Chapter 03 - Working with Financial Statements Chapter 03 Working with Financial Statements Multiple Choice Questions 1. Common-size financial statements present all balance sheet account values as a percentage of: A. the forecasted budget. B. sales. C. total equity. D. total assets. E. last year's account value. 2. The ratios that are based on financial statement values and used for comparison purposes are called: A. financial ratios. B. industrial statistics. C. equity standards. D. accounting returns. E. analytical standards. 3. The Du Pont identity can be totally defined by which one of the following? A. Return on equity, total asset turnover, and equity multiplier B. Equity multiplier and return on assets C. Profit margin and return on equity D. Total asset turnover, profit margin, and debt-equity ratio E. Equity multiplier, return on assets, and profit margin 4. Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing? A. Du Pont rate B. External growth rate C. Sustainable growth rate D. Internal growth rate E. Cash flow rate 3-1
Chapter 03 - Working with Financial Statements 5. The sustainable growth rate is defined as the maximum rate at which a firm can grow given which of the following conditions? A. No new external financing of any kind B. No new debt but additional external equity equal to the increase in retained earnings C. New debt and external equity in equal proportions D. New debt and external equity, provided the debt-equity ratio remains constant E. No new equity and a constant debt-equity ratio 6. Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations? A. BEC B. SED C. BID D. SIC E. SBC 7. Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past 3 years determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes? A. Income statement B. Balance sheet C. Common-size income statement D. Common-size balance sheet E. Statement of cash flows 8. A common-size balance sheet helps financial managers determine: A. which customers are paying on a timely basis. B. if costs are increasing faster or slower than sales. C. if changes are occurring in a firm's mix of assets. D. if a firm is generating more or less sales per dollar of assets than in prior years. E. the rate at which the firm's dividends are changing. 3-2
Chapter 03 - Working with Financial Statements 9. High Tower Pharmacy pays a fixed percentage of its net income out to its shareholders in the form of annual dividends. Given this, the percent shown on a common-size income statement for the dividend account will: A. remain constant over time. B. be equal to the dividend amount divided by the net income.
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