Understanding Financial Statements 11th Edition By Ormiston Frasier -Test Bank

True-False

1. The objectives of a financial statement analysis will vary depending on the perspective of the financial statement user.

2. A creditor is ultimately concerned with the ability of a firm to generate profits.

3. Supplementary schedules, such as data related to the breakdown of key financial figures by operating segment, are helpful to financial statement analysts.

4. Form 10-Ks and Form 10-Qs can be located through the Dun & Bradstreet Information services.

5. Articles from current business periodicals should not be used in financial statement analysis as journalists are often biased.

6. Financial ratios are powerful tools due to the fact that standard definitions exist and there is a set standard that should be met for each ratio.

7. Three ratios that help the financial analyst assess short-term solvency are the current ratio, the quick ratio and the cash flow liquidity ratio.

8. The accounts receivable turnover, inventory turnover and accounts payable turnover ratios are mathematical complements to the ratios that make up the cash conversion cycle.

9. The debt ratio considers the proportion of all stockholders’ equity that is financed with debt.

10. Tools used in a financial statement analysis should generally include common-size financial statements, key financial ratios, trend analysis, structural analysis, and comparison with industry competitors.

Solutions – Chapter 5

True-False

1. T 6. F
2. F 7. T
3. T 8. T
4. F 9. F
5. F 10. T