1. In examining Luke Company's current period income statement, you notice that Research and Development expenses are 62% of sales revenue. Luke has most likely provided
a. A horizontal analysis.
b. A vertical analysis using sales as the base.
c. A horizontal analysis using sales as the base.
d. A vertical analysis using net income as the base.
e. None of the above.
2. An advantage of common-size analysis is that
a. The size of dollar amounts impact the analysis.
b. Larger companies will have higher common-size percentages.
c. It focuses only on vertical analysis.
d. The effects of size are eliminated.
e. It focuses only on horizontal analysis.
3. Fractions or percentages computed by dividing one account or line-item amount by another are called
a. Returns.
b. Industry averages.
c. Common-size statements.
d. Dividend yields.
e. Ratios.
4. The measures of the ability of a company to meet its current obligations are called
a. Ratios.
b. Liquidity ratios.
c. Leverage ratios.
d. Profitability ratios.
e. Percentage changes.
5. Pedee Company's inventory turnover in days is 80 days. Which of the following actions could help to improve that ratio?
a. Increase sales price.
b. Increase manufacturing costs.
c. Reduce cost of goods sold.
d. Reduce average inventory.
e. All of these.