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CHAPTER 5—BASICS OF ANALYSIS

MULTIPLE CHOICE

1. Statements in which all items are expressed only in relative terms (percentages of a base) are termed:
a.|Vertical Statements|
b.|Horizontal Statements|
c.|Funds Statements|
d.|Common-Size Statements|
e.|none of the answers are correct|

ANS: D

2. In financial statement analysis, ratios are:
a.|the only type of analysis where industry data are available|
b.|absolute numbers converted to a common base|
c.|fractions usually expressed in percent or times|
d.|the only indication of the financial position of the firm|
e.|none of the answers are correct|

ANS: C

3. Denver Dynamics has net income of $2,000,000. Oakland Enterprises has net income of $2,500,000. Which of the following best compares the profitability of Denver and Oakland?
a.|Oakland Enterprises is 25% more profitable than Denver Dynamics.|
b.|Oakland Enterprises is more profitable than Denver Dynamics, but the comparison can't be quantified.|
c.|Oakland Enterprises is only more profitable if it is smaller than Denver Dynamics.|
d.|Further information is needed for a reasonable comparison.|
e.|Oakland Enterprises is more profitable if it is a larger firm than Denver Dynamics.|

ANS: D

4. Which of the following can offer a type of comparison in financial statement analysis?
a.|past ratios and figures|
b.|industry averages|
c.|statistics of competitors|
d.|all of the answers are correct|
e.|none of the answers are correct|

ANS: D

5. Which of the following is not a source of industry statistics?
a.|Annual Statement Studies|
b.|Mergent Dividend Record|
c.|Value Line|
d.|Standard and Poor's Industry Surveys|
e.|The Department of Commerce Financial Report|

ANS: B

6. Annual Statement Studies reported the following figures for manufacturers of screw machine products for the ratio of current assets to

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