ch12 - Chapter 12 Financial Analysis and Long-Term...

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Chapter 12 Financial Analysis and Long-Term Financial Planning TRUE-FALSE QUESTIONS T 1. It would be possible for financial statement analysis to affect nonfinance operations of a firm. F 2. Cross-sectional analysis is used to evaluate a firm’s performance over time. T 3. Ratio analysis is a financial technique that involves dividing various financial statements numbers into one another. F 4. Asset management ratios indicate the ability to meet short-term obligations to creditors as they come due. F 5. The average collection period is calculated as the year-end accounts receivable divided by the net sales. T 6. Financial leverage ratios indicate the extent to which borrowed funds are used to finance assets. F 7. The interest coverage ratio indicates the ability of a firm to meet its contractual obligations for interest, leases, and debt principal repayments out of its operating income. F 8. The operating profit margin is calculated as the firm’s net income divided by net sales. T 9. The market value ratios indicate the willingness of investors to value a firm in the marketplace relative to financial statement values. F 10. The net profit margin is an example of a market value ratio. T 11. The price-to-book ratio measures the market’s value of the firm relative to balance sheet equity. T 12. Financial analysis using ratios can assist managers in the firm’s financial planning process.
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F 13. In employing DuPont analysis, the user would break the return on total assets into the profit margin, total asset turnover, and an equity multiplier. T 14. Financial planning begins with a sales forecast for one or more years. T 15. Budgets are written financial plans utilized in sales forecasts. F 16. Internally generated funds for financing new asset investments come from common stock issues. F 17. Break-even analysis is used to estimate how many units of products must be sold in order for the firm to have a reasonable profit. T 18. The contribution margin represents contribution of each unit sold that first goes toward paying fixed costs. T 19. The degree of operating leverage measures the sensitivity of operating income to changes in the level of output. F 20. Higher levels of fixed costs result in lower levels of operating leverage. F 21. The break-even quantity is inversely related to the level of a firm’s variable costs. F 22. Financial analysis using ratios is not useful in the firm’s financial planning process. T 23. A high price-to-book value ratio would tend to indicate that investors are more optimistic about the market value of firm’s asset, and its managers’ abilities. T 24. The price/earnings ratio shows how much investors are willing to pay for each dollar of the firm’s current earnings per share. T
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This note was uploaded on 11/01/2011 for the course ACC 200 taught by Professor Minliu during the Spring '11 term at Universidad Europea de Madrid.

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ch12 - Chapter 12 Financial Analysis and Long-Term...

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