FIN MISC-Chapter 3 Financial Statements Analysis and Financial Models

FIN MISC-Chapter 3 Financial Statements Analysis and Financial Models Chapter 3 Financial Statements Analysis and Financial Models 1. On a common-size income statement, depreciation will be A) omitted since it is a noncash expense. B) added back to convert net income to cash flows. C) expressed as a percentage of total assets. D) expressed as a percentage of sales. E) expressed as a percentage of gross fixed assets. Answer: D Difficulty: 1 Easy Section: 3.1 Financial Statements Analysis Topic: Standardized financial statements 2. A common-size balance sheet will express accounts receivable as a percentage of A) sales. B) current assets. C) net working capital. D) total assets. E) total owners' equity. Answer: D Difficulty: 1 Easy Section: 3.1 Financial Statements Analysis Topic: Standardized financial statements 3. A common-size income statement expresses dividends as 3.6 percent. This means that dividends represent 3.6 percent of A) net income. B) total assets. C) sales. D) taxable earnings. E) total owners' equity. Answer: C Difficulty: 1 Easy Section: 3.1 Financial Statements Analysis Topic: Standardized financial statements 4. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are often referred to as A) asset management ratios. B) liquidity measures. C) leverage ratios. D) profitability ratios. E) utilization ratios. Answer: B Difficulty: 1 Easy 1 Section: 3.2 Ratio Analysis Topic: Short-term solvency ratios 5. Which one of these best measures a firm's long-run ability to meet its obligations? A) Cash ratio B) Total asset turnover C) EV multiple D) Return on equity E) Equity multiplier Answer: E Difficulty: 2 Medium Section: 3.2 Ratio Analysis Topic: Long-term solvency ratios 6. All of the following are financial leverage ratios except the A) current ratio. B) cash coverage ratio. C) total debt ratio. D) times interest earned ratio. E) equity multiplier. Answer: A Difficulty: 1 Easy Section: 3.2 Ratio Analysis Topic: Long-term solvency ratios 7. A decrease in which one of the following accounts increases a firm's current ratio as well as its quick ratio? A) Accounts payable B) Cash C) Accounts receivable D) Inventory E) Fixed assets Answer: A Difficulty: 2 Medium Section: 3.2 Ratio Analysis Topic: Short-term solvency ratios 8. A firm has a total debt ratio of 0.47. This means the firm has $0.47 in debt for every A) $.53 in equity. B) $1.47 in total assets. C) $1.53 in total assets. D) $1 in total equity. E) $1.47 in total equity. Answer: A Difficulty: 2 Medium Section: 3.2 Ratio Analysis 2 Topic: Lon