Chap014 - Chapter 14 - "How Well Am I Doing?"...

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Unformatted text preview: Chapter 14 - "How Well Am I Doing?" Financial Statement Analysis Chapter 14 "How Well Am I Doing?" Financial Statement Analysis True / False Questions 1. In determining whether a company's financial condition is improving or deteriorating over time, vertical analysis of financial statement data would be more useful than horizontal analysis. True False 2. Trend percentages state several years' financial data in terms of a base year. For example, sales for every year would be stated as a percentage of the sales in the base year. True False 3. The gross margin percentage is computed taking the difference between sales and cost of goods and then dividing the result by sales. True False 4. The gross margin percentage is computed by dividing net income before interest and taxes by sales. True False 5. The price-earnings ratio is determined by dividing the price of a product by its profit margin. True False 6. The price-earnings ratio is computed by dividing the market price per share by the current earnings per share. True False 14-1 Chapter 14 - "How Well Am I Doing?" Financial Statement Analysis 7. When computing the return on total assets, the after-tax effect of interest expense must be subtracted from net income. True False 8. If the assets in which funds are invested have a rate of return lower than the fixed rate of return paid to the supplier of the funds, then financial leverage is positive. True False 9. If the market value of a share of stock is greater than its book value, the stock is probably overpriced. True False 10. Assuming that a company has a current ratio greater than 1.0, repaying a short-term note payable will increase the current ratio. True False 11. The acid-test ratio is a test of the quality of accounts receivable--in other words, whether they are likely to be collected. True False 12. When computing the acid-test ratio, prepaid expenses are ignored. True False 13. Only credit sales (i.e., sales on account) are included in the computation of the accounts receivable turnover. True False 14-2 Chapter 14 - "How Well Am I Doing?" Financial Statement Analysis 14. Net operating income will always increase when a company increases its accounts receivable turnover. True False 15. The inventory turnover ratio is equal to the average inventory balance divided by the cost of goods sold. True False 16. Working capital equals current assets, plus noncurrent liabilities and stockholders' equity, less total assets. True False Multiple Choice Questions 17. Horizontal analysis of financial statements is accomplished through: A. placing statement items on an after-tax basis. B. common-size statements....
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This note was uploaded on 05/03/2011 for the course ACC 1410 taught by Professor Bauser during the Spring '11 term at Marion Technical College.

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Chap014 - Chapter 14 - "How Well Am I Doing?"...

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