Fs analysis pre test

The shareholders' equity section of the statement of financial position consists of the following
except:
Correct answer: none of the above
Score: 1 out of 1 Yes

Item 2
 How would payments for taxes be classified?
Correct answer: Operating outflow.
Score: 1 out of 1 Yes

Item 3
 It refers to investments in other companies share capital or bonds where the intent is to hold
them for a period greater than one year:
Correct answer: long-term investments
Score: 1 out of 1 Yes

Item 4
 What is the function of the cash flow statement?
Correct answer: To provide information about cash receipts and payments during an
accounting period and to provide information about the operating, investing, and financing
activities for an accounting period
Score: 1 out of 1 Yes

Item 5
 A financial report that tells you what you own, how much you owe to vendors and lenders:
Correct answer: statement of financial position
Score: 1 out of 1 Yes

Item 6
 An element of the income statement that decreases capital and result from performing activities
necessary to generate revenue:
Correct answer: expenses
Score: 1 out of 1 Yes

Item 7
 Long-term liabilities are:
Correct answer: liabilities that have maturity of greater than one year such as bonds payable
and mortgage payable
Score: 1 out of 1 Yes

Item 8
 It describes the ownership of the corporation in terms of the number of shares outstanding:
Correct answer: share capital
Score: 0 out of 1 No

Item 9
 It refers to assets with a long-term life that lack physical substance and that arise from a right
granted by the government.
Correct answer: intangibles assets
Score: 1 out of 1 Yes

Item 10
 What items are included in the notes to the financial statements?
Correct answer: All of the above
Score: 1 out of 1 Yes

Item 11
 An element of the income statement that measures the increase in capital arising from the sale of
goods or the performance of services:
Correct answer: revenue
Score: 1 out of 1 Yes

Item 12
 A financial report that tells how wealthy or poor your business enterprise is:
Correct answer: statement of financial position
Score: 0 out of 1 No

Item 13
 It reveals the financial position of the organization at a particular point in time:
Correct answer: statement of financial position
Score: 1 out of 1 Yes

Item 14
 It shows the amount received by the business enterprise over the par value for the shares issued:
Correct answer: additional paid-in capital/share premium
Score: 1 out of 1 Yes

Item 15
 The portion of the statement of cash flows that are connected to the manufacture and sale of
goods or the rendering of services such as receipt of cash.
Correct answer: operating activities
Score: 1 out of 1 Yes

Item 16
 It refers to assets employed in the production of goods or services that have a life greater than
one year:
Correct answer: none of the above
Score: 1 out of 1 Yes

Item 17
 In a classified income statement:
Correct answer: all of the above
Score: 0 out of 1 No

Item 18
 A financial report that tells you how your business enterprise did last year:
Correct answer: income statement
Score: 0 out of 1 No

Item 19
 What does the statement of financial position summarize for a business?
Correct answer: Financial position at a point in time.
Score: 1 out of 1 Yes

Item 20
 The portion of the statement of cash flows that include paying off debt, repurchasing of share
capital and issuing dividend payments:
Correct answer: financing activities
Score: 1 out of 1 Yes

Item 21
 What are the basic financial statements provided in an annual report?
Correct answer: Statement of financial position, income statement, cash flow statement, and
statement of changes in equity
Score: 1 out of 1 Yes

Item 22
 It represents the accumulated earnings of the business enterprise since its inception less
dividends declared and paid to shareholders:
Correct answer: retained earnings
Score: 1 out of 1 Yes

Item 23
 The amount by which total revenue exceeds total expenses:
Correct answer: net income
Score: 1 out of 1 Yes

Item 24
 An element of the income statement that is equal to the cost of goods sold or the expenditure
necessary to conduct business operations:
Correct answer: expenses
Score: 1 out of 1 Yes

Item 25
 A financial report that measures the operating performance for a specified period of time:
Correct answer: income statement
Financial ratios drill theories
The acid test ratio is regarded primarily as a measure of a company’s long term liquidity
situation.
Correct answer: False
Score: 1 out of 1 Yes

Item 2
 Liquidity ratio measure the ability of a business to meet long term obligations.
Correct answer: False
Score: 1 out of 1 Yes

Item 3
 The price earnings ratio is a measure of the relative attractiveness of common stock as
an investment
Correct answer: True
Score: 1 out of 1 Yes

Item 4
 Average receivables may also be expressed in terms of the number of days’ sales in
receivables.
Correct answer: True
Score: 1 out of 1 Yes

Item 5
 Common size financial statements are a widely used vertical analysis technique.
Correct answer: True
Score: 1 out of 1 Yes

Item 6
 Normally a relatively low inventory turnover is desirable.
Correct answer: False
Score: 1 out of 1 Yes

Item 7
 The receivable position and the approximate collection time may be evaluated by
computing the accounts receivable turnover.
Correct answer: True
Score: 1 out of 1 Yes

Item 8
 The ratio of the net sales to total assets is often called the profitability ratio.
Correct answer: False
Score: 1 out of 1 Yes

Item 9
 The internal users of financial statement are managers, employees and creditors.
Correct answer: False
Score: 1 out of 1 Yes

Item 10
 Price earnings ratio shows how much an investor is willing to pay for each dollar of
earnings given the actual market price.
Correct answer: True
Score: 1 out of 1 Yes

Item 11
 Debt to asset ratio measures the extent to which borrowed funds have been used to
finance the acquisition of assets.
Correct answer: True
Score: 1 out of 1 Yes

Item 12
 The working capital ratio is regarded as fundamental measurement of a company’s
liquidity.
Correct answer: True
Score: 1 out of 1 Yes

Item 13
 Normally, an analyst would believe that a manufacturing company with a current ratio
of 3 to 1 was in serious liquidity trouble.
Correct answer: False
Score: 1 out of 1 Yes

Item 14
 The accounts receivable turnover is both a measure of liquidity and a measure of
activity
Correct answer: True
Score: 1 out of 1 Yes

Item 15
 One form of horizontal analysis is the development of an index- number trend series.
Correct answer: True
Score: 1 out of 1 Yes

Item 16
 Computation of ratios for an accounting period is a form of horizontal analysis.
Correct answer: True
Score: 1 out of 1 Yes

Item 17
 A natural business year relates to a fiscal year ending when operations are at their
lowest point
Correct answer: True
Score: 1 out of 1 Yes

Item 18
 Solvency ratios measure the business’ very short-term ability to meet all financial
obligations.
Correct answer: False
Score: 1 out of 1 Yes

Item 19
 Some external users of financial statement comprise existing shareholders and
potential investors.
Correct answer: False
Score: 1 out of 1 Yes

Item 20
 Horizontal analysis is a technique to compare company’s financial condition over a
period of time.
Correct answer: True
Score: 1 out of 1 Yes

Item 21
 Financial statements that reflect financial data for two or more periods are often
referred to as comparative statements.
Correct answer: True
Score: 1 out of 1 Yes

Item 22
 The use of borrowed funds is known as trading on the equity
Correct answer: True
Score: 1 out of 1 Yes

Item 23
 Generally, the first concern of a financial analyst is a firm’s liquidity.
Correct answer: True
Score: 1 out of 1 Yes
Item 24
 Development of data that measure changes occurring from one accounting period to
another is a form of horizontal analysis.
Correct answer: True
Score: 1 out of 1 Yes

Item 25
 Return on investment (ROI) is a measure of overall asset productivity
Correct answer: True
Score: 1 out of 1 Yes

Item 26
 The ratio called profit margin on sales is a measure of the profit percentage per dollar
of sales
Correct answer: True
Score: 1 out of 1 Yes

Item 27
 Comparability between enterprises is more difficult to obtain than comparability within a
single enterprise.
Correct answer: True
Score: 1 out of 1 Yes

Item 28
 When preparing an index-number trend series, the first year presented must always be
the base (i.e. 100%)
Correct answer: False
Score: 1 out of 1 Yes

Item 29
 Index numbers can only be computed when amounts are positive
Correct answer: True
Score: 1 out of 1 Yes

Item 30
 Total asset turnover measures the amount of sales generated by each dollar of asset.
Correct answer: True
Score: 1 out of 1 Yes
Item 31
 The four classification of ratio analysis are liquidity ratio, fixed asset ratio, profitability
ratio and efficiency ratios.
Correct answer: False
Score: 1 out of 1 Yes

Item 32
 A common-size income statement usually shows each revenue or expense item as a
percentage of net sales.
Correct answer: True
Score: 1 out of 1 Yes

Item 33
 Vertical analysis is a technique to evaluate each item in a financial statement as a
percent of a base amount or item.
Correct answer: True
Score: 1 out of 1 Yes

Item 34
 The inventory turnover is computed by dividing cost of goods sold by average
inventory.
Correct answer: True
Score: 1 out of 1 Yes

Item 35
 Usually quick ratio of 1.5:1 would be considered satisfactory.
Correct answer: True

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QUIZ FS ANALYSIS

THEORIES

Which one of the following elements of the financial statement may be modified or not
included in the investment base?
Correct answer: shareholders' equity
Score: 1 out of 1 Yes

Item 2
 Which of the following is not a consideration bearing on the quality and stability of the
sales and revenue trend?
Correct answer: Elasticity of supply for products.
Score: 1 out of 1 Yes

Item 3
 In which situation are market ratios significant?
Correct answer: all of the above
Score: 1 out of 1 Yes

Item 4
 In the analysis of cost of sales, which among the following reasons would not change
the gross profit margin?
Correct answer: no change in the inventory level
Score: 1 out of 1 Yes

Item 5
 Anakis Inc. has P500,000 of debt outstanding and it pays a 10% interest. Its annual
sales are P3,500,000, its tax rate is 30% and its net profit margin is 5%. What is its
Times-Interest-Earned ratio?
Correct answer: 6 times
Score: 0 out of 2 No

Item 6
 It is a mode of estimating the likelihood of improvement or deterioration an entity's
financial condition.
Correct answer: trend analysis
Score: 1 out of 1 Yes

Item 7
 A high current ratio generally indicates
Correct answer: all of the above
Score: 0 out of 1 No

Item 8
 Shell Company has P750,000 in accounts receivable and its days sales outstanding
(DSO) is 54 days. It wants to reduce its DSO to 35 days by pressuring more of its
customers to pay their bills on time. If this policy is adopted, the company's average
sales will fall by 10%. What will be the level of accounts receivable following the
change? Assume a 360-day year.
Correct answer: P437,500

Score: 2 out of 2 Yes

Item 9
 In evaluating a company that you would like to invest on, which non-financial factors
would you you consider?
Correct answer: all of the above
Score: 1 out of 1 Yes

Item 10
 Oriental Manufacturing reported the following information:
Net Income............................ P 120,000
Return on Asset..............................6%
Interest Expense..........................84,000
Tax rate............................................40%
What is its basic earning power?
Correct answer: 14.2%
Solution:
ROA=NI/TA
6%=120k/TA
TA= 120k/6%= 2000000
BEP= EBIT/TA = 284k / 2M x 100= 14.2%
*EBIT 284k (84k+120k)
Interest expense 84k
EBT 200k (120k/.6)
Tax expense 80k
NI 120k
Score: 0 out of 2 No

Item 11
 Which of the following would decrease a firm's working capital?
Correct answer: The firm purchases an equipment, paying 20% down payment and
signing a long-term note for the remaining balance.
Score: 1 out of 1 Yes

Item 12
 In performing financial statement analysis, results must be compared with prescribed
set of standards. Which among the following would be the basis of the analyst in
drawing his interpretations and conclusions?
Correct answer: all of the above
Score: 1 out of 1 Yes

Item 13
 Petron has P6,000,000 in sales. its Return on Equity is 12% and its total assets
turnover is 3.2 times. The company is 50% equity financed. What is its net income?
Correct answer: P112,500
Score: 2 out of 2 Yes

Item 14
 Which of the following transactions would increase the current ratio and decrease net
profit?
Correct answer: Vacant lot is sold for less than the net book value.
Score: 0 out of 1 No

Item 15
 A high receivable turnover rate does not automatically mean good or efficient collection
of the company. What factors may have caused the high turnover rate?
Correct answer: all of the above
Score: 0 out of 1 No

Item 16
 In doing revenue analysis, the following rules regarding recognition of revenues must
be considered except
Correct answer: level of competition and elasticity of product demand has been
considered.
Score: 1 out of 1 Yes

Item 17
 A firm has current assets of P3,000,000 with a current ratio of 1.2. Its quick ratio is 0.8.
What is its inventory?
Correct answer: P1,000,000
Score: 0 out of 2 No

Item 18
 Managers strive to maximize shareholders wealth. Improving the firms Return on
Equity does not necessarily mean that the shareholder wealth is also increased. What
problem may arise if a firm relies too heavily on ROE to measure performance?
Correct answer: all of the above
Score: 1 out of 1 Yes

Item 19
 Among the different types of dividends, on which type would ratio analysis be based
on?
Correct answer: cash dividend
Score: 1 out of 1 Yes

Item 20
 When comparing current year financial ratios to earlier years, you find that the
company' has an improving current ratio and a deteriorating acid-test ratio. Given these
results, it would be logical for management to
Correct answer: work with suppliers to reduce inventory levels.