Financial Statement Analysis (Quiz)

Zenk Co. wrote off obsolete inventory of $100,000 during the year. What was the effect of the write-off on Zenk's ratio analysis? A. Decrease in current ratio but not in quick ratio. B. Decrease in quick ratio but not in current ratio. C. Increase in current ratio but not in quick ratio. D. Increase in quick ratio but not in current ratio.

A. Decrease in current ratio but not in quick ratio.

In financial statement analysis, expressing all financial statement items as a percentage of base-year amounts is called A. Horizontal common-size analysis. B. Vertical common-size analysis. C. Trend Analysis. D. Ratio Analysis.

A. Horizontal common-size analysis.

Recording the payment (as distinguished from the declaration) of a cash dividend, the declaration of which was already recorded, will A. Increase the current ratio but have no effect on working capital. B. Decrease both the current ratio and working capital. C. Increase both the current ratio and working capital. D. Have no effect on the current ratio or earnings per share.

A. Increase the current ratio but have no effect on working capital.

What type of ratio is earnings per share? A. Profitability ratio. B. Activity ratio. C. Liquidity ratio. D. Leverage ratio.

A. Profitability ratio.

Hopper Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes. These questions present several of Hopper's transactions during the year. Assume that total quick assets exceeded total current liabilities both before and after each transaction described. Further assume that Hopper has positive profits during the year and a c credit balance throughout the year in its retained earnings account. Hopper's purchase of raw materials for $85,000 on open account will A. Increase the current ratio. B. Decrease the current ratio. C. Increase net working capital. D. Decrease net working capital.

B. Decrease the current ratio.

On December 31, Northpark Co. collected a receivable due from a major customer. Which of the following ratios would be increased by this transaction? A. Inventory turnover ratio. B. Receivable turnover ratio. C. Current ratio. D. Quick ratio.

B. Receivable turnover ratio.

Heath Co.'s current ratio is 4:1. Which of the following transactions will normally increase its current ratio? A. Purchasing inventory on account. B. Selling inventory on account C. Collecting an account receivable. D. Purchasing machinery for cash.

B. Selling inventory on account

The ratio of earnings before interest and taxes to total interest expense is a measure of A. Liquidity. B. Solvency. C. Activity. D. Profitability

B. Solvency.

A company has a current ratio of 1.5. This ratio will decrease if the company A. Receives a 10% stock dividend on one of its marketable securities. B. Pays a large account payable that had been a current liability. C. Borrows cash on a 9-month note. D. Sells merchandise for more than cost and records the sale using the perpetual inventory method.

C. Borrows cash on a 9-month note.

A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do? A. Evaluate financial statements of companies within a given industry of approximately the same value. B. Determine which companies in the same industry are at approximately the same stage of development. C. Compare the mix of assets, liabilities, capital, revenue, and expenses within a given industry without respect to relative size. D. Ascertain the relative potential of companies of similar size in different industries.

C. Compare the mix of assets, liabilities, capital, revenue, and expenses within a given industry without respect to relative size.

The relationship of the total debt to the total equity of a corporation is a measure of A. Liquidity. B. Profitability. C. Creditor risk. D. Solvency

C. Creditor risk.

Hopper Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes. These questions present several of Hopper's transactions during the year. Assume that total quick assets exceeded total current liabilities both before and after each transaction described. Further assume that Hopper has positive profits during the year and a c credit balance throughout the year in its retained earnings account. Hopper's payment of a trade account payable of $64,500 will A. Increase the current ratio, but the quick ratio would not be affected. B. Increase the quick ratio, but the current ratio would not be affected. C. Increase both the current and quick ratios. D. Decrease both the current and quick ratios.

C. Increase both the current and quick ratios.

How is the average inventory used in the calculation of each of the following? (a. Acid-Test (Quick) Ratio; b. Inventory Turnover Ratio) A. a. Numerator b. Numerator B. a. Numerator b. Denominator C. a. Not Used b. Denominator D. a. Not used b. Numerator

C. a. Not Used b. Denominator

How are the following used in the calculation of the dividend-payout ratio for a company with only common stock outstanding? (a. Dividends per Share; b. Earnings per Share; c. Book Value per Share) A. a. Denominator b. Numerator c. Not used B. a. Denominator b. Not used c. Numerator C. a. Numerator b. Denominator d. Not used D. a. Numerator b. Not used c. Denominator

C. a. Numerator b. Denominator d. Not used

Which of the following ratios should be used in evaluating the effectiveness with which the company uses its assets? (a. Receivables Turnover; b. Dividend Payout Ratio) A. a. Yes b. Yes B. a. No b. No C. a. Yes b. No D. a. No b. Yes

C. a. Yes b. No

If a company converts a short-term note payable into a long-term note payable, this transaction will A. Decrease working capital only. B. Decrease both working capital and the current ratio. C. Increase working capital only. D. Increase both working capital and the current ratio

D. Increase both working capital and the current ratio

Hopper Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes. These questions present several of Hopper's transactions during the year. Assume that total quick assets exceeded total current liabilities both before and after each transaction described. Further assume that Hopper has positive profits during the year and a c credit balance throughout the year in its retained earnings account. Hopper's collection of a current accounts receivable of $29,000 will A. Increase the current ratio. B. Decrease the current ratio and the quick ratio. C. Increase the quick ratio. D. Not affect the current or quick ratios.

D. Not affect the current or quick ratios.

Which of the following ratios is (are) useful in assessing a company's ability to meet currently maturing or short-term obligations? (a. Acid-Test Ratio; b. Debt-to-Equity Ratio) A. a. No b. No B. a. No b. Yes C. a. Yes b. Yes D. a. Yes b. No

D. a. Yes b. No