Acct Ch 14

  1. Why do managers analyze financial statements?

    D. All of the above
  2. Horizontal analysis analyzes

    D. Changes in balances from one year to another
  3. In connection with a company's annual report, MD&A stands for

    C. Management discussion and analysis
  4. Net income substantially higher then cash flow from operations may indicate

    A. Manipulation of income
  5. The fact that the return on common stockholders' equity is higher than the return on total assets suggests that a company

    A. Has made good use of financial leverage
  6. A primary difference between the current ratio and the acid test ratio (quick ratio) is

    C. The acid test ratio excludes inventory from the numerator
  7. Day sales in inventory is equal to

    C. 365/ inventory turnover
  8. Which of the folllowing items is not included in the calculation of income from operations?

    D. None of the above is included in the calculation of income from operations
  9. List three types of decisions managers can make by analyzing financial statements
    By analyzing financial statements, managers decide what suppliers to use, what businesses to partner with, and how to pay off the firm’s debts.
  10. Explain what is meant by horizontal and vertical analysis of the balance sheet and the income statement
    Horizontal analysis consists of analyzing the dollar value and percentage changes in financial statements across time

    Vertical analysis consists of analyzing financial statements in comparison to a base amount. The base for the balance sheet is total assets, while net sales is the base for the income statement
  11. Suppose net income is much higher than cash flow from operations
Card Set
Acct Ch 14
Exam II