Financial Statement Analysis Test bank Part 1

Financial Statement Analysis Test bank Part 1 - Financial...

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Financial Statement Analysis Financial Statement Analysis - Test Bank True/False Questions 1. Common-size statements are financial statements of companies of similar size. 2. One limitation of vertical analysis is that it cannot be used to compare two companies that are significantly different in size. 3. The gross margin percentage is computed by dividing the gross margin by total assets. 4. The sale of used equipment at book value for cash will increase earnings per share. 5. Earnings per share is computed by dividing net income (after deducting preferred dividends) by the average number of common shares outstanding. 6. The dividend payout ratio divided by the dividend yield ratio equals the price-earnings ratio. 7. An increase in the number of shares of common stock outstanding will decrease a company's price-earnings ratio if the market price per share remains unchanged. 8. A company's financial leverage is negative when its return on total assets is less than its return on common stockholders' equity. 9. When computing return on common stockholders' equity, retained earnings should be included as part of common stockholders' equity. 10. When a retailing company purchases inventory, the book value per share of the company increases. 11. If a company's acid-test ratio increases, its current ratio will also increase. 12. Assuming a current ratio greater than 1, acquiring land by issuing more of the company's common stock will increase the current ratio. 13. If a company successfully implements lean production, its inventory turnover ratio should decrease. 14. Short-term borrowing is not a source of working capital. 15. Working capital is computed by subtracting long-term liabilities from long-term assets.
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Financial Statement Analysis Multiple Choice Questions 16. Common size financial statements help an analyst to: A) Evaluate financial statements of companies within a given industry of the approximate same size. B) Determine which companies in a similar industry are at approximately the same stage of development. C) Compare the mix of assets, liabilities, capital, revenue, and expenses within a company over a period of time or between companies within a given industry without respect to size. D) Ascertain the relative potential of companies of similar size in different industries.
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  • Fall '14
  • Balance Sheet, ........., Generally Accepted Accounting Principles

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