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Financial Statement Analysis Methods
This quiz can help assess your knowledge of financial statement analysis methods. To pass this quiz you will need to understand vertical analysis, horizontal analysis, trend analysis and ratio analysis.
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Felton Farm Supplies, Inc., has an 8 percent return on total assets of $300,000 and a net profit margin of 5 percent. What are its sales?
1 point
$3,750,000
$480,000
$300,000
$1,500,000
Clear selection
Which group of ratios shows the extent to which the firm is financed with debt?
1 point
Profitability ratios.
Debt ratios.
Coverage ratios.
Activity ratios.
Clear selection
The PE ratio is calculated as follows:
1 point
price of ordinary share on the market divided by total earnings of the company.
profit of the company attributable to ordinary shareholders divided by the total earnings for the year.
profit of the company divided by sales earnings.
price of ordinary share on the market divided by earnings per share.
Clear selection
Which group of ratios measure a firm's ability to meet shortterm obligations?
1 point
Profitability ratios.
Debt ratios.
Coverage ratios.
Liquidity ratios.
Clear selection
The gross profit margin is unchanged, but the net profit margin declined over the same period. This could have happened if __________.
1 point
cost of goods sold increased relative to sales
sales increased relative to expenses
the Government increased the tax rate
dividends were decreased
Clear selection
Which of the following statements (in general) is correct?
1 point
A low receivables turnover is desirable.
The lower the total debttoequity ratio, the lower the financial risk for a firm.
An increase in net profit margin with no change in sales or assets means a weaker ROI.
The higher the tax rate for a firm, the lower the interest coverage ratio.
Clear selection
Which group of ratios relate profits to sales and investment?
1 point
Profitability ratios.
Debt ratios.
Coverage ratios.
Activity ratios.
Clear selection
If a company revalues its noncurrent assets upwards from historical cost, then its sales to capital employed ratio will:
1 point
stay the same.
decrease.
increase.
Not Sure
Clear selection
A debtor collection ratio of 12:1 means that:
1 point
the average debtor takes about one month to pay.
debtors are about twelve times as big as creditors.
onetwelfth of debtors will turn out to be bad debts.
in any given month, twelve debtors are expected to pay in full.
Clear selection
In conducting a commonsize analysis every balance sheet item is divided by __________ and every income statement is divided by __________.
1 point
its corresponding base year income statement item; its corresponding base year balance sheet item
total assets; net sales or revenues
its corresponding base year balance sheet item; its corresponding base year income statement item
net sales or revenues; total assets.
Clear selection
Return on capital employed for a company will increase if:
1 point
sales volume decreases and margins decrease
sales volume doesn't change but margins decrease.
sales volume increases with no change in margins.
sales volume decreases with no change in margins.
Clear selection
Given inventory of £24,000, other current assets of £12,000 and current liabilities of £20,000, the acid test (quick ratio) will be:
1 point
1.8
1.6
1.2
0.6
Clear selection
Which group of ratios measure how effectively the firm is using its assets?
1 point
Profitability ratios.
Debt ratios.
Coverage ratios.
Activity ratios.
Clear selection
Which group of ratios relate the financial charges of a firm to its ability to service them?
1 point
Profitability ratios.
Debt ratios.
Coverage ratios.
Liquidity ratios.
Clear selection
In conducting a commonsize analysis every balance sheet item is divided by __________ and every income statement is divided by __________.
1 point
its corresponding base year balance sheet item; its corresponding base year income statement item
total assets; net sales or revenues
its corresponding base year income statement item; its corresponding base year balance sheet item
net sales or revenues; total assets.
Clear selection
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