WGU C213 Financial Statement Analysis Final Exam Study
Guide | Complete Notes & Verified Answers
1. Relationships between financial statement amounts are called
a. DuPont ratios
b. Financial ratios
c. Liquidity ratios
d. Financial statement analysis
2. When analyzing financial statements, prognosis is
a. The prediction of how many employees will lose their jobs in the coming year
b. The identification of where a business has problems
c. The identification of the trends in past numbers
d. The prediction of how a business will perform in the future
3. Which of the following is one of the purposes of financial statement analysis?
a. Neither diagnosis nor prognosis
b. Prognosis
c. Both diagnosis and prognosis
d. Diagnosis
4. When analyzing financial statements, diagnosis is
a. The identification of the trends in future numbers
b. The prediction of how a business will perform in the future
c. The identification of where a business has problems
d. The prediction of how many employees will lose their jobs in the coming year
5. Financial statement analysis is greatly enhanced when financial ratios are compared with
a. Values for other firms in the same industry
b. Future values
c. Past values
d. Both past values and values for other firms in the same industry
3.2 Widely Used Financial Ratios
• Debt ratio: frequently used measure of leverage calculated as :
• Liquidity: the ability to pay a company’s debts in the short run.
• Current ratio: the most commonly used measure of liquidity, calculated as:
• Return on sales: a ratio for calculating profit on sales, calculated as:
• Asset turnover: a financial ratio that gives an overall measure of company efficiency,
calculated as:
, •
• Return on equity: the overall measure of the performance of a company:
• Price-earnings ratio: the relationship between the market value of a company and
that company’s current earnings.
3.1 Review
1. Which of the following transactions could increase a firm’s current ratio?
a. Purchase of temporary investments for cash
b. Collection of accounts receivable
c. Payment of accounts payable
d. Purchase of inventory for cash
2. Which of the following ratios is the fundamental measure of overall company performance?
a. Return on equity
b. Asset turnover
c. Current ratio
d. Return on sales
3. Which of the following ratios is calculated using only balance sheet numbers?
a. Return on sales
b. Current ratio
c. Asset turnover
d. Price earnings ratio
4. Selected information for Isaac Company is as follows:
Isaac’s return on sales, rounded to the nearest
percentage point, is
a. 40%
b. 20%
c. 21%
d. 26%
5. The balance sheet at the end of the first year of operations indicates the following:
Guide | Complete Notes & Verified Answers
1. Relationships between financial statement amounts are called
a. DuPont ratios
b. Financial ratios
c. Liquidity ratios
d. Financial statement analysis
2. When analyzing financial statements, prognosis is
a. The prediction of how many employees will lose their jobs in the coming year
b. The identification of where a business has problems
c. The identification of the trends in past numbers
d. The prediction of how a business will perform in the future
3. Which of the following is one of the purposes of financial statement analysis?
a. Neither diagnosis nor prognosis
b. Prognosis
c. Both diagnosis and prognosis
d. Diagnosis
4. When analyzing financial statements, diagnosis is
a. The identification of the trends in future numbers
b. The prediction of how a business will perform in the future
c. The identification of where a business has problems
d. The prediction of how many employees will lose their jobs in the coming year
5. Financial statement analysis is greatly enhanced when financial ratios are compared with
a. Values for other firms in the same industry
b. Future values
c. Past values
d. Both past values and values for other firms in the same industry
3.2 Widely Used Financial Ratios
• Debt ratio: frequently used measure of leverage calculated as :
• Liquidity: the ability to pay a company’s debts in the short run.
• Current ratio: the most commonly used measure of liquidity, calculated as:
• Return on sales: a ratio for calculating profit on sales, calculated as:
• Asset turnover: a financial ratio that gives an overall measure of company efficiency,
calculated as:
, •
• Return on equity: the overall measure of the performance of a company:
• Price-earnings ratio: the relationship between the market value of a company and
that company’s current earnings.
3.1 Review
1. Which of the following transactions could increase a firm’s current ratio?
a. Purchase of temporary investments for cash
b. Collection of accounts receivable
c. Payment of accounts payable
d. Purchase of inventory for cash
2. Which of the following ratios is the fundamental measure of overall company performance?
a. Return on equity
b. Asset turnover
c. Current ratio
d. Return on sales
3. Which of the following ratios is calculated using only balance sheet numbers?
a. Return on sales
b. Current ratio
c. Asset turnover
d. Price earnings ratio
4. Selected information for Isaac Company is as follows:
Isaac’s return on sales, rounded to the nearest
percentage point, is
a. 40%
b. 20%
c. 21%
d. 26%
5. The balance sheet at the end of the first year of operations indicates the following:
