ACCT 2101 Chapter 12

When using vertical analysis, we express income statement accounts as a percentage of

• Net income

• Sales

• Gross profit

• Total assets

When using vertical analysis, we express balance sheet accounts as a percentage of

• Total assets

• Total liabilities

• Total stockholders' equity

• Sales

Horizontal analysis examines trends in a company

• Between income statement accounts in the same year

• Between balance sheet accounts in the same year

• Between income statement and balance sheet accounts in the same year

• Over time

Which of the following is an example of horizontal analysis?

• Comparing operating expenses with sales

• Comparing the growth in sales with the growth in cost of goods sold

• Comparing property, plant, and equipment with total assets

• Comparing gross profit across companies

Which of the following ratios is most useful in evaluating solvency?

• Receivables turnover ratio

• Inventory turnover ratio

• Debt to equity ratio

• Current ratio

The current ratio measures

• The ability of a company to quickly collect cash from customers

• The ability of a company to quickly sell its inventory to customers

• The ability of a company to report profits in the current year

• The ability of a company to pay its current obligations

Which of the following is a positive sign that a company can quickly turn its receivables into cash?

• A low receivables turnover ratio

• A high receivables turnover ratio

• A low average collection period

• Both a high receivables turnover ratio and a low average collection period

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The profit margin is

• 10%

• 12.5%

• 80%

• 125%

The Sports Shack reports net income of $120,000, sales of $1,200,000, and average assets of $960,000. The asset turnover is

• 0.10 times

• 0.80 times

• 8 times

• 1.25 times

Which of the following typically is true for profitability ratios?

• Growth stocks have lower price to earnings ratios

• Companies in more competitive industries have higher profit margins

• The gross profit ratio declines as competition increases

• When a company has debt, its return on equity will be lower than its return on assets