A horizontal analysis can compare financial figures across time.

True

False

Correct!

Review the section "Completing a Horizontal Analysis."

Horizontal analyses are performed on income statements but not balance sheets.

True

False

Correct!

Review the section "Completing a Horizontal Analysis."

A vertical analysis examines account balances over multiple periods.

True

False

Correct!

Review the section "Completing a Vertical Analysis."

The base figure in a vertical analysis using the balance sheet is total assets.

True

False

Correct!

Review the section "Completing a Vertical Analysis."

Common-size financial statements allow for comparisons between businesses of different sizes.

True

False

Correct!

Review the section "Common-Size Financial Statements."

Ratio analysis examines relationships between specific account balances.

True

False

Correct!

Review the section "Liquidity Ratios."

The quick ratio is an example of a liquidity ratio.

True

False

Correct!

Review the section "Quick Ratio."

Solvency ratios indicate to what extent a company has balanced debt and equity.

True

False

Correct!

Review the section "Solvency Ratios."

A company can raise funds by either borrowing cash or selling an ownership stake in the business.

True

False

Correct!

Review the section "Solvency Ratios."

Profit margin is defined as net income divided by expenses.

True

False

Correct!

Review the section "Profitability Ratios."

What is NOT a good benchmark to use with a horizontal analysis?

Balances of companies in different industries

Prior performance

Competitor balances

Industry standards

Correct!

Review the section "Completing a Horizontal Analysis."

What does a liquidity ratio do?

Gauges a company’s ability to meet long-term obligations

Provides insight into a company’s ability to effectively generate income

Indicates how quickly a company can convert assets to cash

Compares account balances across time

Correct!

Review the section "Liquidity Ratios."

Which of these is a profitability ratio?

Current ratio

Debt ratio

Equity ratio

Return on assets

Correct!

Review the section "Profitability Ratios."

Which of these is a solvency ratio?

Quick ratio

Debt-to-equity ratio

Profit margin

Return on assets

Correct!

Review the section "Solvency Ratios."

What ratio indicates the percentage of revenue a company converts to net income?

Quick ratio

Equity ratio

Basic EPS

Profit margin

Correct!

Review the section "Profitability Ratios."

What ratio indicates how well positioned a company is to pay off its debts in the next 12 months?

Current ratio

Debt ratio

Return on assets

Dividend yield

Correct!

Review the section "Current Ratio."

Debt ratio = Total Liabilities ÷ Total Assets

Review the section "Solvency Ratios."

Correct!

Current ratio = Current Assets ÷ Current Liabilities

Review the section "Current Ratio."

Correct!

Return on assets = Net Income ÷ Average Total Assets

Review the section "Profitability Ratios."

Correct!

PE ratio = Market Price per Share ÷ Earnings per Share

Review the section "Profitability Ratios (A Closer Look)."

Correct!