Finance

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A bank with a loan to a company is generally exposed to greater risk than the shareholders of the company.

FALSE

A capital-intensive company requires high cash turnover.

FALSE

Debt-to-equity ratio is a commonly used measure of liquidity.

FALSE

Dividend yield is defined as dividends divided by shareholders' equity.

FALSE

Financial statement analysis is an exact science.

FALSE

In a common size income statement net income is expressed as 100 percent.

FALSE

The current ratio is used to evaluate the company's operating performance.

FALSE

The explanatory notes (footnotes) accompanying the financial statements are generally of little value in aiding the financial analyst when interpreting the financial statements.

FALSE

The income statement is the only one of the four basic financial statements that does not contain balances at a specific point in time.

FALSE

The statement of cash flows is separated into four parts: operating, investing, financing and planning.

FALSE

The value of a bond is equal to the sum of the present value of future expected interest and principal payments, discounted at the coupon rate.

FALSE

When comparing two companies the company with the highest net income should normally have the highest stock price.

FALSE

A creditor's risk is said to be asymmetric because the downside is limited to the required interest payments.

TRUE

A security can be under or overvalued, depending on the extent of an incorrect interpretation or faulty evaluation of available information by the aggregate market.

TRUE

All other things being equal, the lower a company's cost of equity the higher its stock price should be.

TRUE

Common size statements are useful for inter-company comparisons.

TRUE

Details of compensation paid to officers and directors can be found in proxy statement.

TRUE

Earnings Yield is the reciprocal of the price/earnings ratio.

TRUE

If a company has no liabilities its return on equity will equal its return on assets.

TRUE

In a common size balance sheet total assets are expressed as 100 percent.

TRUE

Inventory turnover is generally a more important ratio for a manufacturing firm than a service firm.

TRUE

Prospective analysis is the forecasting of future payoffs—typically earnings and cash flows, or both.

TRUE

The SEC requires that Management Discussion and Analysis found in the annual report (10K) contains, among other things, a discussion about the company's liquidity, capital resources and results of operations.

TRUE

The current ratio will always be greater than or equal to the acid test ratio.

TRUE

Theoretically the value of a stock should equal the sum of the present value of future expected dividends, discounted at the cost of equity.

TRUE

Two popular techniques of comparative analysis are year-to-year change analysis and index-number trend analysis.

TRUE

When calculating the return on assets you should use average total assets.

TRUE


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