Cagayan State University

Andrews Campus
COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY
Financial Statement Analysis

Choose the best answer.

1. It refers to the process of determining financial strength and weakness of the firm by establishing strategic
relationship between the item in the financial statements.
a. Ratio analysis c. Horizontal analysis
b. Vertical analysis d. Financial statement analysis

2. It measures the ability of the business to generate profit in relation to sales, investments, assets, equities, or
ordinary shares outstanding.
a. Profitability ratio c. Return on Investment
b. Operating profit ratio d. Return on Sales

3. This method determines the direction upwards or downwards and involves the computation of percentage
relationship that each statement bears to the same item in the base year.
a. Cash flow analysis c. Ratio analysis
b. Trend analysis d. Cost-volume-profit analysis

4. It measures the effectiveness of management in generating wealth from the normal business operations in
relation to the amount invested by the owners.
a. Return on Sales c. Return on Equity
b. Return on Investment d. Return on Assets

5. The term financial statements refers to …

a. Income Statement c. Cash Flow
b. Statement of Financial Position d. All of the above

6. Which of the following is the main objective of a financial statement?

a. To know the solvency c. to know the debt capacity
b. To know the earning capacity d. All of the above

7. Gross profit ratio is calculated by

a. (Gross Profit/Gross Sales) x 100 c. (Net Profit/Gross Sales) x 100
b. (Gross Profit/Net Sales) x 100 d. none of the above

8. Given Net Sales is 120,000 and gross profit is 30,000, the gross profit ratio is
a. 24% c. 40%
b. 25% d. 44%

9. Determine the working capital turnover ratio if, net working capital is 50,000 and cost of sales is 300,000.
a. 1.5 times c. 6 times
b. 3 times d. 5 times

10. Which ratio is considered as safe margin of solvency?

a. Quick ratio c. Current ratio
b. Acid test ratio d. None of the above

11. Given current asset is 3,000,000 and current liability is 1,000,000, the current ratio is
a. 3:1 c. 2:1
b. 1.5:1 d. 1:1

12. Determine the asset turnover ratio if, net sales is 2,000,000 and average total assets is 500,000.
a. 4 c. 0.25
b. 5 d. ¼

13. Determine the receivables turnover ratio if, net credit sales is 10,000,000 and average accounts receivable is
2,000,000.
 a. 20% c. 0.20
b. 5 d. 0.50

14. Determine the current ratio if, current asset is 375,000 and current liability is 334,000.
a. 1.00 c. 1.12
b. 1.25 d. 1.18

15. Determine the quick ratio if, quick asset is 185,000 and current liability is 334,000.
a. .45 c. .50
b. .25 d. .55

16. Determine the accounts receivable turnover if, net credit sales is 500,000 and average accounts receivable is
127,500.
a. 3.92 c. 3.95
b. 3 d. 3.80

17. Determine the inventory turnover if, cost of goods sold is 250,000 and average inventory is 170,000.
a. 1.17 c. 1.47
b. 1.27 d. 1.37

18. Horizontal analysis is also referred to as trend analysis.

a. True
b. False

19. This ratio measures the ability of the management to produce return to owners for every peso of net sales.
a. Return on Sales c. Return on Equity
b. Return on Investment d. Return on Assets

20. When an accountant calculates different parts of a financial statement in terms of a percentage of the total
amount, the accountant is doing a ___________________.
a. Vertical Analysis c. Percentage Analysis
b. Horizontal Analysis d. Income Analysis

21. If a business has 100,000 in total assets, which includes 35,000 in cash, 10,000 in invemtory and 55,000 in
accounts receivable, what is the vertical analysis of cash?
a. 100,000 c. 10,000
b. 35,000 d. 55,000
22. An example of a liquidity ratio is ______.
A. fixed asset turnover
B. current ratio
C. acid test or quick ratio
D. fixed asset turnover and acid test or quick ratio
E. current ratio and acid test or quick ratio
23. __________ a snapshot of the financial condition of the firm at a particular time.
A. The balance sheet provides
B. The income statement provides
C. The statement of cash flows provides
D. All of these provide
E. None of these provides
24. __________ of the cash flow generated by the firm's operations, investments and financial activities.
A. The balance sheet is a report
B. The income statement is a report
C. The statement of cash flows is a report
D. The auditor's statement of financial condition is a report
E. None of these is a report
 The financial statements of Black Barn Company are given below

25. Refer to the financial statements of Black Barn Company. The firm's current ratio for 2009 is ____.
A. 2.31
B. 1.87
C. 2.22
D. 2.46
E. None of these is correct.

26. Refer to the financial statements of Black Barn Company. The firm's quick ratio for 2009 is ____.
A. 1.69
B. 1.52
C. 1.23
D. 1.07
E. 1.00

The financial statements of Snapit Company are given below.

27. Refer to the financial statements for Snapit Company. The firm's current ratio for 2009 is __________.
A. 1.98
B. 2.47
C. 0.65
D. 1.53
E. None of these is correct.

28. 64. Refer to the financial statements of Snapit Company. The firm's quick ratio for 2009 is ______.
A. 1.68
B. 1.12
C. 0.72
D. 1.92
E. None of these is correct.
29. Using the Horizontal analysis of financial statements, what is the decrease of the company’s total assets in
terms of percentage?(round up your answers)
A. 8%
B. 9%
C. 10%
D. None of the above
E. There is no decrease on the company’s total assets but increase instead.
30. Bonus. “Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one
more time.”