The analysis of changes and percentage changes over time;
The analysis in which items are presented as a percentage of one selected item of the financial statement
The analysis in which a statistic is calculated for the relationship between two items of the statement of financial position
The analysis in which a statistic is calculated for the relationship between two items of the income statement
The analysis of all ratios that increased or decreased over the past periods
‘Gearing’ indicates
The proportion of debt to equity
The proportion of debt to non-current assets
The proportion of debt to total liabilities
The proportion of debt to working capital
Horizontal analysis refers to
The analysis in which a statistic is calculated for the relationship between two items of the income statement
The analysis of changes and percentage changes over time
The analysis in which items are presented as a percentage of one selected item of the financial statement
The analysis in which a statistic is calculated for the relationship between two items of the statement of financial position
The analysis of all ratios that increased or decreased over the past periods
Which of the following ratios is considered a profitability ratio?
Inventory turnover
Gearing ratio
Acid-test ratio
Earnings per share
Both a and c
A ‘Syndicated loan’ is
A loan granted by the workers-syndicate
A group of loans provided by a financial institution
A loan with floating interest rates
A loan provided by a group of financial institutions
‘Bonds’ are
Shares that will be bought back by the company
Debt issued to the capital market
Debt issued to several financial institutions
Shares issued to the capital market and considered as debt
Which of the following transactions will decrease net working capital?
Collection of trade receivables
Purchase of a truck with cash
A large credit sale
Payment of taxes payable
What is not a working capital element
Non-current assets
Inventories
Trade receivables
Cash
Trade payables
Internal structural analysis...
Is typically used on the statement of financial position rather than the income statement
Eliminates the effects of changes in volume in analyzing the relationship of income statement categories;
Is not commonly used by financial analysts
Reflects the percentage changes from one year to the next in categories of the financial statements
If gross operating margin as a percentage of sales decreases over the period and the cost per unit of inventory purchases was stable throughout the period, then...
Sales volume must have decreased during the period
Sales prices per unit must have decreased during the period
Sales prices per unit must have increased during the period
Sales volume must have increased during the period
Improved efficiency in managing inventory will generally be reflected in the inventory turnover ratio by...
A decrease in the ratio from one period to the next
An increase in the ratio from one period to the next
No change in the ratio from one period to the next
The inventory turnover ratio does not reflect management efficiency
The current ratio is used as a measure of a company’s
Profitability
Gearing
Liquidity
Solvency
None of the above
Increased volume of credit sales will always
Increase the receivables turnover ratio
Decrease gross operating margin as a percentage of sales
Decrease the days inventory outstanding
Both a and c
None of the above
Which of the following ratios is considered a measure of liquidity?
Dividend yield ratio
Gross operating margin
Earnings per share
Price-earnings ratio
Acid test ratio
The return on assets ratio...
Is a measure of long-term solvency
Considers the financing brought in by all creditors and shareholders
Is a measure of short-term liquidity
Is based on average shareholders’ equity as compared to net profit for the period before interest
Reflects the funds made available by the creditors of the company
The return on capital employed ratio
Is a measure of profitability
Considers the financing brought in by all creditors and shareholders
Is a measure of short-term solvency
Is based on average shareholders’ equity as compared to net profit for the period before interest
Reflects the funds made available by the creditors of the company
Alfa Company’s inventory turned over five times a year. One of its competitors has an inventory turnover equal to ten times per year. What does this mean?
Alfa is twice as efficient in inventory management as its competitor
Alfa sold too much inventory during the year
Alfa should increase the amount of goods on hand to accommodate the additional demand
Alfa should try to increase sales and decrease the amount of goods on hand
The current ratio...
Is larger if the company is less liquid
Is generally smaller than the acid test ratio
Does not include cash on hand
Reflects a relationship between working capital elements
The quick ratio differs from the current ratio in that it
Excludes inventories and cash on hand from the numerator of the fraction
Represents the amount of cash (equivalents) instead of the amount of working capital
Is a more strict measure of the company’s ability to pay its current liabilities when they come due
Is a stricter test of the company’s ability to attract new long-term debt
Turnover ratios differ from the current ratio in that they:
Are based on cash flows instead of working capital
Are based on a point in time instead of a period of time
Are activity ratios
Measure profitability instead of liquidity
Net working capital...
Is the difference between non-current assets and non-current liabilities
Is the net investment of creditors needed to get the working capital cycle going
Is the difference between total assets and current liabilities
Is equal to the amount of capital employed
Is the difference between current assets and current liabilities
The working capital cycle of a manufacturing company is the length of time between:
The purchase of raw materials and the sale of goods
The sale of goods and the collection of any receivables from those sales
The purchase of raw materials and the end of the production process
The sale of goods and the payment of new raw materials purchases
The purchase of raw materials and the collection of any receivables from the sale of the product