Final Exam-2

Which of the following is considered a profitability measure?
1. Days sales in inventory
2. Fixed asset turnover
3. Price-earnings ratio
4. Return on Assets
What is the primary purpose of a balance sheet?
1. To measure the profitability of a company over a specific period.
2. To provide a snapshot of a company's financial condition at a specific point in time.
3. To track the cash inflows and outflows from various activities.
4. To calculate the dividends to be paid to shareholders.
Which financial statement is used to assess a company's profitability?
1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
4. Statement of Stockholders' Equity
What is the formula for calculating the current ratio?
1. Current Assets / Current Liabilities
2. Current Liabilities / Current Assets
3. Total Assets / Total Liabilities
4. Total Liabilities / Total Assets
What does a high debt-to-equity ratio indicate?
1. High profitability
2. High liquidity
3. High financial risk
4. High asset utilization
Which of the following is not a type of formal financial statement?
1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
4. Budget Statement
What is the purpose of ratio analysis in financial statement analysis?
1. To compare the financial performance of different companies
2. To evaluate the liquidity, profitability, and efficiency of a company
3. To predict future stock prices
4. To determine the creditworthiness of a company
The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations.
1. True
2. False
What is the formula for calculating the return on equity (ROE)?
1. Net Income / Total Equity
2. Net Income / Total Assets
3. Total Equity / Total Assets
4. Total Assets / Total Equity
Financial statement analysis is based on historical data, which may not reflect a company's current or future financial situation.
1. True
2. False
The notes to the financial statements provide additional information about a company's financial statements, including accounting policies, estimates, and other relevant details.
1. True
2. False
Which ratio is used to measure a company's profitability relative to its sales?
1. Gross Margin Ratio
2. Operating Margin Ratio
3. Net Profit Margin Ratio
4. All of the above
Which of the following is a use of financial statement analysis?
1. To evaluate a company's creditworthiness
2. To predict future stock prices
3. To determine the value of a company
4. All of the above
What is the contribution margin?
1. Sales minus fixed costs
2. Sales minus variable costs
3. Sales minus total costs
4. Sales minus operating expenses
How is the contribution margin ratio calculated?
1. Contribution margin / Sales
2. Sales / Contribution margin
3. Fixed costs / Sales
4. Variable costs / Sales
Which of the following statements is true about the contribution margin income statement?
1. It is required for external financial reporting
2. It is only used for internal decision-making
3. It classifies costs by function
4. It classifies costs by behavior
A contribution margin income statement helps managers make decisions about pricing and product mix.
1. True
2. False
What is the primary goal of capital budgeting?
1. To minimize costs
2. To maximize owner's value
3. To reduce debt
4. To increase market share
What does NPV stand for in capital budgeting?
1. Net Present Value
2. Net Profit Value
3. Net Project Value
4. New Project Venture
What is the Internal Rate of Return (IRR) method used for in capital budgeting?
1. To calculate the project's NPV
2. To determine the project's payback period
3. To evaluate the project's profitability
4. To compare projects with different lifespans
What is the main difference between independent and mutually exclusive projects?
1. Independent projects have higher NPVs
2. Mutually exclusive projects have higher IRRs
3. Independent projects can be accepted together, while mutually exclusive projects cannot
4. Mutually exclusive projects are less risky
What is the cost of capital used for in capital budgeting?
1. To calculate the project's NPV
2. To determine the project's IRR
3. To evaluate the project's risk
4. To compare projects with different costs
Which of the following capital budgeting methods ignores the time value of money?
1. NPV method
2. IRR method
3. Payback period method
4. Discounted payback period method
Capital rationing in capital budgeting is allocating limited funds to projects.
1. True
2. False
A master budget is a comprehensive financial plan for the entire organization.
1. True
2. False
Which of the following is a component of a master budget?
1. Sales budget
2. Production budget
3. Capital budget
4. All of the above
The purpose of a sales budget is to estimate cash inflows.
1. True
2. False
What is the purpose of a cash budget?
1. To estimate cash inflows and outflows
2. To estimate sales revenue
3. To estimate production costs
4. To estimate capital expenditures
The break even point is reached when total revenue is greater than total expenses.
1. True
2. False
How is the contribution margin per unit defined?
1. Selling price per unit minus fixed cost per unit.
2. Selling price per unit plus variable cost per unit.
3. Selling price per unit minus variable cost per unit.
4. Variable cost per unit minus selling price per unit.