21. Analysts use measures of long-term liquidity risk to evaluate a firm’s ability to meet interest and principal payments on long-term debt and similar obligations as they come due. If a firm cannot make the payments on time, it becomes insolvent and may have to reorganize or liquidate.
22. An analyst examines changes in a firm’s ratios over the three-year period—a so-called cross-section analysis.
23. Many analysts use a common-size balance sheet, which expresses each balance sheet item as a percentage of total assets.
24. As a practical matter, most firms report segment information by _____ indicating that most firms appear to be organized on these same lines.
A. geographical markets
B. products and services
C. major customers
D. resource inputs
E. production methods
25. The typical first step in financial statement analysis and valuation (after selecting assumptions) is:
A. Understand the Purpose and Content of the Principal Financial Statements and Related Notes.
B. Identify the Industry Economic Characteristics and Firm’s Strategy.
C. Calculate and Interpret Profitability and Risk Ratios.
D. Prepare Pro Forma, or Projected, Financial Statements.
E. Value the Firm.
26. The typical last step in financial statement analysis and valuation (after selecting assumptions) is:
A. Understand the Purpose and Content of the Principal Financial Statements and Related Notes.
B. Identify the Industry Economic Characteristics and Firm’s Strategy.
C. Calculate and Interpret Profitability and Risk Ratios.
D. Prepare Pro Forma, or Projected, Financial Statements.
E. Value the Firm.
27. The typical steps in financial statement analysis and valuation include all of the following, except
A. obtain all published reports from other financial analysts.
B. identify the industry economic characteristics and firm’s strategy.
C. calculate and interpret profitability and risk ratios.
D. prepare pro forma, or projected financial statements.
E. value the firm.
28. The typical steps in financial statement analysis and valuation include(s):
A. value the firm.
B. identify the industry economic characteristics and firm’s strategy.
C. calculate and interpret profitability and risk ratios.
D. prepare pro forma, or projected financial statements.
E. all of the above.
29. The return from investing in the shares of common stock include(s):
A. change in the market price of the common stock.
B. cash dividends.
C. interest income.
D. choices a and b.
E. all of the above.
30. The value of common stock investments will likely change between the time the shares are purchased and the time in the future when they are sold. The difference between the eventual selling price and the purchase price, is often called
A. speculative returns.
B. enrichment.
C. inflation.
D. price appreciation (or price depreciation, if negative).
E. deflation.