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Exam 17: Financial Statement Analysis

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Question 1

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A company has set its gross margin target range at 40% to 42%. An increase in the ratio from 38% to 39% is a positive trend.

A) True
B) False

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Question 2

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The ratio that measures the relationship between cash and current assets is the quick ratio.

A) True
B) False

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Question 3

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Quick assets include cash and merchandise inventory.

Investors are willing to pay a higher P/E ratio for growth stocks than for income stocks.

The price-earnings ratio is an example of a

The debt ratio is an example of a

Vertical analysis ratios are an example of a

An accounts receivable ratio above the target range may indicate that ThreeGreen is too liberal in extending credit to its customers.

Managers who want to control operating expenses will be more interested in the operating margin than the total operating expense ratio.

Operating margin is also referred to as

The gross profit ratio is also referred to as the gross margin.

A company has done everything possible to control rising merchandise costs. To maintain its gross margin, its only alternative is to increase sales.

The least likely factor a business will use to determine a benchmark is

Income stocks typically have a higher dividend yield than growth stocks.

Gross margin is also referred to as

The gross profit margin gives investors the best indication of how effectively a business is earning a profit from its normal business operations.

Modifying a benchmark is an option for a business that fails to achieve its benchmark.

To rate the ability of a business to pay its current and long-term liabilities, investors use

A company having earnings per share of $5.67 is more profitable than a company having earnings per share of $4.32.

A corporation should compare its working capital to industry standards.