Question 1

Match the terms with the definitions.
-It is a measure of the extent of overall leverage or proportion of borrowed capital with which a business operates.

Accepted Answer

The ratio of liabilities to stockholders' equity is a measure of financial leverage, indicating the proportion of borrowed capital a business uses relative to its equity.

Question 2

Match the terms with the definitions.
-The ratio of earnings before interest and taxes to interest expense.

Accepted Answer

The times interest earned ratio measures a company's ability to meet its debt obligations by comparing its earnings before interest and taxes (EBIT) to its interest expenses.

Question 3

Match the terms with the definitions.
-Measures that indicate a company's ability to earn income by operating efficiently. They focus primarily on the relationship between key income statement and balance sheet amounts.

Accepted Answer

Profitability measures are financial metrics used to assess a company's ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders' equity over time. They focus on the relationship between key income statement and balance sheet amounts.

Question 4

Match the terms with the definitions.
-The ratio of net income for the year to the average assets for the year.

Accepted Answer

The return on total assets is a measure of how efficiently a company uses its assets to generate net income, calculated as the ratio of net income to average total assets.

Question 5

Match the terms with the definitions.
-The ratio of cost of goods sold to the average merchandise inventory.

Accepted Answer

Merchandise inventory turnover is the ratio of cost of goods sold to the average merchandise inventory, indicating how efficiently inventory is managed.

Question 6

Match the terms with the definitions.
-Reporting the amount of each item in a statement as a percentage of some designated total.

Accepted Answer

Vertical analysis involves reporting each item in a financial statement as a percentage of a base amount, such as total sales or total assets, to facilitate comparison.

Question 7

Match the terms with the definitions.
-A measure of how efficiently a company used its assets to generate sales.

Accepted Answer

The ratio of net sales to assets measures how efficiently a company uses its assets to generate sales.

Question 8

Match the terms with the definitions.
-The ratio of net sales on account to the average amount of net accounts receivable.

Accepted Answer

The ratio of net sales on account to the average amount of net accounts receivable is the accounts receivable turnover.

Answer: B
 Book value per share is the total common equity divided by the number of common shares outstanding.

Answer: C
 Working capital is current assets minus current liabilities.

Answer: D
 The current ratio (working capital ratio) is current assets divided by current liabilities.

Answer: E
 Earnings per share is the amount of net income earned per share of common stock outstanding.

Answer: F
 The gross profit ratio is gross profit divided by net sales.

Answer: G
 Vertical analysis is a technique used to analyze financial statements by expressing each item as a percentage of a base amount.

Answer: H
 The times interest earned ratio is earnings before interest and taxes (EBIT) divided by interest expense.

Answer: I
 Leverage measures are ratios that indicate the level of debt a company has relative to its equity.

Answer: J
 Return on common stockholders' equity is net income divided by average common stockholders' equity.

Answer: K
 The quick ratio (acid-test ratio) is quick assets (cash, marketable securities, and accounts receivable) divided by current liabilities.

Answer: L
 Profitability is the ability of a company to generate earnings.

Answer: M
 The operating expense ratio is operating expenses divided by net sales.

Question 9

Match the terms with the definitions.
-The ratio of cost of goods sold to net sales.

Accepted Answer

The cost of goods sold ratio is the ratio of cost of goods sold to net sales, indicating the proportion of sales revenue used to cover the cost of goods sold.

Question 10

Match the terms with the definitions.
-The ratio of quick assets to current liabilities.

Accepted Answer

The quick ratio (acid-test ratio) measures the ability of a company to use its quick assets to cover its current liabilities.

Question 11

Match the terms with the definitions.
-The ratio of net income to net sales.

Accepted Answer

The ratio of net income to net sales is known as the net income ratio, which measures how much of each dollar of sales is converted into profit.

Question 12

Match the terms with the definitions.
-The ratio of operating expenses to net sales.

Accepted Answer

The operating expense ratio is the ratio of operating expenses to net sales.

Question 13

Match the terms with the definitions.
-The ratio of net income available to common stockholders for the year to the average common stockholders' equity during the year.

Accepted Answer

The ratio described matches the definition of return on common stockholders' equity.

Question 14

Match the terms with the definitions.
-The ratio of net income available to common stockholders to the average number of shares of common stock outstanding during the year.

Accepted Answer

Earnings per share (EPS) is the ratio of net income available to common stockholders to the average number of shares of common stock outstanding during the year.

Question 15

Match the terms with the definitions.
-Measures that indicate a company's ability to meet its current debts as they come due.

Accepted Answer

Liquidity measures are used to assess a company's ability to pay off its short-term liabilities with its short-term assets.

Question 16

Match the terms with the definitions.
-A comparison of the amounts for the same item in the financial statements of two or more periods.

Accepted Answer

Horizontal analysis is the comparison of financial statement items over multiple periods.

Question 17

Match the terms with the definitions.
-The ability to earn a satisfactory return on the investments in the business.

Accepted Answer

Profitability refers to the ability of a business to earn a satisfactory return on its investments.

Question 18

Match the terms with the definitions.
-The proportion of debt to stockholders' equity.

Accepted Answer

The answer of Match the terms with the definitions.
-The proportion...

Question 19

Match the terms with the definitions.
-Measures that indicate the extent to which a company is being financed by debt and the ability of the company to meet its debt obligations.

Accepted Answer

Leverage measures specifically refer to measures that indicate the extent to which a company is being financed by debt and the ability of the company to meet its debt obligations. None of the other choices address this concept.

Question 20

Match the terms with the definitions.
-The ratio of operating income to net sales.

Accepted Answer

The operating income ratio is the ratio of operating income to net sales, indicating how efficiently a company is generating profit from its operations.

Quiz 24: Analysis of Financial Statements

Match the terms with the definitions. -It is a measure of the extent of overall leverage or proportion of borrowed capital with which a business operates.

Match the terms with the definitions. -The ratio of earnings before interest and taxes to interest expense.

Match the terms with the definitions. -Measures that indicate a company's ability to earn income by operating efficiently. They focus primarily on the relationship between key income statement and balance sheet amounts.

Match the terms with the definitions. -The ratio of net income for the year to the average assets for the year.

Match the terms with the definitions. -The ratio of cost of goods sold to the average merchandise inventory.

Match the terms with the definitions. -Reporting the amount of each item in a statement as a percentage of some designated total.

Match the terms with the definitions. -A measure of how efficiently a company used its assets to generate sales.

Match the terms with the definitions. -The ratio of net sales on account to the average amount of net accounts receivable.

Match the terms with the definitions. -The ratio of cost of goods sold to net sales.

Match the terms with the definitions. -The ratio of quick assets to current liabilities.

Match the terms with the definitions. -The ratio of net income to net sales.

Match the terms with the definitions. -The ratio of operating expenses to net sales.

Match the terms with the definitions. -The ratio of net income available to common stockholders for the year to the average common stockholders' equity during the year.

Match the terms with the definitions. -The ratio of net income available to common stockholders to the average number of shares of common stock outstanding during the year.

Match the terms with the definitions. -Measures that indicate a company's ability to meet its current debts as they come due.

Match the terms with the definitions. -A comparison of the amounts for the same item in the financial statements of two or more periods.

Match the terms with the definitions. -The ability to earn a satisfactory return on the investments in the business.

Match the terms with the definitions. -The proportion of debt to stockholders' equity.

Match the terms with the definitions. -Measures that indicate the extent to which a company is being financed by debt and the ability of the company to meet its debt obligations.

Match the terms with the definitions. -The ratio of operating income to net sales.