1) Which of the following statements is true for leverage?

A) asset turnover ratio measures financial leverage

B) leverage always increases profitability

C) leverage is shown in proportion of total assets relative to total equity

D) the higher the debt to equity ratio, the higher the leverage

2) Common-size statements ________.

A) allow the users to compare numbers in relative terms rather than absolute amounts

B) report dollar amounts and percentages

C) create a dollar value bias

D) show the same percentages that appear in a horizontal analysis

3) When performing vertical analysis of an income statement, the base amount is ________.

A) total expenses

B) net sales

C) sales revenue

D) gross profit

4) When performing vertical analysis of a balance sheet, the base amount is ________.

A) total assets

B) total cash and cash equivalents

C) net income

D) gross profit

5) Ratio analysis ________.

A) provides a year-to year comparison of a company's performance in different periods

B) is used most effectively to measure a company against other companies in the same industry and to denote trends within the company

C) cannot be used to measure a company against other companies in the same industry because the necessary information is not available

D) provides a way to compare different companies

6) The income statement is also known as the ________.

A) statement of operations

B) statement of cash flows

C) statement of stockholders' equity

D) statement of financial position

7) The auditor's report ________.

A) attests that the financial statements are error-free

B) is prepared by the internal auditors

C) states whether the financial statements are presented in accordance with GAAP

D) does not include an assessment of the effectiveness of the company's internal controls

8) Annual reports ________.

A) are required to be prepared by every corporation

B) discuss the company's competitors and the risks related to the company's business

C) are also called a Form 10-Q

D) only include the company's financial statements