Financial Statement Analysis Methods

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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.

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 group of ratios measure a firm's ability to meet short-term obligations?

1 point

Profitability ratios.

Debt ratios.

Coverage ratios.

Liquidity ratios.

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 shows the extent to which the firm is financed with debt?

1 point

Profitability ratios.

Debt ratios.

Coverage ratios.

Activity ratios.

Clear selection

Which of the following statements (in general) is correct?

1 point

A low receivables turnover is desirable.

The lower the total debt-to-equity 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

In conducting a common-size 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

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

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

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.

one-twelfth of debtors will turn out to be bad debts.

in any given month, twelve debtors are expected to pay in full.

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

If a company revalues its non-current assets upwards from historical cost, then its sales to capital employed ratio will:

1 point

stay the same.

decrease.

increase.

Not Sure

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

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 relate profits to sales and investment?

1 point

Profitability ratios.

Debt ratios.

Coverage ratios.

Activity ratios.

Clear selection

In conducting a common-size 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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