Chapter 3 Quiz

Ratio analysis cannot be taken at face value for all of the following except which reason?

While GAAP is consistent across the globe, multiple currencies may be considered.

Financial statement analysis:

provides useful information that can serve as a basis for forecasting future performance.

Which of the following is true regarding the internal growth rate?

It represents the maximum possible growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio.

A common-size balance sheet helps financial managers determine:

if changes are occurring in a firm's mix of assets.

The cash ratio is used to evaluate the:

length of time that a firm can pay its bills if no additional cash becomes available.

Quincy Real Estate pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will:

vary in direct relation to the net profit percentage.

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?

Common-size income statement