Financial Statements Analysis Quiz 1

What is the main limitation of financial statement analysis when comparing companies?

• Differences in accounting methods

• Technological changes

• Changes within the company

• Economic factors

What does horizontal analysis show in financial data?

• Comparison of the account balances on the current year's financial statements

• A statement that shows items in percentage and dollar form

• Changes between years in dollar and percentage form

• Comparison of account balances on the current year's financial statements

What does the price-earnings ratio indicate?

• How well the company used the owners' investments to earn income

• The return, in terms of cash dividends, on the current market price of the stock

• The portion of current earnings being paid out in dividends

• How much investors are willing to pay for a company's stock

What does the acid-test (quick) ratio measure?

• A company's ability to meet obligations without having to liquidate inventory

• A company's short-term debt paying ability

• How many times a company converts its receivables into cash each year

• How many times a company's inventory has been sold and replaced during the year

What does the times interest earned ratio measure?

• The relative proportions of debt to equity on a company's balance sheet

• How many times a company's inventory has been sold and replaced during the year

• How many times a company converts its receivables into cash each year

• A company's ability to provide protection for its long-term creditors

What does the return on total assets measure?

• How well the company used the owners' investments to earn income

• How many times a company converts its receivables into cash each year

• How many times a company's inventory has been sold and replaced during the year

• How much income was earned for each share of common stock outstanding

What does the book value per share measure?

• How many times a company's inventory has been sold and replaced during the year

• The amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts

• A company's ability to meet obligations without having to liquidate inventory

• How many times a company converts its receivables into cash each year

What does the return on common stockholders' equity indicate?

• The return, in terms of cash dividends, on the current market price of the stock

• The portion of current earnings being paid out in dividends

• The amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts

• How well the company used the owners' investments to earn income

What does the debt-to-equity ratio indicate?

• How many times a company's inventory has been sold and replaced during the year

• The relative proportions of debt to equity on a company's balance sheet

• How many times a company converts its receivables into cash each year

• A company's ability to meet obligations without having to liquidate inventory

What does the current ratio measure?

• A company's short-term debt paying ability

• A company's ability to meet obligations without having to liquidate inventory

• How many times a company converts its receivables into cash each year

• How many times a company's inventory has been sold and replaced during the year