Financial Statement Analysis

What are the four measurement levels used in financial statement analysis?

• Liquidity, Solvency, Stability, and Profitability
• Assets, Liabilities, Equity, and Revenue
• Current, Non-current, Short-term, and Long-term
• Cash Flow, Profit Margin, Return on Equity, and Earnings per Share

Which of the following is NOT a primary user of financial statements?

• Creditors
• Investors
• Managers
• Customers

What is the primary purpose of horizontal analysis?

• To compare a company's financial performance to industry averages
• To analyze trends in a company's financial performance over time
• To assess a company's ability to meet its short-term obligations
• To determine a company's profitability

What does a high inventory turnover ratio indicate?

• The company is holding too much inventory
• The company is selling inventory quickly
• The company is not using its assets efficiently
• The company is experiencing financial distress

Which of the following is a liquidity ratio?

• Debt ratio
• Gross profit margin
• Current ratio
• Times interest earned ratio

What is the formula for the quick ratio?

• (Current Assets - Inventory) / Current Liabilities
• Current Assets / Current Liabilities
• Net Sales / Average Accounts Receivable
• Cost of Goods Sold / Average Inventory

Which of the following is NOT a solvency ratio?

• Debt ratio
• Debt-equity ratio
• Times interest earned ratio
• Accounts receivable turnover ratio

What is the formula for the debt-equity ratio?

• Total Liabilities / Total Assets
• Total Liabilities / Owner's Equity
• Income before Interest and Taxes / Interest Expense
• Gross Profit / Net Sales

What does a high gross profit margin indicate?

• The company is selling its products at a high price
• The company is very efficient in its operations
• The company has a strong competitive advantage
• All of the above

What is the formula for the return on equity?

• Net Income / Average Total Assets
• Net Income / Average Owner's Equity
• Gross Profit / Net Sales
• Net Sales / Average Total Assets