CPFM Financial Statement Analysis 3

Question 1

Vertical analysis expresses each line item as a percentage of which base?

Accepted Answer

Total revenue or total assets

Answer

Vertical analysis states items as a percentage of a base such as total revenue or total assets.

Question 2

Inventory turnover is calculated as cost of goods sold divided by:

Accepted Answer

Average inventory

Answer

Inventory turnover equals cost of goods sold divided by average inventory.

Question 3

A high days-sales-outstanding (DSO) figure generally indicates:

Accepted Answer

Slow collection of receivables

Answer

A high DSO means the company takes longer to collect its receivables.

Question 4

Which ratio measures a company's ability to pay interest on outstanding debt?

Accepted Answer

Times interest earned

Answer

Times interest earned (interest coverage) measures the ability to cover interest expense from earnings.

Question 5

Working capital is defined as:

Accepted Answer

Current assets minus current liabilities

Answer

Working capital equals current assets minus current liabilities.

CPFM Practice Test