| A firm’s annual stockholders’ report ________. | summarizes and documents the firm’s financial activities during the past year |
| The rule-setting body, which authorizes generally accepted accounting principles is the ________. | FASB |
| Accounting practices and procedures used to prepare financial statements are called ________. | GAAP |
| The federal regulatory body governing the sale and listing of securities is called the ________. | SEC |
| The stockholders’ annual report must include ________. | an income statement |
| The 2002 Sarbanes-Oxley Act was designed to ________. | eliminate the many disclosure and conflict-of-interest problems of corporations |
| The 2002 law that established the Public Company Accounting Oversight Board (PCAOB) was called ________. | the Sarbanes-Oxley Act |
| The Public Company Accounting Oversight Board (PCAOB) ________. | is a not-for-profit corporation that oversees auditors of public corporations |
| The stockholder’s report includes ________. | a statement of retained earnings |
| Total assets less net fixed assets equals ________. | current assets |
| A(n) ________ provides a financial summary of a firm’s operating results during a specified period. | income statement |
| Gross profit is ________. | sales revenue minus cost of goods sold |
| Operating profit is ________. | gross profit minus operating expenses |
| Net profit after taxes is ________. | EBIT minus interest and taxes |
| Operating profit is known as ________. | earnings before interest and taxes |
| Earnings available for common stockholders is calculated as net profits ________. | after taxes minus preferred dividends |
| Which of the following is a current liability? | notes payable |
| Which of the following represents a current asset? | marketable securities |
| Which of the following is a fixed asset? | land |
| The net value of fixed assets is also called its ________. | book value |
| Retained earnings on the balance sheet represents the ________. | cumulative total of all earnings reinvested in the firm |
| The ________ represents a summary statement of a firm’s financial position at a given point in time. | balance sheet |
| The statement of cash flows ________. | provides insight into a firm’s operating, investment, and financing cash flows |
| When preparing the retained earnings statement, ________ is(are) subtracted in order to derive at the ending balance of retained earnings. | dividends |
| The firm’s earnings available to common shareholders for 2014 is ________. | $302.40 |
| The firm’s earnings per share for 2014 is ________. | $0.3024 |
| The firm’s net profit after taxes for 2014 is ________. | $320.40 |
| On the balance sheet, net fixed assets represent ________. | gross fixed assets at cost minus accumulated depreciation |
| Paid-in capital in excess of par represents the amount of proceeds ________. | in excess of the par value from the original sale of common stock |
| Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm’s net profit after taxes? | $49,000 |
| Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no interest expense. What was Candy Corporation’s earnings per share? | $7.42 |
| A firm’s year-end retained earnings balances are $670,000 and $560,000, for 2014 and 2015 respectively. The firm paid $10,000 in dividends in 2015. The firm’s net profit after taxes in 2015 was ________. | -$100,000 |
| A firm’s year-end retained earnings balances are $320,000 and $400,000, for 2014 and 2015 respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm’s dividend payment for 2015 is ________. | $20,000 |
| A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm’s retained earnings balance at 2015 year end is ________. | $240,000 |
| A firm’s year-end retained earnings balance are $670,000 and $560,000 for 2014 and 2015, respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm paid dividends of ________ in 2015. | $210,000 |
| Information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements can be found on ________. | the notes to the financial statements |
| FASB Standard No. 52 mandates that U.S.-based companies must translate their foreign-currency-denominated assets and liabilities into dollars using the ________. | current rate |
| Ratios provide a ________ measure of a company’s performance and condition. | relative |
| Present and prospective shareholders are mainly concerned with a firm’s ________. | risk and return |
| The primary concern of creditors when assessing the strength of a firm is its ________. | short-term liquidity |
| ) ________ analysis involves the comparison of different firms’ financial ratios at the same point in time. | Cross-sectional |
| ________ analysis involves comparison of current to past performance and the evaluation of developing trends. | Time-series |
| Which of the following is used to analyze a firm’s financial performance over different years? | time-series analysis |
| Which of the following is true of benchmarking? | It is an analysis in which a firm’s ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate. |
| Cross-sectional ratio analysis is used to ________. | measure relative performance of a firm with its peers |
| Time-series analysis is often used to ________. | assess developing trends |
| In ratio analysis, a comparison to a standard industry ratio is made to isolate ________ deviations from the norm. | negative |
| Which of the following is a limitation of ratio analysis? | Ratios that reveal large deviations from the norm merely indicate the possibility of a problem. |
| An analyst should be careful when conducting ratio analysis to ensure that ________. | the overall performance of a firm is not judged on a single ratio |
| The analyst should be careful when analyzing ratios that ________. | right interpretation of the ratio value is made |
| Inflation can distort ________. | book value of inventory costs |
| Without adjustment, inflation may tend to cause ________ firms to appear more efficient and profitable than ________ firms. | older; newer |
| Which of the following groups of ratios primarily measure risk? | liquidity, activity, and debt |
| The ________ ratios are primarily used as measures of return. | profitability |
| The ________ of a business firm is measured by its ability to satisfy its short-term obligations as they come due. | liquidity |
| The two categories of ratios that should be utilized to assess a firm’s true liquidity are the ________. | liquidity and activity ratios |
| The two basic measures of liquidity are ________. | current ratio and quick ratio |
| A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might ________. | decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios |
| If the only information you are given about Ryan Corporation, a large public company in business for many years, is that it has a current ratio of 2.9, what could you infer from this? | It can meet the short-term obligations without any difficulty. |
| Which of the following is true of current ratio? | A higher current ratio indicates a greater degree of liquidity. |
| Which of the following is excluded when calculating quick ratio? | inventory |
| ________ ratios are a measure of the speed with which various accounts are converted into sales or cash. | Activity |
| Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ________ and the average age of inventory is ________. | 10; 36.5 |
| ________ may indicate a firm is experiencing stockouts and lost sales. | Inventory turnover ratio |
| If an inventory turnover is divided into 365, it becomes a measure of ________. | the average age of the inventory |
| ) The ________ measures the activity, or liquidity, of a firm’s stock of goods. | inventory turnover ratio |
| A(n) ________ is useful in evaluating credit policies. | average collection period |
| The ________ ratio may indicate poor collections procedures or a relaxed credit policy. | average collection period |
| ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________. | 57 days |
| Which of the following ratios is difficult for the creditors of a firm to analyze from the published financial statements? | average payment period |
| Nico Corporation has annual purchases of $300,000 and accounts payable of $30,000, then average purchases per day are ________ and the average payment period is ________. | 821.9; 36.5 |
| ________ are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm. | Lenders and suppliers |
| The ________ ratio indicates the efficiency with which a firm uses its assets to generate sales. | total asset turnover |
| A firm’s total asset turnover increased from 0.75 to 0.90. Which of the following is true about the given data? | Its assets have been efficiently used to derive the optimum level of sales. |
| A firm with a total asset turnover that is lower than industry standard but with a current ratio that meets industry standard must have excessive ________. | fixed assets |
| A firm with a total asset turnover lower than industry standard may have ________. | insufficient sales |
| ________ is a term used to describe the magnification of risk and return introduced through the use of fixed-cost financing, such as preferred stock and debt. | Financial leverage |
| ________ ratio measures the proportion of total assets financed by the firm’s creditors | Debt |
| ________ ratio measures a firm’s ability to pay contractual interest payments. | Times interest earned |
| ________ ratio indicates that a firm will be able to meet interest obligations due on outstanding debt. | Times interest earned |
| The higher, the value of ________ ratio, the better able a firm is to fulfill its interest obligations. | times interest earned |
| When assessing the fixed-payment coverage ratio, ________. | the lower its value the more risky is the firm |
| Inventory for CEE in 2013 was ________. (See Table 3.1) | $27,500 |
| Notes payable for CEE in 2013 was ________. (See Table 3.1) | $ 10,609 |
| Accounts receivable for CEE in 2013 was ________. (See Table 3.1) | $19,861 |
| Net fixed assets for CEE in 2013 were ________. (See Table 3.1) | $45,484 |
| Total assets for CEE in 2013 were ________. (See Table 3.1) | $ 97,345 |
| Long-term debt for CEE in 2013 was ________. (See Table 3.1) | $30,763 |
| Two frequently cited ratios of profitability that can be read directly from the common-size income statement are ________. | the gross profit margin and the net profit margin |
| The ________ is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as a percent of sales. | common-size income statement |
| ________ indicates the percentage of each sales dollar remaining after the firm has paid for its goods. | Gross profit margin |
| ________ measures the percentage of profit earned on each sales dollar before interest and taxes but after all costs and expenses. | Operating profit margin |
| A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive ________. | general and administrative expenses |
| ________ measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. | Net profit margin |
| ________ measures the overall effectiveness of management in generating profits with its available assets. | Return on total assets |
| ________ measures the return earned on the common stockholders’ investment in the firm. | Return on equity |
| A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000, and common stockholders’ investment of $750,000 has a return on equity of ________. | 4 percent |
| A ________ ratio is commonly used to assess owners’ appraisal of the share value. | price/earnings |
| P/E ratio measures the ________. | market value of the stock to earnings per share |
| Book value per share is the ratio of ________. | common stock equity to number of outstanding common shares |
| The DuPont system merges the income statement and balance sheet into two summary measures of profitability, ________. | return on total assets, and return on common equity |
| The ________ is used by financial managers as a structure for dissecting a firm’s financial statements to assess its financial condition. | DuPont system of analysis |
| In the DuPont system of analysis, the return on total assets (asset) is equal to ________. | net profit margin) × (total asset turnover) |
| The modified DuPont formula relates the firm’s return on total assets (ROA) to its ________. | return on equity (ROE) |
| In the DuPont system of analysis, the return on equity is equal to ________. | (return on total assets) × (financial leverage multiplier) |
| A firm with a low net profit margin can improve its return on total assets by ________. | increasing its total asset turnover |
| Other things being equal, a decrease in total asset turnover will result in ________ in the return on total assets. | a decrease |
| A firm with a low return on total assets can improve its return on equity, all else remaining the same, by ________. | increasing its debt ratio |
| The three basic ratios used in the DuPont system of analysis are ________. | net profit margin, total asset turnover, and equity multiplier |
| The financial leverage multiplier is an indicator of how much ________ a corporation is utilizing. | total debt |
| Financial leverage multiplier is the ratio of ________. | total assets to common stockholders’ equity |
| Using the DuPont system of analysis, holding other factors constant, an increase in financial leverage will result in ________. | an increase in the return on equity |
| As the financial leverage multiplier increases, this may result in ________. | a decrease in the net profit margin and return on investment, due to the increase in interest expense as debt increases |
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