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Unformatted text preview: ch14 Student: ___________________________________________________________________________ 1. A primary objective of financial statements is to provide information to current and potential investors and creditors. True False 2. Return on equity (ROE) is a function of three ratios: net profit margin, return on assets, and financial leverage. True False 3. Return on equity (ROE) provides insight with respect to a company's use of its assets. True False 4. Time series analysis is where we compare information for a specific company over a period of time to determine changes in operations. True False 5. Finding comparable companies in order to compare performance is often difficult since no two companies have identical products, markets and operating strategies. True False 6. Finding comparable companies in order to compare performance is important because ratios in isolation are difficult to evaluate. True False 7. Component percentages are used to express items on financial statements as a percentage of a single base amount. True False 8. Financial statement analysis is very precise and doesn't involve judgment. True False 9. Purchasing treasury stock increases the return on equity ratio. True False 10. The return on assets ratio is influenced significantly by a company's relative debt and equity financing of its assets. True False 11. Negative financial leverage occurs when a company has more debt than stockholders' equity. True False 12. The financial leverage percentage is positive when return on assets is greater than return on equity. True False 13. Earnings per share (EPS) is affected by treasury stock transactions. True False 14. The quality of income ratio increases when net income increases. True False 15. The profit margin ratio considers the asset base utilized to earn income. True False 16. The fixed asset turnover ratio increases when net income increases. True False 17. The cash ratio is less sensitive to small transactions involving cash than is either the current or quick ratios. True False 18. A company that has a high level of inventory and other assets above their investment in property, plant and equipment should calculate the total asset turnover ratio in addition to the fixed asset turnover ratio. True False 19. A company with a high amount of inventory will have a much lower fixed asset turnover ratio when compared to its total asset turnover ratio. True False 20. A higher current ratio is preferable for companies with variable cash flows. True False 21. The quick ratio decreases when the adjusting entry to record bad debt expense is recorded. True False 22. A very high current ratio and low quick ratio may indicate the company is not collecting its accounts receivables in a timely manner....
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