Reading 20: Financial Analysis Techniques

Which of the following is a specific purpose for which financial ratios are used in financial analysis?

In a vertical common-size income statement, each item is expressed as a percentage of:

Which of the following best describes horizontal common-size analysis?

A limitation of financial ratios is that:

Which graphical tool shows changes in the composition of financial statement items over time, such as components of liabilities?

If a company has annual sales of 500,000 and average receivables of 50,000, what is its receivables turnover?

A processing period (days of inventory on hand) that is too high might indicate:

Calculate the payables turnover given purchases of 800,000 and average trade payables of 100,000.

Which ratio measures the effectiveness of a firm's use of its total assets to create revenue?

If a company has a fixed asset turnover ratio that is significantly lower than the industry norm, it might imply:

Working capital is defined as:

Given: Sales = 1,000,000; Average Working Capital = 200,000. Calculate the working capital turnover.

To calculate the days of inventory on hand, one must multiply 365 by:

If purchases are not directly reported, they can be calculated using:

Using a 365-day year, if the payables turnover ratio is 10, what is the payables payment period?

Which ratio provides the most stringent measure of liquidity by excluding inventories and receivables?

If a company has a current ratio of less than one, it implies:

Given: Cash = 100, Marketable Securities = 50, Receivables = 150, Inventory = 200, Current Liabilities = 400. Calculate the Quick Ratio.

The cash conversion cycle is calculated as:

The defensive interval ratio measures:

Which ratio is a measure of the firm's use of fixed-cost financing sources?

If a firm has Total Debt of 500 and Total Shareholders' Equity of 1,000, what is the Debt-to-Capital ratio?

Which solvency ratio is calculated as Average Total Assets divided by Average Total Equity?

A lower interest coverage ratio indicates:

The Fixed Charge Coverage ratio includes which of the following in the numerator and denominator?

Which profitability ratio is calculated as (Net Income / Revenue)?

Gross profit is defined as:

Return on Assets (ROA) calculated using net income can be misleading because:

Return on Total Capital (ROTC) is the ratio of:

Return on Common Equity differs from Return on Total Equity because:

According to the original three-part DuPont equation, ROE is equal to:

If a company has a Net Profit Margin of 5 percent, Asset Turnover of 1.5, and a Leverage Ratio of 2.0, what is its ROE?

In the extended (5-way) DuPont equation, the Tax Burden is calculated as:

In the extended DuPont model, a lower Interest Burden ratio (EBT/EBIT) implies:

If a company increases its financial leverage while keeping profit margins and asset turnover constant, what will happen to ROE (assuming positive earnings)?

Which of the following is an example of a per-share valuation measure?

Diluted EPS is calculated to reflect:

The retention rate (RR) is defined as:

Calculate the sustainable growth rate (g) for a firm with an ROE of 15 percent and a dividend payout ratio of 40 percent.

The coefficient of variation for a variable is defined as:

Which metric is commonly used in the retail industry?

Capital adequacy typically refers to ratios used in which industry?

According to Altman (2000), a low Z-score indicates:

A business segment must be reported separately if it accounts for more than what percentage of the company's revenues, assets, or income?

Which of the following is NOT a required disclosure for a reportable segment?

To model and forecast earnings, analysts often use common-size income statements to estimate:

Sensitivity analysis in forecasting involves:

Simulation is a technique in which:

Scenario analysis differs from sensitivity analysis because:

When forecasting future net income, if a company has historically had a stable net profit margin, an analyst might: