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MC Theories Number Answer Why: Financial Management
MC Theories Number Answer Why: Financial Management
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MC THEORIES
Number Answer Why
1 -
2 -
3 -
4 -
5 -
6 -
7 -
8 -
9 -
10 -
11 B - vertical analysis is used to compare the components of a
single statement
- horizontal analysis compares two periods
- capital analysis is used to assess the potential profitability
of a long-term investment
- profitability analysis is used to determine whether the firm
is profiting or not
12 A - capital analysis, not divided into broad categories
13 D - prior year serve as the base figure
15 A - choices b and d describe vertical analysis, choice c
describes ration analysis
16 C - the base year is usually the prior or earlier year
- solution: (%) = [(Amount in Comparison Year – Amount
in Base Year) / Amount in Base Year] * 100
17 C - trend percentages are used identify whether an account has
increased or decreased each year compared to the base
year
19 D - not arranged in a specific manner (choices a and b)
- used to determine trends and not errors
20 C - a, common size statements refer to vertical analysis
- b, refers to ratio analysis
- d, each item in financial statement (vertical analysis)
21 D - ratio is used to identify relationship between two
quantities
- trends, use comparative analysis
22 B - Solvency refers to an enterprise's capacity to meet its long-
term financial commitments. Liquidity refers to an
enterprise's ability to pay short-term obligations
23 B - Companies are more liquid the faster they can covert
their receivables into cash
- a, is an indicator of how profitable a company is relative to
FINANCIAL MANAGEMENT
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its total assets
- c, conveys the relative profitability of a firm
- D, used to evaluate a company's financial leverage
24 C - A, an indicator of a company's short-term liquidity
position
- B, indicates the ability of the business to pay
its current liabilities from its operations
- D, indicator of a company's financial leverage
25 A - A, cash debt coverage ratio measures a company's ability
to pay off all of its liabilities with cash from operations
- B, current ratio is a liquidity ratio that measures a
company's ability to pay short-term obligations or those
due within one year
- C, measures the efficiency of a company's assets in
generating revenue or sales
- D, measures the number of times inventory is sold or
consumed in each time period
C
- Times interest earned, measures a company's ability to
meet its debt obligations on a periodic basis
- Debt to stockholders’ equity ratio shows the percentage of
company financing that comes from creditors and
investors
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MC PROBLEMS
Nos. Answer Supporting Computation Other Notes
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