B. Acy Bachelor of Accountancy Financial Statement Analysis 1

Question 1

The current ratio is calculated as:

Accepted Answer

Current assets divided by current liabilities

Answer

The current ratio measures short-term liquidity by comparing current assets to current liabilities.

Question 2

Earnings per share (EPS) is calculated by dividing net income available to common shareholders by:

Accepted Answer

Weighted average shares outstanding

Answer

Basic EPS uses the weighted average shares outstanding, reflecting share changes throughout the year.

Question 3

A high accounts receivable turnover ratio generally indicates:

Accepted Answer

Efficient collection of credit sales

Answer

A high receivable turnover means the company collects its receivables quickly, indicating good credit management.

Question 4

The debt-to-equity ratio measures:

Accepted Answer

Relative use of debt versus equity financing

Answer

The debt-to-equity ratio shows how much the company relies on borrowed funds relative to shareholder equity.

Question 5

Common-size financial statements express each line item as a percentage of:

Accepted Answer

Total equity for balance sheets; net sales for income statements

Answer

Common-size income statements use net sales as the base; balance sheets use total assets, enabling cross-company comparisons.

B. Acy Bachelor of Accountancy Practice Test