CH#5: BASIC OF ANALYSIS

P 5-8
Required: Answer the following multiple-choice questions:
1. Which of the following statements is incorrect?
a.
b.
c.
d.
e.

Ratios are fractions expressed in percent or times per year.

A ratio can be computed from any pair of numbers.
A very long list of meaningful ratios can be derived.
There is one standard list of ratios.
Comparison of income statement and balance sheet numbers, in the form of
ratios, should not be done.

2. A figure from this years statement is compared with a base selected from the
current year.
a.
b.
c.
d.
e.

Vertical common-size statement

Horizontal common-size statement
Funds statement
Absolute figures
Balance sheet

3. Fremont electronics has income of $1 million. Columbus electronics has

income of $2 million. Which of the following statements is a correct statement?
a. Columbus electronics is getting a higher return on assets employed.
b. Columbus electronics has higher profit margins than does Fremont electronics.
c. Fremont electronics could be more profitable than Columbus electronics in
relation to resource employed.
d. No comparison can be made between Columbus electronics and Fremont
electronics.
e. Fremont electronics is not making good use of its resources.
4. Industries ratios should not be considered as absolute norms for a given
industry because of all but which of the following?
a.
b.
c.
d.
e.

The firms have different accounting methods.

Many companies have varied product lines.
Companies within the same industry may differ in their method of operations.
The fiscal year-ends of the companies may differ.
The financial services may be private independent firms.

5. Which of the following is a publication of the federal government for

manufacturing, mining, and trade corporations?
a. Annual statement studies
b. Standard & poors industry surveys
c. Almanac of business and industrial financial ratios

d. Industry norms and key business ratios

e. The department of commerce financial report
6. Which service represents a compilation of corporate tax return data?
a.
b.
c.
d.
e.

Annual statement studies

Standard & poors industry surveys
Almanac of business and industrial financial ratios
Industry norms and key business ratios
The department of commerce financial report

7. Which service includes over 800 different line of business?

a.
b.
c.
d.
e.

Annual statement studies

Standard & poors industry surveys
Almanac of business and industrial financial ratios
Industry norms and key business ratios
The department of commerce financial report

8. Which analysis compares each amount with a base amount for a selected base
year?
a.
b.
c.
d.
e.

Vertical common size

Horizontal common size
Funds statement
Common-size statement
None of these

9. Suppose you are comparing two firms in the coal industry. Which type of
numbers would be most meaningful for statement analysis?
a. Relative numbers would be most meaningful for both firms, especially for
interfirm comparisons.
b. Relative numbers are not meaningful.
c. Absolute numbers would be most meaningful.
d. Absolute numbers are not relevant.
e. It is not meaningful to compare two firms.
10. Management is the user of financial analysis. Which of the following
comments does not represent a fair statement as to the management
perspective?
a.
b.
c.
d.

Management is not interested in the view of investors.

Management is interested in liquidity.
Management is interested in profitability.
Management is interested in the financial structure of the entity.
e. Management is interested in debt position.