Unit 4 Summative 2019-2020

Which of the following statements describes how to conduct a horizontal analysis?

• Compare amounts from a recent year to a base year and identify growth trends.

• Compare amounts of a prior year to a base year and identify growth trends.

• Compare amounts of a base year to a future year and identify growth trends.

• Compare amounts of a recent year to a future year and identify growth trends.

Which of the following BEST defines gross profit margin?

• Gross profit margin shows how much money per dollar of sales is left over to pay selling and administrative expenses.

• Gross profit margin shows how much money per dollar of sales is left over to pay salaries only.

• Gross profit margin shows how much money per dollar of sales is left over to pay rent only.

• Gross profit margin shows how much money per dollar of sales is left over to pay for additional supplies and inventory.

Which of the following statements is true regarding seasonality and financial statement ratios?

• Seasonality should be taken into account when calculating financial statement ratios.

• Seasonality should not be taken into account when calculating financial statement ratios.

• Taking seasonality into account includes a month to month comparison of financial ratios regardless the season.

• Taking seasonality into account should compare ratios from a similar time period to a previous year of a different time period.

Last period, your company had a debt ratio of 0.6. This period, the debt ratio was 0.8. How would you interpret these results?

• The net ability of the company to cover its liabilities has decreased.

• The company has more liabilities this period.

• The company has less assets this period.

• The company can no longer covers debts.

Which of the following is the right formula for calculating the debt ratio?

• Total liabilities/Total assets

• Sales/Total liabilities

• Current liabilities/Current assets

• Current liabilities/Sales

What is the debt ratio?

• The debt ratio explains the percentage of assets financed with loans.

• The debt ratio explains the percentage of assets the business owns outright.

• The debt ratio explains the percentage of assets financed with expenses.

• The debt ratio explains the percentage of assets financed with stock.

Efficiency ratios determine _____.

• how well a company uses their assets to generate sales

• how well a company minimizes their expenses to generate sales

• how well a company minimizes their COGS to generate sales

• how well a company minimizes their inventory to generate sales

Vandox Company Ltd is a company looking to secure a loan with a commercial bank. Calculate the debt-to-equity ratio. The following details are available:

1. Interest expense = $58,000

2. Earnings = $215,000

3. Total liabilities = $143,000

4. Total assets = $450,000

5. Total equity = $29,000

• 4.9

• 15.5

• 7.4

• 0.5

What are assets?

• Assets are items owned.

• Assets are obligations owed.

• Assets are the cost of doing business.

• Assets are items owed.

XYZ Gas Company had $93,521 in assets in 2014 and $107,724 in assets in 2015. What is their 2015 index?

• 115

• .87

• 1.15

• 15%