Ashworth C09 Exam 2 (20/20)

QuestionPart 1 of 1 – 90.0/ 100.0 PointsQuestion 1 of 20 5.0/ 5.0 PointsWhich of the statements below is FALSE? A. The income statement summarizes and categorizes a company’s revenues and expenses for that period.B. Typically, income statements are prepared quarterly and annually for distribution outside the company, but usually monthly for internal managers.C. The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT..D. The balance sheet reports the performance of the firm over the past period. It summarizes and categorizes a company’s revenues and expenses for that period.Question 2 of 20 5.0/ 5.0 PointsA current ratio greater than one can tell us that the company __________.A. should be able to cover the current liabilitiesB. should be able to keep away from short-term cash problemsC. may have too much capital tied up in current assetsD. all of theseQuestion 3 of 20 5.0/ 5.0 PointsComputing liquidity ratios is ________ but interpreting them is ________.A. complex, even more complexB. complex, more straightforwardC. straightforward, more complexD. none of theseQuestion 4 of 20 5.0/ 5.0 PointsThe DuPont Model measures ROE by multiplying __________.A. the current ratio x total asset turnover x the equity multiplierB. the profitability ratio x times interest earned x the equity multiplierC. the profitability ratio x total asset turnover x the equity multiplierD. the current ratio x times interest earned x the equity multiplierQuestion 5 of 20 5.0/ 5.0 PointsWhich of the statements below is FALSE?A. The textbook uses the framework of the income statement to find the operating income of the company (an accounting measure. and then makes adjustments to find the true cash flow from operations.B. In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.C. Three fundamental issues separate net income and cash flow: accrual-based accounting, non-cash expense items, and interest expense.D. Generally Accepted Accounting Principles (GAAP. in the United States allow the use of accrual accounting to record revenue.Question 6 of 20 5.0/ 5.0 PointsOrange Electronics Inc. has a profitability ratio of 0.14, an asset turnover ratio of 1.7, a debt to equity ratio of 0.60 and a total asset to equity ratio of 1.60. What is the firm’s ROE?A. 14.28%B. 22.85%C. 38.08%D. 41.76%Question 7 of 20 5.0/ 5.0 PointsThe income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the __________, the so-called bottom line of the income statement. A. after-tax incomeB. before-tax incomeC. net incomeD. EBITQuestion 8 of 20 0.0/ 5.0 PointsWhich of the statements below is FALSE?A. The purpose of studying financial statements is to understand those portions of the statements that have relevance for financial decision making.B. We need to understand how to interpret and use the information presented in financial statements to form a picture of the financial profile of the firm.C. Accounting, it has been said, looks back to where a company has been — somewhat like looking through a rear view mirror.D. Accounting and finance view the numbers in the same way.Question 9 of 20 5.0/ 5.0 PointsBecause financial ratios can vary across industries, it is __________ these ratios by industry. A. not necessary to studyB. unimportant to benchmarkC. important to benchmarkD. futile to examineQuestion 10 of 20 5.0/ 5.0 PointsWhich of the following are liquidity ratios?A. current ratioB. the quick ratioC. the cash ratioD. all of the aboveQuestion 11 of 20 0.0/ 5.0 PointsWhich of the following address the question of whether a company can meet its obligations over the long term?A. liquidity ratiosB. asset utilization ratiosC. debt ratiosD. financial leverage ratiosQuestion 12 of 20 5.0/ 5.0 Points __________ break(s. down the return-on-equity into three components. A. The DuPont ModelB. Market value ratiosC. Profitability ratiosD. Asset management ratiosQuestion 13 of 20 5.0/ 5.0 PointsReturn on equity can increase as a result of an increase in which of the following ratios?A. net income/ salesB. sales/ total assetsC. total assets/ equityD. All of the above will have a positive influence on the ROE.Question 14 of 20 5.0/ 5.0 PointsThe income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the __________ for the period.A. EBITB. after-tax incomeC. net incomeD. taxable incomeQuestion 15 of 20 5.0/ 5.0 PointsIn finance, we separate operating decisions from financing decisions and thus exclude __________ as a part of operating income from the income statement.A. cash flowB. dividendsC. interest expenseD. earningsQuestion 16 of 20 5.0/ 5.0 Points__________ help(s. us analyze whether a company is moving toward financial stress or is using debt to benefit the company and ultimately, the owners of the company.A. Financial leverage ratiosB. Asset management ratiosC. Days’ sales in inventoryD. Total asset turnoverQuestion 17 of 20 5.0/ 5.0 PointsThe fundamental starting point of all the accounting statements is the__________.A. accounting identityB. computing identityC. investing identityD. financing identityQuestion 18 of 20 5.0/ 5.0 PointsWhich of the statements below is FALSE?A. When the current ratio is greater than one, we are also saying that net working capital is positive as current assets are greater than current liabilities.B. Financial leverage ratios deal with long-term solvency and the use of debt as a financing tool.C. The debt ratio is total assets minus total equity divided by equity.D. Times interest earned equals EBIT divided by interest expense.Question 19 of 20 5.0/ 5.0 PointsWhich of the statements below is TRUE?A. DuPont analysis shows that ROE isX XB. DuPont analysis shows that ROE isX XC. DuPont analysis shows that ROE isX XD. DuPont analysis shows that ROE isX XQuestion 20 of 20 5.0/ 5.0 PointsThe purpose of studying financial statements is__________.A. to mechanically build portfolio analysisB. to understand those portions of the statements that have relevance for financial decision makingC. to primarily investigate all portions of the statements that have relevance for dividend policyD. to mechanically learn how to read and understand footnotes