt analysis ch 5

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.

which of the following is a government document that provides industry statistics

The Department of Commerce Financial Report

which of theses statements is false

a company comparison should not be made with industry averages of the company does not clearly fit into any one industry

which of the following would not be a user of financial statements

all of the above users

which of the following can offer a type of comparison in financifal statement analysis?

all of the answers are correct

statements in which all items are expressed only in relative terms (percentages of a base) are termed

common size statements

A given ratio is always computed the same way, no matter what the source.

false

Absolute figures usually have more meaning than ratio comparisons.

false

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

false

in vertical common-size analysis, the dollar figure for an account is expressed in terms of that same account figure for a selected base year

false

liquidity ratios measure the degree of protection from long term suppliers of funds

false

the descriptive information in annual reports is not useful in statement analysis; only the financial statements themselves are of value

false

the principal asset of a merchandising firm will usually be accounts receivable

false

there is a standard list of ratios

false

in financial statement analysis, ratios are:

fractions usually expressed in percent or times

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

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

which of the following statements is incorrect

in most sectors, NAICS provides for compatibility at the industry (six digit) level

which of these statements is false

in vertical analysis, a figure from the years statement is compared with a base selected from the prior statement

liquidity ratios can be used

measure a firm's ability to meet its current obligations

A retailing firm has which type of inventory?

merchandise

which of the following is not a source of industry statistics

mergent dividend record

a manufacturing firm will most likely have the heaviest investment in which type of assets?

plant property and equipment

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 current ratio....

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

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

A service firm will usually have a low amount of inventory, consisting primarily of supplies.

true

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

true

Based on the terms of the credit and the purpose, the objectives of financial statement analysis by creditors will vary.

true

Different accounting methods can cause some ratios to differ substantially.

true

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

true

The ideal way to compare income statement figures, such as sales, to balance sheet figures, such as receivables, is to use a measure of the average for the balance sheet figures.

true

common size analysis involves expressing comparisons in percentages

true

financial statement analysis is a judgmental process

true

in order to determine the meaning of a ratio, some kind of comparison, such as an industry average or trend analysis, is helpful

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