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| 1 | |
To create a common size income statement ____________ all items on the income statement by ____________. |
| | A) | multiply; net income |
| | B) | multiply; total revenue |
| | C) | divide; net income |
| | D) | divide; total revenue |
| | E) | multiply; COGS |
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| 2 | |
Which of the following are issues when dealing with the financial statements of international firms?- Many countries allow firms to set aside larger contingency reserves than the amounts allowed for U.S. firms.
- Many firms outside the U.S. use accelerated depreciation methods for reporting purposes, whereas most U.S. firms use straight-line depreciation for reporting purposes.
- Intangibles such as goodwill may be amortized over different periods or may be expensed rather than capitalized.
- There is no way to reconcile the financial statements of non-U. S. firms to GAAP.
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| | A) | I and II |
| | B) | II and IV |
| | C) | I, II, and III |
| | D) | I, III, and IV |
| | E) | I, II, III, and IV |
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| 3 | |
An example of a liquidity ratio is |
| | A) | current ratio. |
| | B) | fixed asset turnover. |
| | C) | acid test or quick ratio. |
| | D) | A and C |
| | E) | B and C |
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| 4 | |
A firm has a higher asset turnover ratio than the industry average, which implies |
| | A) | the firm is utilizing assets more efficiently than other firms in the industry. |
| | B) | the firm is more likely to avoid insolvency in the short run than other firms in the industry. |
| | C) | the firm is more profitable than other firms in the industry. |
| | D) | the firm has a higher P/E ratio than other firms in the industry. |
| | E) | the firm has higher spending on new fixed assets than other firms in the industry. |
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| 5 | |
Over a period of thirty-odd years in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately |
| | A) | 5%. |
| | B) | 20%. |
| | C) | 15%. |
| | D) | 30%. |
| | E) | none of the above |
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| 6 | |
A measure of asset utilization is |
| | A) | sales divided by working capital. |
| | B) | return on equity capital. |
| | C) | return on total assets. |
| | D) | operating profit divided by sales. |
| | E) | none of the above |
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| 7 | |
During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes |
| | A) | higher reported sales. |
| | B) | lower ending inventory. |
| | C) | higher income taxes. |
| | D) | B and C |
| | E) | none of the above |
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| 8 | |
MBC Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm |
| | A) | utilizes assets effectively. |
| | B) | has too much equity in the capital structure. |
| | C) | has a relatively low dividend payout ratio. |
| | D) | has relatively high current liabilities. |
| | E) | none of the above |
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| 9 | |
Which of the following ratios gives information on the amount of profits reinvested in the firm over the years? |
| | A) | sales/total assets |
| | B) | retained earnings/total assets |
| | C) | debt/equity |
| | D) | debt/total assets |
| | E) | none of the above |
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| 10 | |
Comparability problems arise because |
| | A) | firms may use different generally accepted accounting principles. |
| | B) | inflation may affect firms differently due to accounting conventions used. |
| | C) | financial analysts do not know how to compare financial statements. |
| | D) | A and B |
| | E) | A and C |
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