Finance 3000

In: Business and Management

Submitted By Boops
Words 5748
Pages 23
Practice Questions for Finance 3000, Exam II, Fall 2009

Chapter 3

1. Ratios are used to compare different firms in the same industry.
TRUE

2. Financial ratios are used to weigh and evaluate the operational performance of the firm.
TRUE

3. Liquidity ratios indicate how fast a firm can generate cash to pay bills.
TRUE

4. A banker or trade creditor is most concerned about a firm's profitability ratios.
FALSE

5. Ratios are only useful for those areas of business that involve investment decisions.
FALSE

6. Debt utilization ratios are used to evaluate the firm's debt position with regard to its asset base and earning power.
TRUE

7. The DuPont system of analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover.
TRUE

8. During disinflation, stock prices tend to go up because the investor's required rate of return goes down.
TRUE

9. Analysts agree that extraordinary gains/losses should be excluded from ratio analysis because they are one time events, and do not measure annual operating performance.
TRUE

10. Intangible assets are becoming an important part of the assets in a company's financial statements because accountants are recognizing the growing impact of brand names.
FALSE

11. Absolute values taken from financial statements are more useful than relative values.
FALSE

12. Ratio analysis can be useful for
A. historical trend analysis within a firm.
B. comparison of ratios within a single industry.
C. measuring the effects of financing.
D. All of these are true.

13. In examining the liquidity ratios, the primary emphasis is the firm's
A. ability to effectively employ its resources.
B. overall debt position.
C. ability to pay short-term obligations on time.
D. ability to earn an adequate return. 14.…...

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