Test bank corporate finance 8e ros chap003

Chapter 003 Working with Financial Statements

Multiple Choice Questions

1. Activities of a firm which require the spending of cash are known as:
a. sources of cash.
B. uses of cash.
c. cash payments.
d. cash receipts.
e. cash on hand.

SECTION: 3.1
TOPIC: USES OF CASH
TYPE: DEFINITIONS

2. The sources and uses of cash over a stated period of time are reflected on the:
a. income statement.
b. balance sheet.
c. tax reconciliation statement.
D. statement of cash flows.
e. statement of operating position.

SECTION: 3.1
TOPIC: STATEMENT OF CASH FLOWS
TYPE: DEFINITIONS

3. A common-size statement is an accounting statement that expresses all of a firm's expenses
as a percentage of:
a. total assets.
b. total equity.
c. net income.

d. taxable income.
E. sales.

SECTION: 3.2
TOPIC: COMMON-SIZE STATEMENTS
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

4. A _____ standardizes items on the income statement and balance sheet relative to their
values as of a common point in time.
a. statement of standardization
b. statement of cash flows
C. common-base year statement
d. common-size statement
e. tax reconciliation statement

SECTION: 3.2
TOPIC: COMMON-BASE YEAR STATEMENTS
TYPE: DEFINITIONS

5. Relationships determined from a firm's financial information and used for comparison
purposes are known as:
A. financial ratios.
b. comparison statements.
c. dimensional analysis.
d. scenario analysis.

e. solvency analysis.

SECTION: 3.3
TOPIC: FINANCIAL RATIOS
TYPE: DEFINITIONS

6. Financial ratios that measure a firm's ability to pay its bills over the short run without undue
stress are known as _____ ratios.
a. asset management
b. long-term solvency
C. short-term solvency
d. profitability
e. market value

SECTION: 3.3
TOPIC: SHORT-TERM SOLVENCY RATIOS
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

7. The current ratio is measured as:
a. current assets minus current liabilities.
B. current assets divided by current liabilities.
c. current liabilities minus inventory, divided by current assets.
d. cash on hand divided by current liabilities.
e. current liabilities divided by current assets.

SECTION: 3.3
TOPIC: CURRENT RATIO
TYPE: DEFINITIONS

8. The quick ratio is measured as:
a. current assets divided by current liabilities.
b. (cash on hand plus accounts receivable) divided by current assets.
c. current liabilities divided by current assets.
d. cash on hand divided by current liabilities.
E. (current assets minus inventory) divided by current liabilities.

SECTION: 3.3
TOPIC: QUICK RATIO
TYPE: DEFINITIONS

9. The cash ratio is measured as:
a. current assets divided by current liabilities.
b. (current assets minus cash on hand) divided by current liabilities.
c. (current assets minus current liabilities) divided by cash on hand.
d. (current assets minus inventory) divided by current liabilities.
E. cash on hand divided by current liabilities.

SECTION: 3.3
TOPIC: CASH RATIO
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

10. The financial ratio measured as current assets divided by average daily operating costs is
the:
a. cash ratio.
b. net working capital to total assets ratio.
c. acid-test ratio.
D. interval measure.
e. operating measure.

SECTION: 3.3
TOPIC: INTERVAL MEASURE
TYPE: DEFINITIONS

11. Ratios that measure a firm's financial leverage are known as _____ ratios.
a. asset management
B. long-term solvency
c. short-term solvency
d. profitability
e. book value

SECTION: 3.3
TOPIC: LONG-TERM SOLVENCY RATIOS
TYPE: DEFINITIONS

12. The financial ratio measured as total assets minus total equity, divided by total assets, is
the:
A. total debt ratio.
b. equity multiplier.
c. debt-equity ratio.
d. current ratio.

e. equity ratio.

SECTION: 3.3
TOPIC: TOTAL DEBT RATIO
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

13. The debt-equity ratio is measured as total:
a. equity minus total debt.
b. equity divided by total debt.
C. debt divided by total equity.
d. debt minus total equity.
e. debt plus total equity.

SECTION: 3.3
TOPIC: DEBT-EQUITY RATIO
TYPE: DEFINITIONS

14. The equity multiplier ratio is measured as:
a. total equity divided by total assets.
b. (total equity plus total debt) divided by total assets.
c. (total assets minus total equity) divided by total assets.
d. (total assets minus total equity) divided by total equity.
E. total assets divided by total equity.

SECTION: 3.3

TOPIC: EQUITY MULTIPLIER
TYPE: DEFINITIONS

15. The sum of the long-term debt plus the total equity of a firm is frequently referred to as
the firm's:
a. total assets.
B. total capitalization.
c. total financing.
d. debt-equity consolidation.
e. debt-equity ratio.

SECTION: 3.3
TOPIC: TOTAL CAPITALIZATION
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

16. The financial ratio measured as a firm's long-term debt divided by the firm's total
capitalization is the:
a. interval measure.
b. equity multiplier.
c. total debt ratio.
D. long-term debt ratio.
e. debt-equity ratio.

SECTION: 3.3
TOPIC: LONG-TERM DEBT RATIO

TYPE: DEFINITIONS

17. When you divide EBIT by the amount of the interest expense you are computing the:
a. cash coverage ratio.
b. debt-equity ratio.
C. times interest earned ratio.
d. debt margin.
e. debt ratio.

SECTION: 3.3
TOPIC: TIMES INTEREST EARNED RATIO
TYPE: DEFINITIONS

18. Which one of the following computations is known as the cash coverage ratio?
A. (EBIT + Depreciation) / Interest
b. EBIT / Interest
c. Cash on hand / Current assets
d. Cash on hand / Current liabilities
e. Cash on hand / Interest

SECTION: 3.3
TOPIC: CASH COVERAGE RATIO
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

19. Ratios that measure how efficiently a firm uses its assets to generate sales are known as

_____ ratios.
A. asset utilization
b. long-term solvency
c. short-term solvency
d. profitability
e. market value

SECTION: 3.3
TOPIC: ASSET UTILIZATION RATIOS
TYPE: DEFINITIONS

20. The inventory turnover ratio is measured as:
a. total sales divided by inventory.
b. inventory divided by total sales.
C. cost of goods sold divided by inventory.
d. inventory divided by cost of goods sold.
e. inventory divided by (sales minus cost of goods sold).

SECTION: 3.3
TOPIC: INVENTORY TURNOVER
TYPE: DEFINITIONS

21. The days' sales in inventory ratio is measured as:
a. sales divided by inventory.
b. cost of goods sold divided by inventory.
c. 365 days divided by (sales divided by inventory).
d. 365 days divided by the inventory amount.
E. 365 days divided by the inventory turnover.

SECTION: 3.3

TOPIC: DAYS' SALES IN INVENTORY
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

22. The receivables turnover ratio is measured as:
a. cash divided by accounts receivable.
B. sales divided by accounts receivable.
c. cost of goods sold divided by accounts receivable.
d. accounts receivable divided by cost of goods sold.
e. accounts receivable divided by sales.

SECTION: 3.3
TOPIC: RECEIVABLES TURNOVER
TYPE: DEFINITIONS

23. Days' sales in receivables is equal to:
a. receivables turnover plus 365 days.
b. accounts receivable times 365 days.
c. accounts receivable plus sales, divided by 365 days.
D. 365 days divided by the receivables turnover.
e. 365 days divided by the accounts receivable.

SECTION: 3.3
TOPIC: DAYS' SALES IN RECEIVABLES
TYPE: DEFINITIONS

24. The net working capital turnover ratio is measured as:
A. sales divided by net working capital.
b. sales minus net working capital.
c. sales times net working capital.
d. net working capital divided by sales.
e. net working capital plus sales.

SECTION: 3.3
TOPIC: NET WORKING CAPITAL TURNOVER
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

25. The fixed asset turnover ratio is measured as:
a. cost of goods sold divided by net fixed assets.
b. total assets divided by net fixed assets.
C. sales divided by net fixed assets.
d. net fixed assets divided by sales.
e. net fixed assets divided by total assets.

SECTION: 3.3
TOPIC: FIXED ASSET TURNOVER
TYPE: DEFINITIONS

26. The total asset turnover ratio is equal to:
a. total equity divided by total assets.
B. sales divided by total assets.

c. total assets divided by cost of goods sold.
d. total assets divided by sales.
e. total assets divided by total equity.

SECTION: 3.3
TOPIC: TOTAL ASSET TURNOVER
TYPE: DEFINITIONS

27. Ratios that measure how efficiently a firm manages its assets and operations to generate
net income are referred to as _____ ratios.
a. asset management
b. long-term solvency
c. short-term solvency
D. profitability
e. turnover

SECTION: 3.3
TOPIC: PROFITABILITY RATIOS
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

28. Net income divided by sales is known as a firm's:
A. profit margin.
b. return on assets.
c. return on equity.
d. asset turnover.

e. earnings before interest and taxes.

SECTION: 3.3
TOPIC: PROFIT MARGIN
TYPE: DEFINITIONS

29. Return on assets is equal to:
a. sales divided by current assets.
b. sales divided by total assets.
c. net income divided by current assets.
d. net income divided by net fixed assets.
E. net income divided by total assets.

SECTION: 3.3
TOPIC: RETURN ON ASSETS
TYPE: DEFINITIONS

30. The financial ratio measured as net income divided by total equity is known as the firm's:
a. profit margin.
b. return on assets.
C. return on equity.
d. asset turnover.
e. earnings before interest and taxes.

SECTION: 3.3
TOPIC: RETURN ON EQUITY
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

31. The ratio computed by dividing the price per share of stock by the earnings per share is
known as the:
a. return on assets.
b. return on equity.
c. debt-equity ratio.
D. price-earnings ratio.
e. Du Pont identity.

SECTION: 3.3
TOPIC: PRICE-EARNINGS RATIO
TYPE: DEFINITIONS

32. The market-to-book ratio is measured as:
a. the market value of total assets divided by the book value of total assets.
b. the market value of inventory divided by the book value of inventory.
c. net income divided by the market value per share.
d. market value per share of stock divided by earnings per share.
E. market value per share divided by book value per share.

SECTION: 3.3
TOPIC: MARKET-TO-BOOK RATIO
TYPE: DEFINITIONS

33. The PEG ratio is equal to the price per share divided by the:
A. expected future earnings growth rate.
b. profit margin.
c. sales growth rate.

d. growth rate of inflation.
e. earnings per share.

SECTION: 3.3
TOPIC: PEG RATIO
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

34. The market value of a firm's assets divided by the replacement cost of those assets is
referred to as:
A. Tobin's Q.
b. the market-to-book value.
c. the PEG ratio.
d. the asset growth rate.
e. the asset turnover.

SECTION: 3.3
TOPIC: TOBIN'S Q
TYPE: DEFINITIONS

35. The price-sales ratio is equal to the:
a. average price of a product divided by the annual sales of a firm.
b. average price of a product divided by the number of products sold in one year.
c. current price of a product divided by the number of products in inventory that are ready for
sale.
d. price per share divided by sales growth rate.

E. price per share divided by the sales per share.

SECTION: 3.3
TOPIC: PRICE-SALES RATIO
TYPE: DEFINITIONS

36. The U.S. government coding system that classifies firms by their specific type of business
operations is known as the:
a. NASDAQ 100.
b. Standard & Poor's 500.
C. Standard Industrial Classification code.
d. Governmental ID code.
e. Government Engineered Coding System.

SECTION: 3.5
TOPIC: SIC CODES
TYPE: DEFINITIONS

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Chapter 003 Working with Financial Statements

37. Which one of the following is a source of cash?
A. an increase in accounts payable
b. an increase in cash
c. a purchase of inventory
d. the payoff of a loan
e. a credit sale to a customer

SECTION: 3.1
TOPIC: SOURCES OF CASH
TYPE: CONCEPTS

38. Which one of the following is a source of cash?
a. an increase in accounts receivable
b. a decrease in common stock
C. an increase in long-term debt
d. a decrease in accounts payable
e. a dividend distribution

SECTION: 3.1
TOPIC: SOURCES OF CASH
TYPE: CONCEPTS

39. Which one of the following is a use of cash?
a. payment received from a customer on his or her account
b. sale of inventory to a cash customer
c. decrease in the cash balance
d. sale of common stock
E. payment to a supplier

SECTION: 3.1
TOPIC: USES OF CASH
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

40. Which one of the following is found in the financing activity section of a statement of
cash flows?
a. fixed asset acquisition
b. depreciation expense
c. increase in accounts receivable
D. dividend payment
e. net income

SECTION: 3.1
TOPIC: STATEMENT OF CASH FLOWS
TYPE: CONCEPTS

41. According to the statement of cash flows, an increase in accounts receivable will _____
the cash flow from _____ activities.
A. decrease; operating
b. decrease; financing
c. increase; operating
d. increase; financing
e. increase; investment

SECTION: 3.1
TOPIC: STATEMENT OF CASH FLOWS
TYPE: CONCEPTS

42. Which of the following appear in the operating activity section of a statement of cash
flows?
I. decrease in long-term debt
II. fixed asset acquisition
III. increase in accounts receivable

IV. net income
a. II only
b. III only
c. I and II only
d. II and III only
E. III and IV only

SECTION: 3.1
TOPIC: STATEMENT OF CASH FLOWS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

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Chapter 003 Working with Financial Statements

43. On a common-size balance sheet all accounts are expressed as:
a. a percentage of sales.
b. whole dollars.
c. the number of dollars in thousands.
D. a percentage of total assets.
e. a percentage of total equity.

SECTION: 3.2
TOPIC: COMMON-SIZE BALANCE SHEET

TYPE: CONCEPTS

44. On a common-base year financial statement, all accounts are expressed relative to the
base:
A. year amount.
b. amount of sales.
c. amount of total assets.
d. net income.
e. net cash flow.

SECTION: 3.2
TOPIC: COMMON-BASE YEAR FINANCIAL STATEMENT
TYPE: CONCEPTS

45. Which of the following are liquidity ratios?
I. interval measure
II. current ratio
III. quick ratio
IV. net working capital to total assets
a. II and III only
b. I and II only
c. II, III, and IV only
d. I, III, and IV only
E. I, II, III, and IV

SECTION: 3.3
TOPIC: LIQUIDITY RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

46. A decrease in which one of the following will decrease a firm's current ratio without
affecting its quick ratio?
a. prepaid expenses
b. cash
C. inventory
d. accounts receivable
e. fixed assets

SECTION: 3.3
TOPIC: LIQUIDITY RATIOS
TYPE: CONCEPTS

47. A supplier, who requires payment within ten days, is most concerned with which one of
the following ratios when granting credit?
a. current
B. cash
c. debt-equity
d. quick
e. total debt

SECTION: 3.3
TOPIC: LIQUIDITY RATIOS
TYPE: CONCEPTS

48. A firm has an interval measure of 59. This means that the firm must:
a. pay its suppliers in full within the next 59 hours or lose the accounts payable discounts.

B. obtain additional liquid assets within the next 59 days or possibly be forced to cease
operations.
c. repay its long-term debt within the next 59 days or face possible bankruptcy proceedings by
the firm's creditors.
d. pay interest on its long-term debt every 59 days.
e. sell its entire inventory every 59 days to remain profitable.

SECTION: 3.3
TOPIC: LIQUIDITY RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

49. A firm has a total debt ratio of .63. This means that that firm has $0.63 in debt for every:
a. $1.00 in total equity.
b. $1.00 in total sales.
c. $1.00 in current assets.
D. $0.37 in total equity.
e. $0.37 in total assets.

SECTION: 3.3
TOPIC: LONG-TERM SOLVENCY RATIOS
TYPE: CONCEPTS

50. The long-term debt ratio is probably of most interest to a firm's:
a. credit customers.
b. employees.

c. suppliers.
D. mortgage holder.
e. shareholders.

SECTION: 3.3
TOPIC: LONG-TERM SOLVENCY RATIOS
TYPE: CONCEPTS

51. A banker considering loaning money to a firm for ten years would most likely prefer
the firm have a debt ratio of _____ and a times interest earned ratio of_____
a. .75; .75.
b. .50; 1.00.
c. .45; 1.75.
d. .40; 2.50.
E. .35; 3.00.

SECTION: 3.3
TOPIC: LONG-TERM SOLVENCY RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

52. From a cash flow point of view, which one of the following ratios best measures a
firm's ability to pay the interest on its debts?
a. times interest earned ratio
B. cash coverage ratio
c. cash ratio

d. quick ratio
e. interval measure

SECTION: 3.3
TOPIC: LONG-TERM SOLVENCY RATIOS
TYPE: CONCEPTS

53. The lower the inventory turnover, the:
a. faster a firm sells its inventory.
B. longer it takes a firm to sell its inventory.
c. greater the profit margin.
d. longer the receivables period.
e. lower the days' sales in inventory.

SECTION: 3.3
TOPIC: ASSET UTILITIZATION RATIOS
TYPE: CONCEPTS

54. Mansfield Enterprises currently has a total asset turnover of 1.21. Which one of the
following set of circumstances must increase this ratio regardless of the size of the changes
that occur? Assume that all else remains constant.
a. decrease in sales and increase in current assets
b. decrease in sales and increase in total assets
C. increase in sales and decrease in total assets
d. increase in both sales and net fixed assets
e. decrease in both sales and total assets

SECTION: 3.3
TOPIC: ASSET UTILIZATION RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

55. Which one of the following must increase the net working capital turnover?
a. increase in current assets
b. increase in total assets
c. decrease in current liabilities
d. decrease in total liabilities
E. increase in sales

SECTION: 3.3
TOPIC: AACSB UTILIZATION RATIOS
TYPE: CONCEPTS

56. Delfino's has a fixed asset turnover rate of 1.3 and a total asset turnover rate of .92.
Frederick's has a fixed asset turnover rate of 1.2 and a total asset turnover rate of 1.03. Both
companies have similar operations. Delfino's is:
A. utilizing its fixed assets more efficiently than Frederick's.
b. utilizing its total assets more efficiently than Frederick's.
c. generating $1 in sales for every $1.30 in net fixed assets.
d. generating $1.30 in net income for every $1 in net fixed assets.
e. more profitable than Frederick's.

SECTION: 3.3
TOPIC: ASSET UTILIZATION RATIOS
TYPE: CONCEPTS

57. The Corner Bakery generates $0.035 of net income for every $1 in sales. The bakery has a
_____ of 3.5 percent.
a. return on assets
b. return on equity
C. profit margin
d. Du Pont measure
e. total asset turnover

SECTION: 3.3
TOPIC: PROFITABILITY RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

58. If a firm produces a twelve percent return on assets and also a twelve percent return on
equity, then the firm:
a. may have short-term, but not long-term debt.
b. is using its assets as efficiently as possible.
c. has no net working capital.
d. has a debt-equity ratio of 1.0.
E. has an equity multiplier of 1.0.

SECTION: 3.3
TOPIC: PROFITABILITY RATIOS
TYPE: CONCEPTS

59. An increase in the profit margin, all else constant, will:

a. lower the return on assets.
b. increase the equity multiplier.
C. increase the return on equity.
d. increase the PEG ratio.
e. decrease Tobin's Q.

SECTION: 3.3
TOPIC: PROFITABILITY RATIOS
TYPE: CONCEPTS

60. If a firm can decrease its costs while maintaining the current level of sales, its:
A. return on equity will increase.
b. return on assets will decrease.
c. profit margin will decline.
d. equity multiplier will decrease.
e. price-earnings ratio will increase.

SECTION: 3.3
TOPIC: PROFITABILITY RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

61. The only difference between Larry's and Lana's stores is that Larry's store has been in
existence longer. Thus, the assets in Larry's store are almost fully depreciated. Lana's store
opened recently so her store's assets have barely been depreciated. Which one of the
following statements must be true?

a. Larry's store will have a lower profit margin.
b. Larry's store will have a lower return on equity.
c. Lana's store will have a higher net income.
D. Lana's store will have a lower profit margin.
e. Lana's store will have a higher return on assets.

SECTION: 3.3
TOPIC: PROFITABILITY RATIOS
TYPE: CONCEPTS

62. Uptown Express has a price-earnings ratio of 18.5. Downtown Express also has a priceearnings ratio of 18.5. Which one of the following statements must be true if Uptown Express
has a higher PEG ratio than Downtown Express?
a. Uptown Express has more net income than Downtown Express.
B. Downtown Express is increasing its earnings at a faster rate than the Uptown Express.
c. Uptown Express has a higher market value per share than does Downtown Express.
d. Downtown Express has a lower market-to-book ratio than Uptown Express.
e. Uptown Express has a higher net income than Downtown Express.

SECTION: 3.3
TOPIC: MARKET VALUE RATIOS
TYPE: CONCEPTS

63. Tobin's Q relates the market value of a firm today to:
a. the initial cost of creating the firm.
b. the current book value of the firm.
c. the average cost of similar firms.
d. the average market value of similar firms.
E. today's cost to duplicate the firm.

SECTION: 3.3

TOPIC: MARKET VALUE RATIOS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

64. The price-sales ratio is especially useful when analyzing firms that have:
a. volatile market prices.
B. negative earnings.
c. positive PEG ratios.
d. a negative Tobin's Q.
e. increasing sales.

SECTION: 3.3
TOPIC: MARKET VALUE RATIOS
TYPE: CONCEPTS

65. Which one of the following sets of ratios applies most directly to shareholders?
a. return on assets and profit margin
b. long-term debt and times interest earned ratios
c. price-earnings and debt-equity ratios
d. market-to-book and times interest earned ratios
E. Tobin's Q and price-earnings ratio

SECTION: 3.3
TOPIC: MARKET VALUE RATIOS
TYPE: CONCEPTS

66. The three parts of the Du Pont identity can be described as:
a. operating efficiency, asset use efficiency, and profitability.
b. financial leverage, operating efficiency, and profitability.
C. the equity multiplier, the profit margin, and the total asset turnover.
d. the debt-equity ratio, the capital intensity ratio, and the profit margin.
e. the return on assets, the profit margin, and the equity multiplier.

SECTION: 3.4
TOPIC: DU PONT IDENTITY
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

67. An increase in which of the following will increase the return on equity, all else constant?
I. sales
II. net income
III. total assets
IV. total equity
a. I only
B. II only
c. II and IV only
d. II and III only
e. I, II, and III only

SECTION: 3.4
TOPIC: DU PONT IDENTITY
TYPE: CONCEPTS

68. Which one of the following statements is correct?
a. Book values should always be given precedence over market values.
B. Financial statements are frequently the basis used for performance evaluations.
c. Historical information has no value when predicting the future.
d. Potential lenders place little value on financial statement information.
e. Reviewing financial information over time has very limited value.

SECTION: 3.5
TOPIC: EVALUATING FINANCIAL STATEMENTS
TYPE: CONCEPTS

69. It is easier to evaluate a firm using financial statements when the firm:
a. is a conglomerate.
b. is global in nature.
C. uses the same accounting procedures as other firms in their industry.
d. has a different fiscal year than other firms in their industry.
e. tends to have many one-time events such as asset sales and property acquisitions.

SECTION: 3.5
TOPIC: EVALUATING FINANCIAL STATEMENTS
TYPE: CONCEPTS

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Chapter 003 Working with Financial Statements

70. The most acceptable method of evaluating the financial statements of a firm is to compare
the firm's current:

A. financial ratios to the firm's historical ratios.
b. financial statements to the financial statements of similar firms operating in other countries.
c. financial ratios to the average ratios of all firms located within the same geographic area.
d. financial statements to those of larger firms in unrelated industries.
e. financial statements to the projections that were created based on Tobin's Q.

SECTION: 3.5
TOPIC: EVALUATING FINANCIAL STATEMENTS
TYPE: CONCEPTS

71. Which of the following represent problems encountered when comparing the financial
statements of one firm with those of another firm?
I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of
business.
II. The operations of the two firms may vary geographically.
III. The firms may use differing accounting methods for inventory purposes.
IV. The two firms may be seasonal in nature and have different fiscal year ends.
a. I and II only
b. II and III only
c. I, III, and IV only
d. I, II, and III only
E. I, II, III, and IV

SECTION: 3.5
TOPIC: EVALUATING FINANCIAL STATEMENTS
TYPE: CONCEPTS

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