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Exam 12: Financial Statement Analysis

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Question 51

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The gross profit ratio is calculated as gross profit divided by net sales.

A) True
B) False

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Question 52

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The acid-test ratio is most similar to the:

A) Current ratio.
B) Debt to equity ratio.
C) Times interest earned ratio.
D) Inventory turnover ratio.

E) B) and D)
F) A) and B)

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Question 53

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Explain why ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.

Assume a company's current ratio and acid-test ratio are less than 1.0 before it purchases inventory on credit.When it makes the purchase:

We calculate the times interest earned ratio by dividing net income by interest expense.

Perform a horizontal analysis on the following information providing both the dollar amount and percentage change:

We use vertical analysis to express each income statement item as a percentage of sales.

The location where a loss is reported in the income statement does not really matter as long as the loss is reported.

Use the following information to answer the next ten questions: Excerpts from Stealth Company's December 31,2015 and 2014,financial statements are presented below: -Stealth Company's 2015 profit margin is:

Which of the following is not a solvency ratio?

Return on assets is calculated as net income divided by ending total assets.

Ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.

Which of the following is an example of horizontal analysis?

Sideline Sports Products reports a return on assets of 6%,and a return on equity of 10%.Why do these two ratios differ?

Use the following information to answer the next ten questions: Excerpts from Stealth Company's December 31,2015 and 2014,financial statements are presented below: -Stealth Company's 2015 inventory turnover is:

When a company with a current ratio of 1.2 pays a current liability:

Use the following information to answer the next ten questions: Excerpts from TPX Company's December 31,2015 and 2014,financial statements are presented below: -TPX Company's 2015 gross profit ratio is:

We use vertical analysis for income statement accounts,but not balance sheet accounts.

Comparing operating expenses as a percentage of sales is an example of:

United Products began the year with an Inventory balance of $180,000,and had a year-end balance of $200,000.Sales of $800,000 generated a gross profit of $150,000.Calculate the inventory turnover ratio for the year.