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1. It would be possible for financial statement
analysis to affect nonfinance operations of a firm.
2. Cross-sectional analysis is used to evaluate a
firm’s performance over time.
3. Ratio analysis is a financial technique that
involves dividing various financial statements numbers into one another.
4. Asset management ratios indicate the ability
to meet short-term obligations to creditors as they come due.
5. The average collection period is calculated as
the year-end accounts receivable divided by the net sales.
6. Financial leverage ratios indicate the extent
to which borrowed funds are used to finance assets.
7. The interest coverage ratio indicates the
ability of a firm to meet its contractual obligations for interest, leases, and
debt principal repayments out of its operating income.
8. The operating profit margin is calculated as
the firm’s net income divided by net sales.
9. The market value ratios indicate the
willingness of investors to value a firm in the marketplace relative to
financial statement values.
10. The net profit margin is an example of a
market value ratio.
11. The price-to-book ratio measures the market’s
value of the firm relative to balance sheet equity.
12. Financial analysis using ratios can assist
managers in the firm’s financial planning process.
13. In employing DuPont analysis, the user would
break the return on total assets into the profit margin, total asset turnover,
and an equity multiplier.
14. Financial planning begins with a sales
forecast for one or more years.
15. Budgets are written financial plans utilized
in sales forecasts.
16. Internally generated funds for financing new
asset investments come from common stock issues.
17. Break-even analysis is used to estimate how
many units of products must be sold in order for the firm to have a reasonable
18. The contribution margin represents
contribution of each unit sold that first goes toward paying fixed costs.