ACCT 3130 CH. 8 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
financial statement analysis - Answers used by investors, analysts, auditors, and other interested
stakeholders to review and evaluate a company's financial statements and financial performance
ratio analysis - Answers type of descriptive analytics; shows the proportional relationship of accounts
- tool used to evaluate relationships among different financial statement items to assess the financial
health of a business
gross profit ratio - Answers gross profit/revenue; tells us how many cents we have from ever dollar of
sales that will cover operating expenses
liquidity ratios - Answers measure short-term ability of the company to pay its maturing obligations
and to meet unexpected needs for cash
solvency ratios - Answers Measures of the ability of the company to survive over a long period of
time.
activity ratio - Answers computation of a firm's operating efficiency
profitability ratios - Answers provide information of a company and its prospects for the future
dupont ratio - Answers measures components of ROE
ROE - Answers profit margin * asset turnover * financial leverage
Profit margin - Answers net profit/sales
asset turnover - Answers sales/average total assets
financial leverage - Answers average total assets/average equity
diagnostic analytics - Answers useful when making comparison between years, competitors and
industry
horizontal and trend analysis - Answers Trend comparisons across time, often expressing changes in
account balances as a percentage of prior year balances.; example of predictive analytics
change amount - Answers current year amount - base year amount
change percent - Answers (current year amount - base year amount)/base year amount
index - Answers shows change in a given year compared to a common base year
text mining - Answers analyzes the frequency of words in unstructured data and matches those to a
sentiment dictionary; analysts can track sentiment proportion over time and analyze other text
sources to realize gains in the market
XBRL (eXtensible Business Reporting Language) - Answers a type of XML (extensible markup
language) used for organizing and defining financial elements
tagging (XBRL) - Answers numbers and data, text block, balance sheet, income statement, statement
of comprehensive income, SCF
Analysis of XBRL data can be difficult because - Answers different companies may use different tags;
tries to use standardized metrics to consolidate similar tags
standardized metrics are useful to help XBRL data more comparable because
a. companies insist on using XBRL tags that facilitate comparison to their competitors
b. companies use similar XBRL tags for similar accounts
c. companies insist on using XBRL tags that do not allow comparison to their competitors
d. companies use different XBRL tags for similar accounts - Answers companies insist on using XBRL
tags that facilitate comparison to their competitors
as opposed to vertical analysis, horizontal analysis
a. shows the proportional value of accounts to a primary account, like sales revenue on an income
statement
b. shows the proportionate value of common accounts across companies
c. show the change in value of an account from one period to the next.
d. disaggregates return on equity into its component parts - Answers show the change in value of an
account from one period to the next.
as opposed to horizontal analysis, vertical analysis
a. shows the proportionate value of common accounts across companies
b. shows the proportional value of accounts to a primary account, like sales revenue on an income
statement
c. disaggregates ROE into its component parts
d. show the change in value of an account from one period to the next - Answers b. shows the
proportional value of accounts to a primary account, like sales revenue on an income statement
the DuPont method evaluates all of the following ratios as part of its analysis
financial statement analysis - Answers used by investors, analysts, auditors, and other interested
stakeholders to review and evaluate a company's financial statements and financial performance
ratio analysis - Answers type of descriptive analytics; shows the proportional relationship of accounts
- tool used to evaluate relationships among different financial statement items to assess the financial
health of a business
gross profit ratio - Answers gross profit/revenue; tells us how many cents we have from ever dollar of
sales that will cover operating expenses
liquidity ratios - Answers measure short-term ability of the company to pay its maturing obligations
and to meet unexpected needs for cash
solvency ratios - Answers Measures of the ability of the company to survive over a long period of
time.
activity ratio - Answers computation of a firm's operating efficiency
profitability ratios - Answers provide information of a company and its prospects for the future
dupont ratio - Answers measures components of ROE
ROE - Answers profit margin * asset turnover * financial leverage
Profit margin - Answers net profit/sales
asset turnover - Answers sales/average total assets
financial leverage - Answers average total assets/average equity
diagnostic analytics - Answers useful when making comparison between years, competitors and
industry
horizontal and trend analysis - Answers Trend comparisons across time, often expressing changes in
account balances as a percentage of prior year balances.; example of predictive analytics
change amount - Answers current year amount - base year amount
change percent - Answers (current year amount - base year amount)/base year amount
index - Answers shows change in a given year compared to a common base year
text mining - Answers analyzes the frequency of words in unstructured data and matches those to a
sentiment dictionary; analysts can track sentiment proportion over time and analyze other text
sources to realize gains in the market
XBRL (eXtensible Business Reporting Language) - Answers a type of XML (extensible markup
language) used for organizing and defining financial elements
tagging (XBRL) - Answers numbers and data, text block, balance sheet, income statement, statement
of comprehensive income, SCF
Analysis of XBRL data can be difficult because - Answers different companies may use different tags;
tries to use standardized metrics to consolidate similar tags
standardized metrics are useful to help XBRL data more comparable because
a. companies insist on using XBRL tags that facilitate comparison to their competitors
b. companies use similar XBRL tags for similar accounts
c. companies insist on using XBRL tags that do not allow comparison to their competitors
d. companies use different XBRL tags for similar accounts - Answers companies insist on using XBRL
tags that facilitate comparison to their competitors
as opposed to vertical analysis, horizontal analysis
a. shows the proportional value of accounts to a primary account, like sales revenue on an income
statement
b. shows the proportionate value of common accounts across companies
c. show the change in value of an account from one period to the next.
d. disaggregates return on equity into its component parts - Answers show the change in value of an
account from one period to the next.
as opposed to horizontal analysis, vertical analysis
a. shows the proportionate value of common accounts across companies
b. shows the proportional value of accounts to a primary account, like sales revenue on an income
statement
c. disaggregates ROE into its component parts
d. show the change in value of an account from one period to the next - Answers b. shows the
proportional value of accounts to a primary account, like sales revenue on an income statement
the DuPont method evaluates all of the following ratios as part of its analysis
