Financial Statement Analysis Multiple Choice Questions#7

NOTE: Attempt all Questions to see the Result at the bottom of this page.

  1. 1)

    Which of the following is a possible reason for company's average debtor’s collection period falling from one year to the next?

    • A) An improvement in the state of the economy
    • B) A large credit customer facing severe cash shortages
    • C) Economic recession
    • D) A shortening of the credit period offered by suppliers

  2. 2)

    Which of the following ratio is calculated in order to know the liquidity of the accounts receivables?

    • A) Accounts receivables turnover
    • B) Accounts receivables turnover in days
    • C) Operating cycle
    • D) Activity ratios

  3. 3)

    A company can improve (lower) its debt-to-total asset ratio by doing which of the following?

    • A) Borrow more
    • B) Shift short-term to long-term debt
    • C) Shift long-term to short-term debt
    • D) Sell common stock

  4. 4)

    Nishat Corporation had net income of Rs. 100,000, paid income taxes of Rs. 30,000, and had interest expense of Rs. 8,000. What was Nishat's times interest earned ratio?

    • A) 12.5
    • B) 16.25
    • C) 17.25
    • D) 17.85

  5. 5)

    Most consumer-oriented stores and catalogue companies are an example of which of the following type of business?

    • A) Manufacturing
    • B) Service
    • C) Merchandise
    • D) Both merchandise and manufacturing

  6. 6)

    All of the following statements are true regarding ratios that measure a company's ability to pay short-term and long-term debt EXCEPT:

    • A) The average debt ratio is between 0.57 and 0.67
    • B) High times-interest-earned ratio indicates a company can pay interest expense easily
    • C) Debt ratio of 60% indicates 60% of assets are financed with debt
    • D) Debt ratio of 90% indicates lower financial risk than a debt ratio of 60%

  7. 7)

    Which of the following performance measures would be of most direct interest to shareholders?

    • A) Return on net assets
    • B) Gross profit margin
    • C) Debt ratio
    • D) Dividend yield

  8. 8)

    The total legal capital of the company consists of which of the following?

    • A) Only common stocks issued
    • B) Only preferred stocks issued
    • C) Common stocks and preferred stocks
    • D) Common stocks and retained earnings

  9. 9)

    Which of the following options indicate how quickly accounts receivables are converted into cash?

    • A) Accounts receivable turnover
    • B) Days to collect accounts receivable
    • C) Working capital
    • D) Total assets turnover

  10. 10)

    Operating cycle belongs to which group of ratios?

    • A) Leverage ratios
    • B) Liquidity ratios
    • C) Profitability ratios
    • D) Activity ratios