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(Solution) - 1 A company provided income statements for the past five

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1. A company provided income statements for the past five years. In looking at the percentage columns for each year, you notice that sales are 46 percent higher in year 5 than in year 1. The company has most likely provided
a. A horizontal analysis using the prior period as the base year.
b. A vertical analysis using sales as the base.
c. A horizontal analysis using year 1 as the base year.
d. A vertical analysis using net income as the base.
e. None of the above.

2. An advantage of common-size analysis is that
a. The size of dollar amounts impact the analysis.
b. Larger companies will have higher common-size percentages.
c. The effects of size are eliminated.
d. It focuses only on vertical analysis.
e. It focuses only on horizontal analysis.

3. Fractions or percentages computed by dividing one account or line-item amount by another are called
a. Ratios.
b. Industry averages.
c. Common-size statements.
d. Dividend yields.
e. Returns.

4. The measures of the ability of a company to meet its long- and short-term obligations are called
a. Ratios.
b. Liquidity ratios.
c. Leverage ratios.
d. Profitability ratios.
e. Percentage changes.
5. A company?s inventory turnover in days is 80 days. Which of the following actions could help to improve that ratio?
a. Increase in sales price
b. Increase in manufacturing costs
c. Reduction in cost of goods sold
d. Reduction in average inventory
e. All of the above

6. Company B shows that 46 percent of its assets are financed by creditors. Which of the following shows this result?
a. Current ratio
b. Times-interest-earned
c. Return on sales
d. Inventory turnover in days
e. Debt ratio

7. Profitability ratios are used by which of the following groups?
a. Company managers
b. Creditors
c. Lenders
d. Investors
e. All of the above

8. Fred and Torrie Jones are a retired couple looking for income. They are currently rebalancing their portfolio of stocks to include more with high dividends. Fred and Torrie will be most interested in which of the following?
a. Dividend payout ratio
b. Current ratio
c. Return on assets
d. Price-earnings ratio
e. Dividend yield
9. A small pizza restaurant, founded and owned by the Martinelli sisters, would be expected to have which of the following?
a. High price-earnings ratio
b. High inventory turnover and low gross margin
c. Low inventory turnover and high gross margin
d. Low accounts receivable turnover and low gross margin
e. All of the above

10. The after-tax cost of interest expense is used in calculating which of the following?
a. Times-interest-earned
b. Return on total assets
c. Debt ratio
d. Inventory turnover ratio
e. All of the above


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