The two elements used in determining the rate of return on operating assets are:

	A.	net income and turnover of operating assets.
	B.	net operating income and turnover of operating assets.
	C.	net operating income and operating assets.
	D.	net income and operating assets.

2 points

QUESTION 14

The gross margin amounts for Blue Co. were $40,000, $44,000, and $50,000, respectively, for the years 2010 through 2012. If 2010 is the base year for a trend analysis, the appropriate percentages for 2011 and 2012 are:

	A.	110% and 125%.
	B.	22% and 25%.
	C.	10% and 25%.
	D.	220% and 250%.

2 points

QUESTION 15

Assuming relatively stable business conditions, a decline in the average number of day's sales in accounts receivable outstanding from one year to the next might indicate:

	A.	a significant decrease in sales in the second year.
	B.	a longer discount period and a more distant due date were extended to customers in the second year.
	C.	that the second year's sales were made at lower prices than the first year's sales.
	D.	a stiffening of the company's credit policies.

2 points

QUESTION 16

The stockholders' equity to debt ratio is a measure of the corporation's profitability.

True

False

2 points

QUESTION 17

You are given the following information:

Income before interest expense and taxes	$500,000
Less: Interest expense	40,000
Income before federal income taxes	$460,000
Less: Taxes (at 40% rate)	184,000
Net income	$276,000
Less: Preferred dividends	30,000
Earnings available for common stockholders	$246,000

The number of times the interest is earned is:

	A.	4.6
	B.	12.5
	C.	25.5
	D.	11.5

2 points

QUESTION 18

Outside parties use financial statement analysis for:

	A.	assessing the results of past management performance.
	B.	assisting in decisions on investing.
	C.	assisting in decisions on extending credit.
	D.	All of the above answers are correct.

2 points

QUESTION 19

Comparative financial statements are statements in which figures for a single company are presented for each of two or more periods.

True

False

2 points

QUESTION 20

Common-size statements show only period-to-period percentage changes in financial statement items.

True

False

2 points

QUESTION 21

Trend percentages:

	A.	are used to compare financial information over time to a base year.
	B.	are especially useful in examining trends when base year amounts are negative or zero.
	C.	are applied to an income statement to obtain a percentage comparison of each element to net sales.
	D.	point out which items in a base year statement need further investigation.

2 points

QUESTION 22

In evaluating a company, the financial analyst must be sure that any data and techniques being used are comparable.

True

False