True/False Question On Financial Statement

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A common-size income statement usually shows each revenue or expense item as a percentage of net sales

True

A natural business year relates to a fiscal year ending when operations are at their lowest point

True

Average receivables may also be expressed in terms of the number of days' sales in receivables

True

Common size financial statements are a widely used vertical analysis technique

True

Comparability between enterprises is more difficult to obtain than comparability within a single enterprise

True

Computation of ratios for an accounting period is a form of horizontal analysis

True

One form of horizontal analysis is the development of an index- number trend series

True

Return on investment (ROI) is a measure of overall asset productivity

True

The accounts receivable turnover is both a measure of liquidity and a measure of activity

True

The inventory turnover is computed by dividing cost of goods sold by average inventory

True

The price earnings ratio is a measure of the relative attractiveness of common stock as an investment

True

The ratio called profit margin on sales is a measure of the profit percentage per dollar of sales

True

The receivable position and the approximate collection time may be evaluated by computing the accounts receivable turnover

True

Normally a relatively low inventory turnover is desirable

False

Normally, an analyst would believe that a manufacturing company with a current ratio of 3 to 1 was in serious liquidity trouble

False

Some external users of financial statement comprises Inland Revenue, existing shareholders and potential investors

False

The acid test ratio is regarded primarily as a measure of a company's long term liquidity situation

False

The four classification of ratio analysis are liquidity ratio, fixed asset ratio, profitability ratio and efficiency ratios

False

The internal users of financial statement are managers, employees and creditors

False

The ratio of the net sales to total assets is often called the profitability ratio

False

When preparing an index-number trend series, the first year presented must always be the base

False

Development of data that measure changes occurring from one accounting period to another is a form of horizontal analysis

True

Financial statements that reflect financial data for two or more periods are often referred to as comparative statements

True

Generally, the first concern of a financial analyst is a firm's liquidity

True

Horizontal analysis is a technique to compare company's financial condition over a period of time

True

Index numbers can only be computed when amounts are positive

True

The use of borrowed funds is known as trading on the equity

True

The working capital ratio is regarded as fundamental measurement of a company's liquidity

True

Usually quick ratio of 1.5 o 1 would be considered satisfactory

True

Vertical analysis is a technique to evaluate each item in a financial statement as a percent of a base amount or item

True


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