Question 1

Jack is comparing Team Shirts to Xtreme T's.He found that the gross profit ratio was 47% for Team Shirts and 50% for Xtreme T's.This is an example of ________ analysis.
A)horizontal
B)vertical
C)time-series
D)ratio

Accepted Answer

The comparison of the gross profit ratio for Team Shirts and Xtreme T's is an example of ratio analysis, which involves computing and comparing various financial ratios to evaluate a company's performance and financial position. Horizontal analysis involves comparing financial data over consecutive periods, vertical analysis involves expressing financial data as a percentage of a base amount, and time-series analysis involves analyzing data over a period of time to identify trends and patterns.

Question 2

A technique for using information from financial statements to formulate specific values to determine some measure of a company's financial position is called ________ analysis.
A)horizontal
B)vertical
C)time-series
D)ratio

Accepted Answer

Ratio analysis involves using financial ratios, such as liquidity ratios and profitability ratios, to analyze a company's financial position. Horizontal analysis involves comparing financial data over multiple periods. Vertical analysis involves analyzing a company's financial statements by expressing each item as a percentage of a base amount. Time-series analysis involves analyzing data over a period of time to identify trends and patterns. Of these options, only ratio analysis involves using financial ratios to determine a company's financial position.

Question 3

Ratios used to determine whether or not a company can survive over a long period of time are ________.
A)liquidity ratios
B)solvency ratios
C)profitability ratios
D)market indicators

Accepted Answer

Solvency ratios are used to determine whether a company can survive over a long period of time by measuring its ability to meet long-term obligations and its overall financial health. Liquidity ratios measure a company's ability to meet short-term obligations, profitability ratios measure a company's ability to generate profit, and market indicators reflect the performance of the company's stock in the market. While all of these ratios are important for evaluating a company's financial health, solvency ratios are specifically focused on its long-term survival.

Question 4

Vertical analysis is a technique used to evaluate a series of financial statement data over a period of time.

Accepted Answer

Vertical analysis is a method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equity) in a balance sheet is represented as a proportion of the total account. It analyzes the relative size of each line item in a single financial period, not over a series of periods.

Question 5

Ratios used to determine whether or not a company can pay its bills on time are ________.
A)liquidity ratios
B)solvency ratios
C)profitability ratios
D)market indicators

Accepted Answer

Liquidity ratios are used to measure a company's ability to pay its bills and meet its short-term obligations on time. Solvency ratios measure a company's ability to meet its long-term debt obligations, profitability ratios measure a company's financial performance, and market indicators measure the overall market sentiment and the company's stock price. Therefore, liquidity ratios are the best choice for determining whether or not a company can pay its bills on time.

Question 6

What is vertical analysis?

Accepted Answer

The answer of What is vertical analysis?...

Question 7

The notes to the financial statements are the last place to look for additional information whenever an analysis reveals something interesting or suspicious.

Accepted Answer

The notes to the financial statements are actually the first place to look for additional information whenever an analysis reveals something interesting or suspicious. They often provide explanations and details about specific line items in the financial statements, as well as additional disclosures about the company's accounting policies and practices.

Question 8

Owners' contributions and dividends are reported as special items on income statements.

Accepted Answer

Owners' contributions and dividends are not reported as special items on income statements. They are usually reported separately in the equity section of the balance sheet. Special items on income statements typically refer to one-time or unusual events, such as restructuring costs or gains/losses from the sale of assets.

Question 9

Use the Information below for Third World Company to complete the horizontal analysis for sales and net profit for 2011 and 2012.Use 2010 as the base year.

Accepted Answer

The answer of Use the Information below for Third World...

Question 10

In horizontal analysis,each item on a balance sheet is expressed as a percentage of total assets.

Accepted Answer

In horizontal analysis, each item on a balance sheet is expressed as a percentage of a base year or period, not as a percentage of total assets.

Question 11

In horizontal analysis,each item in a financial statement is expressed as a percentage of a selected line on the statement.

Accepted Answer

In horizontal analysis, financial data is compared over a period of time, not expressed as a percentage of a selected line item. It's vertical analysis that expresses each item as a percentage of a selected line item.

Question 12

Horizontal analysis is a technique used to evaluate a series of financial statement data over a period of time.

Accepted Answer

Horizontal analysis compares financial statement data across a period of time, typically using percentage changes to identify trends or patterns.

Question 13

In vertical analysis,each item on an income statement is expressed as a percentage of sales.

Accepted Answer

This statement is true. Vertical analysis involves expressing items on a financial statement as a percentage of a common base, such as sales. On an income statement, each item is expressed as a percentage of total sales, allowing for easy comparison of the relative importance of each expense or revenue item.

Question 14

Ratios used to determine whether or not a company can earn a satisfactory rate of return are ________.
A)liquidity ratios
B)solvency ratios
C)profitability ratios
D)market indicators

Accepted Answer

Profitability ratios, such as return on assets (ROA) and return on equity (ROE), are used to measure a company's ability to generate profits and earn a satisfactory rate of return. Liquidity ratios measure a company's ability to meet short-term obligations, solvency ratios evaluate a company's long-term financial health, and market indicators reflect the performance of a company's stock in the stock market.

Question 15

What is horizontal analysis?

Accepted Answer

The answer of What is horizontal analysis?...

Question 16

In horizontal analysis,each item on an income statement is expressed as a percentage of sales.

Accepted Answer

In horizontal analysis, each item on an income statement is compared to a base year or period, not expressed as a percentage of sales.

Question 17

In vertical analysis,each item in a financial statement is expressed as a percentage of a selected line on the statement.

Accepted Answer

This is the definition of vertical analysis.

Question 18

Use the partial income statements below to complete a vertical analysis for Auto Zone for 2011 and 2012.

Accepted Answer

The answer of Use the partial income statements below to...

Question 19

Ratios used to determine whether or not a company's stock is a good investment are ________.
A)liquidity ratios
B)solvency ratios
C)profitability ratios
D)market indicators

Accepted Answer

Market indicators are used to assess the potential of a company's stock as an investment by analyzing market performance metrics like price-to-earnings ratio, dividend yield, and market capitalization.

Question 20

Use the Information below for Wool Mart to complete the horizontal analysis for sales and net profit for 2011 and 2012.Use 2010 as the base year.

Accepted Answer

The answer of Use the Information below for Wool Mart...

Quiz 10: Using Financial Statement Analysis to Evaluate Firm Performance

Jack is comparing Team Shirts to Xtreme T's.He found that the gross profit ratio was 47% for Team Shirts and 50% for Xtreme T's.This is an example of ________ analysis.

A technique for using information from financial statements to formulate specific values to determine some measure of a company's financial position is called ________ analysis.

Ratios used to determine whether or not a company can survive over a long period of time are ________.