Financial Statement Analysis

Chapter 17

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The analysis that shows the relationship of each
time to its base amount is called
1. Horizontal analysis
2. Vertical analysis
3. Ratio analysis
4. Comparative analysis

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Answer: 2

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The study of percentage changes in comparative
statements is called
1. Horizontal analysis
2. Vertical analysis
3. Ratio analysis
4. Comparative analysis

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Answer: 1

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Given below are sales data for Childs Company:
2007 $80,000
2006 50,000
2005 44,000
2004 20,000
2004 is the base year. What is the percentage increase in
sales from 2004 to 2006?

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Answer: 150%
$30,000 ÷ $20,000
Dollar amount of change ÷ Base year amount

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In performing a vertical analysis on an income
statement, the base is
1. Net sales.
2. Gross profit
3. Net income
4. Operating income

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Answer: 1

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In performing a vertical analysis on a balance
sheet, the base is
1. Total stockholders’ equity
2. Total liabilities
3. Total assets
4. Total current assets

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Answer: 3

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A ratio that measure a company’s ability to pay
current liabilities is
1. Debt ratio
2. Rate of return on total assets
3. Dividend yield
4. Acid- test ratio

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Answer: 4

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A successful grocery store would probably have

1. a high inventory turnover.

2. a high dividend yield.
3. a low inventory turnover.
4. a high dividend yield.

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Answer: 1

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Accounts receivable turnover measures
1. The number of times a company sells its average level
of inventory during a year
2. The number of times a company collects its average
accounts receivable during a year
3. How many days’ sales remain in accounts receivable
4. The percentage of receivables that are written off
during a year

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Answer: 2

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Which of the following shows the amount of net
income earned for each share of the company’s
outstanding common stock?
1. Dividend yield
2. Earnings per share
3. Price/earnings ratio
4. Book value per share

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Answer: 2

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Long-term creditors are usually most interested in
which ratio?
1. Acid-test ratio
2. Rate of return on total assets
3. Price-earnings
4. Times interest earned

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Answer: 4

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Which of the following is not a profitability ratio?
1. Earnings per share of common stock
2. Day’s sales in receivables
3. Rate of return on total assets
4. Rate of return on net sales

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Answer: 2

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 24
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