Question 1

Britt Company 
Selected data from Britt Company's financial statements are provided below.

- Refer to the selected financial data for Britt Company. Assume that competitors in Britt's industry have an average inventory turnover ratio of 20.8 times in 2012. Britt's inventory turnover ratio for 2012 indicates that the company:
A) has too little inventory on hand at the end of 2012.
B) is pricing its products too low.
C) is selling its inventory much more quickly than the industry average.
D) may have problems with generating sales.

Accepted Answer

Britt's inventory turnover ratio being lower than the industry average suggests that the company may have issues with generating sales, as it indicates slower movement of inventory compared to competitors.

Question 2

Kirby Deuce Corporation 
Selected data from the financial statements of Kirby Deuce Corporation are presented below.
 
-Refer to the financial information for Kirby Deuce Corporation. Earnings per share for 2012 is:
A) $0.79.
B) $0.76.
C) $1.57.
D) $0.49.

Accepted Answer

Earnings per share (EPS) is calculated by dividing the net income by the number of outstanding shares. The correct EPS for Kirby Deuce Corporation in 2012 is $0.79.

Question 3

Which of the following ratios is most useful in indicating a company's profitability?
A) Operating cash flow ratio
B) Profit margin ratio
C) Dividend payout ratio
D) Dividend yield ratio

Accepted Answer

The profit margin ratio is the most useful ratio in indicating a company's profitability as it shows the percentage of revenue that is turned into profit. It is a clear and direct measure of a company's ability to generate profits from its operations. The operating cash flow ratio is more focused on a company's ability to generate cash, while the dividend payout and yield ratios are more focused on its dividend policy.

Question 4

Inventory turned over seven times during the year at Prosser Electronics. Similar electronics retailers have an inventory turnover equal to twelve times per year. What explains Prosser's state of inventory management?
A) Prosser sold too much inventory during the year.
B) Prosser needs to increase sales and decrease the amount of inventory on hand.
C) Prosser is performing much better than its competitors.
D) Prosser should increase the amount of goods on hand to accommodate the growth in inventory demand.

Accepted Answer

Prosser's inventory turnover rate of seven times per year is lower than the industry average of twelve times per year, indicating that Prosser may have too much inventory on hand. This suggests that Prosser needs to increase sales and decrease the amount of inventory on hand to improve their inventory management.

Question 5

Kirby Deuce Corporation 
Selected data from the financial statements of Kirby Deuce Corporation are presented below.
 
- Refer to the financial information for Kirby Deuce Corporation. The price to earnings ratio for 2012 is:
A) 17.77.
B) 20.63.
C) 20.36.
D) 18.97.

Accepted Answer

The answer of Kirby Deuce Corporation 
Selected data from the...

Question 6

Which of the following results is generally considered favorable?
A) A large decrease in the accounts receivable turnover ratio.
B) An increase in the inventory turnover ratio.
C) An increase in sales along with a larger decrease in the gross profit percentage.
D) A decrease in the operating cash flow ratio.

Accepted Answer

An increase in the inventory turnover ratio indicates that the company is selling its inventory faster, which is generally considered favorable as it reduces the risk of obsolescence or holding excess inventory. A large decrease in the accounts receivable turnover ratio (A) indicates that customers are taking longer to pay, which can strain cash flow. An increase in sales along with a larger decrease in the gross profit percentage (C) indicates that the company is making less profit on each sale which may not be optimal. A decrease in the operating cash flow ratio (D) also indicates that the company is generating less cash from its operations.

Question 7

Chartreuse, Inc. Information from the financial statements of Chartreuse, Inc. is provided below.
 Refer to the information for Chartreuse, Inc. Earnings per share for 2012 would be reported as:
A) $1.08.
B) $1.20.
C) $1.29.
D) $1.43.

Accepted Answer

The answer of Chartreuse, Inc. Information from the financial statements...

Question 8

The return on assets ratio:
A) considers the investments made by all creditors and stockholders of the company.
B) reflects investments made only by creditors of the company.
C) is based on average stockholders' equity as compared to net income for the period.
D) is a measure of the company's liquidity.

Accepted Answer

The return on assets (ROA) ratio considers the investments made by all creditors and stockholders of the company because it measures how efficiently a company can manage its assets to produce profits during a period. It is calculated by dividing net income by total assets, where total assets include both debts (creditors) and equity (stockholders).

Question 9

The following information pertains to Raleigh Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets
 
-  What is the price to earnings ratio for this company?
A) 6.01 times
B) 4.24 times
C) 8.05 times
D) 9.60 times

Accepted Answer

The answer of The following information pertains to Raleigh Company....

Question 10

Britt Company 
Selected data from Britt Company's financial statements are provided below.

- Refer to the selected financial data for Britt Company. Britt's current ratio for 2012 is:
A) 0.60.
B) 0.99.
C) 1.34.
D) 1.68.

Accepted Answer

The answer of Britt Company 
Selected data from Britt Company's...

Question 11

Liquidity analysis is required to:
A) evaluate a company's profitability.
B) assess a company's ability to pay its current liabilities.
C) be reported in the financial statements for all publicly traded companies.
D) provide information about a company's capital structure.

Accepted Answer

Liquidity analysis is used to assess a company's ability to pay its current liabilities, which is an important factor in determining its financial health and short-term solvency. It measures the company's ability to convert its assets into cash to meet its short-term obligations. The other choices are not relevant to liquidity analysis.

Question 12

The following information is available for Gomez Company.:  Which of the following statements is correct?
A) The price to earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2011.
B) The price to earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2011.
C) The price to earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2011.
D) The market price per share and the earnings per share are not statistically related to each other.

Accepted Answer

The price to earnings ratio is calculated by dividing the market price per share by the earnings per share. Therefore, if the price to earnings ratio is 20, it means that a share of common stock was selling for 20 times the amount of earnings per share.

Question 13

The following information pertains to Raleigh Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets
 
- What is the earnings per share on common stock?
A) $9.38
B) $8.38
C) $1.00
D) $5.00

Accepted Answer

The earnings per share (EPS) on common stock is $9.38. This is calculated by dividing the net income available to common shareholders by the number of outstanding shares.

Question 14

Which of the following is an example of liquidity analysis?
A) Total liabilities are divided by total assets.
B) Net income is divided by average total assets.
C) Net income is divided by the average number of common shares outstanding.
D) Quick assets are divided by current liabilities.

Accepted Answer

Liquidity analysis focuses on a company's ability to meet short-term obligations, and one common ratio used for this purpose is the quick ratio, which measures a company's quick assets (cash, marketable securities, and accounts receivable) relative to its current liabilities. Therefore, the correct choice is D, where quick assets are divided by current liabilities. Choices A, B, and C are examples of solvency analysis, where the emphasis is on a company's ability to meet long-term obligations.

Question 15

Stanwick, Inc. wants to measure the relationship between profitability and the investment made by stockholders. To measure this Stanwick should use the:
A) return on equity ratio.
B) earnings per share.
C) net profit margin percentage.
D) operating margin percentage.

Accepted Answer

The return on equity ratio measures the profitability of a company in relation to the investment made by stockholders. It is calculated by dividing net income by shareholder equity. Therefore, this would be the best choice for Stanwick, Inc. to measure the relationship between profitability and investment made by stockholders.

Question 16

Britt Company 
Selected data from Britt Company's financial statements are provided below.

- Refer to the selected financial data for Britt Company. Which of the following statements is true regarding the company's liquidity?
A) Based on the current ratio, the company's ability to meet its short-term obligations appears to have deteriorated at the end of 2012 compared to 2011.
B) The quick ratio decreased from 2011 to 2012.
C) The operating cash flow ratio increased from 2011 to 2012.
D) Based on the quick ratio, the company appears to be in a better position to pay its current obligations at the end of 2012 compared to 2011.

Accepted Answer

The answer of Britt Company 
Selected data from Britt Company's...

Question 17

Earnings per share is an indication of how much:
A) cash the company has for each share of all outstanding stock.
B) earnings the company has for each share of outstanding common stock.
C) earnings the company has for each share of all outstanding stock.
D) dividends the company paid for each share of outstanding common stock.

Accepted Answer

Earnings per share calculates the amount of earnings a company has generated for each share of outstanding common stock. It is calculated by dividing the company's net income by the number of outstanding shares of common stock. Earnings per share is a commonly used metric to evaluate a company's profitability and financial health.

Question 18

Which of the following is a measure of liquidity?
A) Current ratio
B) Earnings per share
C) Accounts receivable turnover ratio
D) Return on common equity

Accepted Answer

The current ratio is a measure of liquidity, indicating a company's ability to pay short-term obligations with its current assets.

Question 19

Which of the following is considered a measure of short-term liquidity?
A) Gross profit percentage
B) Quick ratio
C) Dividend yield ratio
D) Return on assets ratio

Accepted Answer

The quick ratio is considered a measure of short-term liquidity because it measures a company's ability to pay off its short-term liabilities with its most liquid assets (such as cash, accounts receivable, and marketable securities) without relying on the sale of inventory. The other ratios listed (gross profit percentage, dividend yield ratio, and return on assets ratio) are not necessarily indicative of a company's short-term liquidity.

Question 20

Britt Company 
Selected data from Britt Company's financial statements are provided below.
 
-Refer to the selected financial data for Britt Company. Assume that competitors in Britt's industry have an average receivable turnover ratio of 7.8 times in 2012. Britt's receivable turnover ratio for 2012 is:
A) an indicator that Britt has tightened its credit policies.
B) of no value to bankers and other creditors.
C) indicating that Britt's collection policies are less strict than those of its competitors.
D) significantly above the industry average.

Accepted Answer

Britt's receivable turnover ratio being lower than the industry average of 7.8 times suggests that Britt's collection policies are less strict, leading to slower collection of receivables compared to its competitors.

Quiz 12: Financial Statement Analysis

Kirby Deuce Corporation Selected data from the financial statements of Kirby Deuce Corporation are presented below. -Refer to the financial information for Kirby Deuce Corporation. Earnings per share for 2012 is:

Which of the following ratios is most useful in indicating a company's profitability?

Inventory turned over seven times during the year at Prosser Electronics. Similar electronics retailers have an inventory turnover equal to twelve times per year. What explains Prosser's state of inventory management?

Kirby Deuce Corporation Selected data from the financial statements of Kirby Deuce Corporation are presented below. - Refer to the financial information for Kirby Deuce Corporation. The price to earnings ratio for 2012 is:

Which of the following results is generally considered favorable?

Chartreuse, Inc. Information from the financial statements of Chartreuse, Inc. is provided below. Refer to the information for Chartreuse, Inc. Earnings per share for 2012 would be reported as:

The return on assets ratio:

The following information pertains to Raleigh Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets - What is the price to earnings ratio for this company?

Britt Company Selected data from Britt Company's financial statements are provided below. - Refer to the selected financial data for Britt Company. Britt's current ratio for 2012 is:

Liquidity analysis is required to:

The following information is available for Gomez Company.: Which of the following statements is correct?

The following information pertains to Raleigh Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. Assets - What is the earnings per share on common stock?

Which of the following is an example of liquidity analysis?

Stanwick, Inc. wants to measure the relationship between profitability and the investment made by stockholders. To measure this Stanwick should use the:

Britt Company Selected data from Britt Company's financial statements are provided below. - Refer to the selected financial data for Britt Company. Which of the following statements is true regarding the company's liquidity?

Earnings per share is an indication of how much:

Which of the following is a measure of liquidity?

Which of the following is considered a measure of short-term liquidity?