121. Inventory turnover ratio
A. indicates how fast firms sell their inventory items.
B. measured in terms of the rate of movement of goods into and out of the firm.
C. equals cost of goods sold divided by the average inventory during the period.
all of the above
E. none of the above
122. Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of data presented and to evaluate the position of the firm. These techniques include(s)
A. ratio analysis.
B. common-size analysis.
C. examination of relative size among firms.
all of the above.
E. none of the above.
123. A common-sized income statement permit(s)
A. analysis of changes or differences in relations between revenues, expenses, and net income.
B. identification of relations that the analyst should explore further.
C. analysis of changes or differences in relations between assets, liabilities, and shareholders' equity.
both choices a and b.
E. both choices a and c.
124. Comparing firms using a common-size balance sheet rests on the assumption that
the size or scale of a business does not affect the relation between a given balance sheet item and total assets.
B. the size or scale of a business does affect the relation between a given balance sheet item and total assets.
C. the large purchaser can negotiate better terms, including lower per-unit prices.
D. more negotiating power would appear on the large purchaser’s balance sheet as proportionately smaller amounts reported for inventory relative to the amounts reported by a smaller purchaser with less negotiating power.
E. more negotiating power would appear on the large purchaser’s balance sheet as proportionately larger amounts reported for accounts payable relative to the amounts reported by a smaller purchaser with less negotiating power.
125. A common-size income statementpermits an analysis of changes or differences in the relations between revenues, expenses, and net income and identifies relations that the analyst should explore further, such as
A. time series analysis.
B. economic analysis.
C. cross-section analysis.
both choices a and c.
E. both choices b and c.
126. Concerning the analysis of financial data to emphasize the comparative and relative importance of data presented and to evaluate the position of the firm, it is important to take into consideration
A. the nature of the general business environment.
B. direct competition in a company's geographical area.
C. special situations not encountered throughout the industry.
all of the above.
E. none of the above.
127. Many firms sell to customers on account as a strategy to stimulate sales. Comparing accounts receivable turnovers over time or between firms requires an analysis of
A. the growth rate in sales.
B. the amount of interest revenue generated.
C. the cost of administering the credit-granting activity.
D. the losses from uncollectible accounts.
all of the above.
128. An analyst examines changes in a firm’s various ratios over a three-year period—a so-called _____ analysis and performs a _____ analysis comparing a given firm’s ratios with those of other firms for a specific period.
A. cross-section; time-series
time-series; cross-section
C. profitability; time-series
D. time-series; profitability
E. none of the above
129. The preparation of pro forma financial statements typically begins with the _____, followed by the _____ and then the _____.
A. balance sheet; income statement; statement of cash flows
B. statement of cash flows; income statement; balance sheet
income statement; balance sheet; statement of cash flows
D. income statement; statement of cash flows; balance sheet
E. balance sheet; statement of cash flows; income statement
130. What is the first step in preparing pro forma financial statements?
Project operating revenues.
B. Project operating expenses other than the cost of financing and income taxes.
C. Project the assets required to support the level of projected operating activity.
D. Project the financing (liabilities and contributed capital) required to fund the level of assets.
E. Project the cost of financing the debt, income tax expense, net income, dividends, and the change in retained earnings.