Multiple Choice Questions
1.The current ratio is
a. current assets divided by current liabilities.
b. current liabilities divided by current assets.
c. current assets divided by total liabilities.
d. total assets divided by total liabilities.
2.The current ratio
a. provides users with an estimate of a company’s human resources.
b.is reported on a company’s balance sheet in the asset section.
c.is a measure of a company’s solvency.
d.is a measure of a company’s liquidity.
3.Earnings per share
a. must appear on a company’s income statement if the company is publicly traded.
b.is rarely used by analysts since it is not required by GAAP.
c.is based on the market price of the company’s stock.
d.is typically presented in its two forms: simple and advanced.
4.Return on equity compares
a. the market price of the company’s stock to its dividend policy.
b.a company’s earnings to the dividends paid for the year.
c.the profits of a company to the investment made by its shareholders.
d.the profits of a company to the selling price of each share of stock.
5.Operating performance is a company’s ability to
a.control acquisitions of other companies in the same industry.
b.generate cash from sources other than regular operations.
c.increase its net assets through regular operations
d.employ off-balance-sheet financing.
6.Financial statements help present and potential investors, creditors, and other users in assessing the amount, timing, and uncertainty of
a. future income.
b. future assets.
c. future liabilities.
d. future cash flows.
7.The price-earnings ratio is
a. the market price of an equity share divided by earnings per share.
b. the amount of a company’s retained earnings.
c. the purchase price of a firm's assets divided by net income.
d. used to measure the speed at which the company sells its inventories.
8.Financial flexibility is
a.a good indicator of a company’s ability to grow through operations.
b.evident when a company’s assets are greater than its liabilities.
c.the ability to convert existing assets into money.
d.the ability to generate cash from sources other than regular operations.
9.A standard audit report
a. states that a company has the right to select members of its board of directors.
b. serves as the accounting profession’s seal of approval.
c. states whether a company will be profitable or not in the future.
d. serves as a guarantee that the financial statements are free of any errors.
10.Liquidity is the ability
a.to increase net assets through regular operations.
b.to generate cash from sources other than regular operations.
c.to convert existing assets into cash.
d.of financial statement users to predict a company’s cash flows.