FUNDAMENTAL ANALYSIS:FSA
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WYENARD has annual purchases of P300,000 and accounts payable of P30,000, then
average purchases per day are ________ *
2 points
821.90
Ratios provide a ________ measure of a company's performance and condition *
1 point
gross
definitive
absolute
relative
1.Retained earnings represent the cumulative total of all earnings, net of dividends,
that have been retained and reinvested in the firm since its inception 2.Earnings per
share results from dividing earnings available for common stockholders by the
number of shares of common stock authorized.. *
1 point
1ST STATEMENT IS FALSE
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE TRUE
BOTH STATEMENTS ARE FALSE
A firm with sales of P1,000,000, net profits after taxes of P30,000, total assets of
P1,500,000, and common stockholders' investment of P750,000 has a return on equity
of *
2 points
4%
The higher, the value of ________ ratio, the better able a firm is to fulfill its interest
obligations. *
1 point
average collection period
average payment period
times interest earned
dividend payout
1)Profitability ratios capture both risk and return. 2The liquidity of a firm is measured
by its ability to satisfy its short-term obligations as they come due *
1 point
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE TRUE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS FALSE
1)The use of differing accounting treatments—especially relative to inventory and
depreciation—can distort the results of ratio analysis, regardless of whether cross-
sectional or time-series analysis is used. 2.Market ratios only measure the risk *
1 point
BOTH STATEMENTS ARE FALSE
BOTH STATEMENTS ARE TRUE
1ST STATEMENT IS FALSE
1ST STATEMENT IS TRUE
1)In ratio analysis, the financial statements being used for comparison should be
dated at the same point in time during the year. If not, the effect of seasonality may
produce erroneous conclusions and decisions. 2.The use of the unaudited financial
statements for ratio analysis is preferable because it reflects the firm's true financial
condition. *
1 point
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE TRUE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS FALSE
An analyst should be careful when conducting ratio analysis to ensure that ________. *
1 point
the overall performance of a firm is not judged on a single ratio
the role of inflation is ignored
different accounting procedures are used
ratios being compared should be calculated using financial statements dated at different points
in time during the year
WYENARD had pretax profits of P1.2 million, an average tax rate of 34 percent, and it
paid preferred stock dividends of P50,000. There were 100,000 shares outstanding
and no interest expense. What was WYENARD's earnings per share? *
2 points
7.42
________ is a term used to describe the magnification of risk and return introduced
through the use of fixed-cost financing, such as preferred stock and debt. *
1 point
Fixed-payment coverage
Operating leverage
Benchmarking
Financial leverage
Which of the following is a limitation of ratio analysis *
1 point
Financial ratios cannot reveal certain specific aspects of a firm's financial position.
It is difficult to access audited financial statements for ratio analysis
Ratio analysis assumes that inflation has no effect on a firm's business
Ratios that reveal large deviations from the norm merely indicate the possibility of a problem.
WYENARD n has cost of goods sold of P300,000 and inventory of P30,000, then the
average age of inventory is ________. *
2 points
36.50
P/E ratio measures the ________. *
1 point
book value of the stock to earnings per share
market value of the stock to earnings per share
intrinsic value of the stock to earnings per share
market price of the stock to retained earnings
________ ratio measures the proportion of total assets financed by the firm's creditors *
1 point
Total asset turnover
Current
Inventory turnover
Debt
1Time-series analysis is the evaluation of a firm's financial performance in
comparison to other firm(s) at the same point in time. 2.The basic inputs to an
effective financial analysis are the firm's income statement and the balance sheet.. *
1 point
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS FALSE
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE TRUE
1)Higher the value of the times interest earned ratio, higher is the proportion of the
firm's interest income compared to its contractual interest payments. 2Typically,
higher coverage ratios are preferred, but a very high ratio may indicate under-
utilization of fixed-payment obligations, which may result in unnecessarily low risk and
return. *
1 point
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE TRUE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS TRUE
WYENARD had operating profits of P100,000, taxes of P17,000, interest expense of
P34,000, and preferred dividends of P5,000. What was the firm's net profit after
taxes? *
2 points
49,000
A firm with a low net profit margin can improve its return on total assets by *
1 point
increasing its debt ratio
decreasing its total asset turnover
increasing its total asset turnover
decreasing its fixed asset turnover
Which of the following is excluded when calculating quick ratio *
1 point
inventory
accounts payable
cash
accounts receivable
A firm with a low return on total assets can improve its return on equity, all else
remaining the same, by ________. *
1 point
decreasing its total asset turnover
increasing its debt ratio
decreasing its debt ratio
increasing its total asset turnover
As the financial leverage multiplier increases, this may result in *
1 point
a decrease in the net profit margin and return on investment, due to the increase in interest
expense as debt increases
an increase in the net profit margin and return on investment, due to the increase in interest
expense as debt increases
a decrease in the net profit margin and return on investment, due to the decrease in interest
expense as debt decreases
an increase in the net profit margin and return on investment, due to the decrease in interest
expense as debt decreases
1.The statement of cash flows reconciles the net income earned during a given year,
and any cash dividends paid, with the change in retained earnings between the start
and end of that year 2.The statement of cash flows provides insight into a firm's
operating, investment, and financing cash flows and reconciles them with changes in
its cash and marketable securities during the period of concern. *
1 point
BOTH STATEMENTS ARE TRUE
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS TRUE
WYENARD n has cost of goods sold of P300,000 and inventory of P30,000, then the
inventory turnover is ________ . *
2 points
10
Book value per share is the ratio of ________. *
1 point
retained earnings to number of outstanding common shares
common stock equity to number of outstanding common shares
fixed assets to number of outstanding common shares
total liabilities to number of outstanding common shares
1Time-series analysis is the evaluation of a firm's financial performance in
comparison to other firm(s) at the same point in time. 2.The basic inputs to an
effective financial analysis are the firm's income statement and the balance sheet.. *
1 point
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE TRUE
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE FALSE
1.The president's letter, the first component of the stockholders' report, is the primary
communication from management to a firm's employees 2.The income statement is a
financial summary of a firm's operating results during a specified period while the
balance sheet is a summary statement of a firm's financial position at a given point in
time. *
1 point
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE TRUE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS TRUE
1)A single key ratio of a firm provides all the information required to judge the overall
performance of the firm. 2.Ratios merely direct an analyst to potential areas of
concern and it does not provide conclusive evidence as to the existence of a
problem. *
1 point
1ST STATEMENT IS TRUE
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE FALSE
BOTH STATEMENTS ARE TRUE
1)Benchmarking is a type of cross-sectional analysis in which a firm's ratios are
compared to a key competitor firm within the same industry, primarily to identify areas
for improvement. 2.Time-series analysis evaluates the performance of various firms at
the same point in time using financial ratios.. *
1 point
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE TRUE
wyenard extends credit terms of 45 days to its customers. Its credit collection would
likely be considered poor if its average collection period was ________. *
1 point
30days
36 days
44 days
57 days
A firm's total asset turnover increased from 0.75 to 0.90. Which of the following is true
about the given data? *
1 point
Its assets have been efficiently used to derive the minimum level of net income
Its assets have been efficiently used to derive the minimum level of gross profit.
Its assets have been efficiently used to derive the optimum level of sales .
Its assets have been efficiently used to derive the optimum level of net income
Present and prospective shareholders are mainly concerned with a firm's ________. *
1 point
leverage
risk and return
profitability
liquidity
Information on the accounting policies, procedures, calculations, and transactions
underlying entries in the financial statements can be found on ________. *
1 point
the proxy statement
the notes to the financial statements
the statement of retained earnings
the management discussion and analysis
WYENARD has annual purchases of P300,000 and accounts payable of P30,000, then
the average payment period is ________. *
2 points
36.50
________ are especially interested in the average payment period, since it provides
them with a sense of the bill-paying patterns of the firm. *
1 point
Auditors
Lenders and suppliers
Stockholders
Employees
When assessing the fixed-payment coverage ratio, ________. *
1 point
the lower its value, the higher is the firm's financial leverage
the lower its value the more risky is the firm
preferred stock dividend payments can be disregarded
the higher its value, lesser is its reliability to pay up the debts
________ measures the percentage of each sales dollar remaining after all costs and
expenses, including interest, taxes, and preferred stock dividends, have been
deducted *
1 point
Gross profit margin
Net profit margin
Earnings available to common shareholders
Operating profit margin
In ratio analysis, a comparison to a standard industry ratio is made to isolate ________
deviations from the norm. *
1 point
negative
marginal
greater than average
standard
A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might *
1 point
improve its collection practices and pay accounts payable, thereby decreasing current liabilities
and decreasing the current and quick ratios.
improve its collection practices by providing extended credit policy.
increase inventory, thereby increasing current assets and the current and quick ratios
decrease current liabilities by utilizing more long-term debt, thereby increasing the current and
quick ratios.
The ________ is a popular approach for evaluating profitability in relation to sales by
expressing each item on the income statement as a percent of sales. *
1 point
vertical analysis
common-size income statement
common-size balance sheet
horizontal analysis
________ are especially interested in the average payment period, since it provides
them with a sense of the bill-paying patterns of the firm. *
1 point
Auditors
Lenders and suppliers
Stockholders
Employees
If an inventory turnover is divided into 365, it becomes a measure of ________. *
1 point
the average age of the inventory
sales turnover
financial efficiency
the average collection period
Which of the following is true of current ratio? *
1 point
The more predictable a firm's cash flows, the higher the acceptable current ratio
A higher current ratio indicates a higher return on equity.
A higher current ratio indicates a greater degree of liquidity
The more predictable a firm's current ratio, the higher the current liabilities.
Using the DuPont system of analysis, holding other factors constant, an increase in
financial leverage will result in ________. *
1 point
a decrease in the gross profit margin
an increase in the return on equity
an increase in the gross profit margin
an increase in retained earnings
1.Earnings per share represents amount earned during the period on each outstanding
share of common stocks 2.Net fixed assets represent the difference between gross
fixed assets and accumulated depreciation of fixed assets. *
1 point
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS TRUE
1ST STATEMENT IS FALSE
BOTH STATEMENTS ARE TRUE
1) Both current and prospective shareholders are interested in the firm's current and
future level of risk and return, which directly affect share price 2.Creditors are primarily
interested in short-term liquidity of the company and its ability to make interest and
principal payments.. *
1 point
BOTH STATEMENTS ARE TRUE
1ST STATEMENT IS TRUE
BOTH STATEMENTS ARE FALSE
1ST STATEMENT IS FALSE
Other things being equal, a decrease in total asset turnover will result in ________ in the
return on total assets. *
1 point
an undetermined change
a decrease
no change
an increase
An analyst should be careful when conducting ratio analysis to ensure that ________. *
1 point
ratios being compared should be calculated using financial statements dated at different points
in time during the year
different accounting procedures are used
the overall performance of a firm is not judged on a single ratio
the role of inflation is ignored
Using the DuPont system of analysis, holding other factors constant, an increase in
financial leverage will result in ________. *
1 point
) an increase in the gross profit margin
a decrease in the gross profit margin
an increase in retained earnings
an increase in the return on equity
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PROBLEM SOLVING
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PROBLEM C WYENARD Corporation had the following comparative current assets and
current liabilities: Dec. 31, 2019 Dec. 31, 2020 respectively Cash_ 20,000_30,000 Short-
term investments_40,000_10,000 Accounts receivable_55,000_95,000
Inventory_110,000_90,000 Prepaid expenses_35,000_20,000 Accounts payable
_140,000_110,000 Salaries payable _40,000_30,000 Income tax
payable_20,000_15,000 During 2020, credit sales and cost of goods sold were
P600,000 and P350,000, respectively
20 points
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