Answer the following questions:

PROBLEM 7: MULITPLE CHOICE 1. Current assets minus current liabilities is a. Current ratio b. Working Capital c. Debt ratio d. Quick ratio 2. Current assets divided by current liabilities is a. Current ratio b. Working Capital c. Debt ratio d. Quick ratio 3. It is a much stricter version of the current ratio wherein the numerator includes only cash, accounts receivable and marketable securities a. Current ratio c. Strict ratio b. Working Capital d. Quick ratio 4. Cost of sales divided by Average Inventory a. Debt ratio c. Days of Inventory b. Average Inventory d. Inventory Turnover 5. Credit sales divided by Average Accounts receivable is a. Accounts Receivable Turnover c. Debt Ratio b. Days of Receivable d. Equity Ratio 6. Profit or loss divided by Total Assets is a. Return on Assets c. Gross profit ratio b. Net Profit ratio d. Debt-to-equity ratio 7. Gross profit over Net sales is a. Return on Assets c. Gross profit ratio b. Net Profit ratio d. Debt-to-equity ratio 8. Total Equity over Total Assets is a. Return on equity c. Debt-to-asset ratio b. Equity ratio d. Debt-to-equity ratioPROBLEMS PROBLEM 1: TRUE OR FALSE 1. Financial statements are useless to a person who does not know how to interpret the information contained in the report. 2. When making business decisions, an entrepreneur will need various sources of information. A major source of information is the financial statements. 3. A comparison of information from one period to another is called vertical analysis. 4. An analysis of the interrelationships of information in a single period, expressed as percentages of a common denominator, is called horizontal analysis. 5. Entity A reported inventory balances of $100 and $50 in 20x1 and 20x0, respectively. In a horizontal analysis, a financial statement user would conclude that Entity A's inventory has increased by 50% from 20x0 to 20x1. 6. In 20x1, Entity A reported sales of P100 and profit of P20. In a vertical analysis, a financial statement user would conclude that Entity A was able to generate 20% profit from every peso of its sales during the period. 7. At the beginning of the day, you have p20 cash in your pocket. At the end of the day, you have P5 left. If you make a horizontal analysis of your pocket, you would conclude that your cash has decreased by 80% during the day.139 PROBLEM 9: MULITPLE CHOICE . Current ratio, Quick ratio and Working capital are used to 5. You have decided that it is about time to expand your . measure the amount of return an entity has generated business. You want to put up a new branch. The problem is your current resources are limited. Many banks have recently from its resources. D. measure an entity's ability to pay its short-ter called you, wanting to extend a loan to your business. However , you do not want your business to be over- obligations. leveraged. Which of the following financial ratios will help C. measure an entity's use of leverage in relation to equity you determine the current state of your business' debt financing. financing? d. All of these a. Net profit ratio b. Return on net assets c. Inventory turnover 2. You want to determine how fast your business can sell goods d. Debt ratio so you can have an idea on how much inventory you need to stock. Which of the following financial ratios can help you 6. Your sales have been increasing since the past five years. However, your profit has not improved a bit. You want to with your business decision? c. Current ratio determine what expenses are taking up too much of your sales a. Accounts receivable turnover d. Quick ratio and keeping you from earning profit. Which of the following b. Inventory turnover analyses will most likely help you with this? a. Return on net assets 3. You need a new delivery truck for your business. The problem b. Return on assets is you do not have excess cash to make the purchase. You are c. Net profit ratio considering on obtaining an auto loan. You want to know if d. Vertical analysis of income statement your operations can generate sufficient cash flows (including the timing thereof) needed to pay the monthly amortization 7. The following are the financial ratios of Entity A in 20x1: on the auto loan. Which of the following is least relevant to Current ratio = P0.20 this business decision? . Inventory turnover = 10.4 a. Days of receivable Accounts receivable turnover = 0.50 b. Accounts receivable turnover C. Net profit ratio If you are a user of Entity A's financial statements, you would d. Gross profit ratio most likely conclude that a. Entity A has a strong liquidity position. 4. You want to determine how much profit your business is b. Entity A's inventory is overstocked. generating for every P1 sale. Which of the following financial c. Entity A's credit granting and collection policy is poor. ratios can help you determine this? d. All of these a. Inventory turnover c. Return on net assets b. Return on assets d. Net profit ratio