If you are trying to forecast your company's growth for the next year, what should be your primary consideration?

Select an answer:

• the company's recent performance
• the company's owner equity
• the company's leverage
• the company's historic performance

ABC Corp's ROE has been decreasing over the last five years. How can you use financial statements to find the reason why?

Select an answer:

• Use the statements to find trends, but keep in mind there is usually not a single reason.
• Use recent financial ratios because they will usually provide the reason.
• The reason for a change in performance is almost always revealed in financial statement numbers.
• The historic performance of a company is the best place to find a reason.

What can you use to compare companies in different industries?

Select an answer:

• Leverage
• Return on Equity
• Operating Income
• Gross Profit

Why are common size financial statements used?

Select an answer:

• to compare companies of similar sizes
• to compare companies of different sizes
• to describe the health of a single company
• to analyze large multinational corporations

When determining the average collection period, how is accounts receivable turnover calculated?

Select an answer:

• Net Sales * Average Accounts Receivable
• Average Accounts Receivable / Net Sales
• Average Accounts Receivable * Inventory Turnover
• Net Sales / Average Accounts Receivable

ABC Corp's 2019 ROE dropped fifty percent from 2018. If the reason was return on sales, what component of the DuPont framework has decreased?

Select an answer:

• efficiency
• profitability
• leverage
• cash flow

On common size balance sheets, Company A's inventory is 8% and Company B's inventory is 14%. What do just these two percentages tell you?

Select an answer:

• Company B can do $100 of sales with less inventory than Company A.
• Company A can do $100 of sales with less inventory than Company B.
• Company A is better at turning its inventory than Company B.
• Company B is better at turning its inventory than Company A.

Why would you use a current ratio to determine a company's financial health?

Select an answer:

• Current ratio is the measure of the current liabilities a company incurs.
• Current ratio is the measure of how a company uses leverage to obtain current assets.
• Current ratio is the measure of a company's ability to pay its short-term liabilities.
• Current ratio is the measure of a company's ability to pay its long-term liabilities.

In its simplest terms, what does the accounting equation tell you?

Select an answer:

• the amount of expenses your company has
• how your company acquired the assets it has
• the amount of assets your company has
• how your company arrived at a profit or at a loss

You noticed that a fast food restaurant's operating cycle is 30 days. Would this suggest the restaurant is selling food beyond its expiration date?

Select an answer:

• No, because the operating cycle includes the average collection period, which will be long if the restaurant only takes cash.
• No, because the operating cycle includes inventory such as boxes, paper cups, and bags in addition to food.
• No, because 30 days is the average operating cycle for businesses selling nonperishable items.
• No, because the operating cycle does not start until after the food items are sold.

How does a retail store typically create assets?

Select an answer:

• by borrowing money from a bank
• by paying employees
• by buying inventory
• by selling inventory

In a common size income statement, how is the gross margin calculated?

Select an answer:

• income before taxes minus selling expenses
• total revenues minus the cost of sales
• cost of sales minus operating income
• operating income minus net interest expense

ABC Corp has a debt ratio of 84%. What does this indicate?

Select an answer:

• The company bought most of its assets with shareholder investment.
• The company's sales have dropped by 84%.
• The company bought most of its assets with borrowed money.
• The company is reducing its amount of assets.