Multiple-Choice Questions

1. Which of the following types of analysis is particularly useful for trend analysis?

a. Vertical analysis

b. Timetable analysis

c. Trend-setting analysis

d. Horizontal analysis

2. Vertical analysis expresses each financial statement line item as a percent of:

a. The average statement amount

b. The smallest statement amount

c. The largest statement amount

d. The mean statement amount

3. Horizontal analysis expresses each financial statement line item as a percent of:

a. Net income

b. Total assets

c. Base year

d. Stockholders’ equity

4. How is the current ratio calculated?

a. Current Assets/Current Liabilities

b. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

c. (Cash + Marketable Securities)/Current Liabilities

d. Cash Flows from Operating Activities/Current Liabilities

5. Partial information from Blain Company’s balance sheet is as follows:

Current Assets:

Cash .................$ 1,200,000

Marketable securities .......... 3,750,000

Accounts receivable ........... 28,800,000

Inventories .............. 33,150,000

Prepaid expenses ............. 600,000

Total current assets ............. $67,500,000

Current Liabilities:

Notes payable ............. $ 750,000

Accounts payable ............. 9,750,000

Accrued expenses ............ 6,250,000

Income taxes payable .......... 250,000

Total current liabilities .......... $17,000,000

What is Blain’s current ratio?

a. 0.25

b. 3.0

c. 1.8

d. 3.97

6. Hilton Inc. has $30,000 in current assets and $15,000 in current liabilities. What is Hilton Inc.’s current ratio?

a. 0.5

b. 1

c. 2

d. 3

7. How is the cash ratio calculated?

a. Current Assets/Current Liabilities

b. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

c. (Cash + Marketable Securities)/Current Liabilities

d. Cash Flows from Operating Activities/Current Liabilities

8. A firm’s quick ratio is typically computed as follows:

a. Total Liabilities/Total Assets

b. (Cash + Short-Term Investments + Receivables)/Current Liabilities

c. Current Liabilities/Current Assets

d. Current Assets/Current Liabilities

9. ABC Company has $40,000 in current liabilities, $20,000 in cash, and $25,000 in marketable securities. What is the cash ratio for ABC Company?

a. 1.125

b. 0.889

c. 1.6

d. 0.625