Kingdom of Saudi Arabia
Applied College
Jazan university,
Question Bank 2024- 2
Financial Analysis ACC-336
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Choose the correct answer
Fill in the Blanks
True or false
Matching
Short questions
Exercises
1
Question: - Choose the correct answer from the following words
S.
No
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Question
Which of the following are the general areas of finance?
Corporate finance
B Personal finance
B Public finance
D All of the above
Which of the following aren’t types of Financial Statements?
Balance Sheet
B Income Statement
C Sales Book
Cash Flow
D Statement
What does the statement of cash flows report?
Cash receipts and
Net change
net change in cash
Cash payments from
in cash from
All of the above.
from operating
investing activities.
financing
activities.
B
C activities.
D
What is the reliability concern associated with accrual-basis net income?
It requires realIt involves many
It highlights
It lacks
time data.
B estimates.
C success.
D challenges.
How does examining relationships in the statement of cash flows contribute to
predicting future cash flows?
By focusing on
By providing
By emphasizing
By analyzing
non-operating
accrual-basis
investing
financing ratios.
activities.
data.
B
C
D activities.
What do readers of the statement of cash flows want to understand?
The reasons for
The challenges of
The success
The reliability of
differences in cash
estimates.
of a business.
net income.
flows.
B
C
D
How do readers assess the reliability of net income?
By
By emphasizing
By minimizing
By ignoring accruals.
challenging
cash flows.
challenges.
B
C estimates.
D
What do investors gain insights into by examining relationships in the statement of cash
flows?
NonFuture cash flows.
Accrual-basis data.
operating
Financing ratios.
B
C activities.
D
What is included in investing activities?
Acquiring and
Lending
Acquiring and
Issuing and
disposing of
money and
disposing of
repurchasing
investments and
collecting
liabilities.
stocks.
B property.
C loans.
D
What is involved in financing activities?
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A
12
A
13
A
14
A
15
A
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A
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A
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A
19
A
20
Obtaining cash
Obtaining cash from
Paying
All of the above.
from issuing debt. B stockholders.
C dividends.
D
What advantage does the statement of cash flows offer over accrual-basis data for
predicting future cash flows?
It analyzes the
It focuses on
It emphasizes nonIt provides real-time
timing and
operating
cash transactions.
data.
uncertainty of
activities.
B
C
D future cash flows.
Why are some financial statement users critical of accrual-basis net income?
It requires
It emphasizes
It reflects real-time
It minimizes
many
reliability.
data.
challenges.
B
C estimates
D
What is included in operating activities?
Cash effects of
Only cash
Cash effects of
Only cash effects
transactions creating
effects of
financing
of expenses
revenues and
revenues.
transactions.
B expenses.
C
D
What enters into the determination of net income through operating activities?
Cash effects of
Only cash
Cash effects of
transactions
Only cash effects of
effects of
financing
creating revenues
revenues.
expenses.
transactions.
and expenses.
B
C
D
In what way does examining relationships in the statement of cash flows surpass
accrual-basis data?
It aids in predicting
It prioritizes
It emphasizes realamounts, timing, and
nonIt ignores future
time information.
uncertainty of future
operating
cash flows.
B cash flows.
C activities.
D
What falls under the category of investing activities?
Lending
Borrowing money
Issuing and
Collecting revenues
money and
and repaying
repurchasing
and paying expenses.
collecting the
debts.
bonds.
B
C loans.
D
What falls under the category of financing activities?
Acquiring
Collecting
Obtaining cash from
Paying operating
property and
loans from
issuing equity.
expenses.
equipment.
B
C customers.
D
What is a component of financing activities?
Acquiring
Acquiring
Repurchasing
Lending money.
property and
investments.
shares.
B
C equipment.
D
What information does net income provide about a business?
It indicates
It highlights cash
It assesses
It challenges
success or failure. B flows.
C reliability.
D estimates.
Why is examining relationships in the statement of cash flows beneficial for investors?
3
It provides
accrual-basis data.
A
B
It helps predict future
cash flows.
It focuses on
non-cash
C activities.
It emphasizes
financing
D activities.
Question: - Fill in the space from the following list: Return on equity
Cost of goods
Finished goods
Return on total assets
Current
Gross profit margin
Revenues
Current ratio
Inventory
Solvency ratios
Debt ratio
Long-term liabilities
Work-in-process
Equity
Net profit margin
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One year
Owner’s equity
Profitability ratios
Quick ratio
Raw materials
Question
………………………………….Liabilities are claims against assets – "debts and
obligations", and include Current liabilities and Long-term liabilities.
Current liabilities are the obligations of the business that are due within
………………………………….
…………………………………are the obligations of the business that are not due
for at least one year.
…………………………………is the ownership claim on total assets, and
includes owner’s capital, owner’s drawings, revenues, and expenses.
It lists ………………………………… first, followed by expenses. Finally, the
statement shows net income (or net loss).
………………………………… measures short-term liquidity, the ability of a
firm to meet needs for cash as they arise.
………………………………… measures short-term liquidity more rigorously
than the current ratio by eliminating inventory, usually the least liquid current
asset.
………………………………… help assess a company’s ability to pay its debts
and stay in business
………………………………… shows proportion of all assets that are financed
with debt.
………………………………… provide information on the profitability of a
company and its prospects for the future
………………………………… measures profit generated after consideration of
cost of products sold.
………………………………… measures profit generated after consideration of
all expenses and revenues.
………………………………… measures overall efficiency of firm in managing
assets and generating profits.
………………………………… measures rate of return on stockholders' (owners')
investment.
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………………………………… is defined as the residual interest in the assets of
an entity that remains after deducting its total liabilities.
………………………………… sold is the expense related to inventory
………………………………… usually is one of the largest assets listed in the
balance sheet for manufacturing, wholesale, and retail companies
………………………………… represent the cost of components purchased from
other manufacturers that will become part of the finished product.
………………………………… inventory refers to the products that are not yet
complete.
………………………………… are goods that have been completed in the
manufacturing process but have not been sold.
Question: True and False:
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Question
Answer
Financial analysis utilizes financial statements to evaluate a company's current and past
financial outcomes.
Financial statement analysis analyzes general-purpose financial statements and data for
business analysis estimations and insights.
Financial Statement Analysis increases reliance on guesses.
Financial Statement Analysis increases the uncertainty.
Financial Statement Analysis Provides a systematic and effective basis.
Intangible assets are assets that you cannot touch or see but that have value.
Long-term assets are corporate physical assets that won't be converted to cash within a
year.
Assets are resources a business owes
Current assets are the assets in a business that can be converted to cash in more than
one year.
Net income results when expenses exceed revenues.
A net loss occurs when expenses exceed revenues.
The income statement is sometimes referred to as the statement of operations, earnings
statement, or profit and loss statement.
If a company does not have adequate cash, it cannot pay employees, settle debts, or pay
dividends.
Employees, creditors, and stockholders should be particularly interested in the income
statement because it alone shows the flows of cash in a business.
The statement of cash flows is crucial for assessing a company's ability to meet
obligations such as employee payments, debt settlements, and dividends.
The income statement alone is sufficient for understanding the flows of cash in a
business.
Adequate cash is essential for a company to fulfill obligations to employees, creditors,
and stockholders.
The operating activities category is the most important.
Operating activities shows the cash provided by company operations.
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The source of cash from investing activities is generally considered the best measure of
a company’s ability to generate sufficient cash to continue as a going concern.
Question: Match the following:
S. No.
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
Column A
Activity ratios measure how efficiently a company
utilizes its resources and manages its assets to generate
revenue and cash flows.
Assets are economic resources owned or controlled by
a business that are expected to provide future benefits.
A balance sheet is a financial statement that provides a
snapshot of a company's assets, liabilities, and equity at
a specific point in time.
Average cost is the total cost of a set of items divided
by the number of items, providing a weighted average
cost per unit.
FIFO inventory costing aligns expenditures with
revenues since the first items in inventory are utilized
or sold first.
Gross Domestic Product
Last-In, First-Out (LIFO) inventory costing matches
expenditures with revenues by using or selling the most
recently added products first.
Businesses owe external parties financial commitments
or debts that reflect claims on their assets.
Liquidity measures show companies' ability to meet
short-term financial obligations and quickly convert
assets to cash.
A company's manufacturing inventory include raw
materials, work-in-progress, and completed
commodities.
Items that a corporation buys and stores for retail sale
are called merchandise inventory.
After liabilities, a business's owner's equity is their
claim on the company's assets.
Profitability ratios compare profits to sales, assets,
equity, or other factors to measure a company's
performance.
Solvency ratios measure a company's ability to meet
long-term financial responsibilities and creditor
obligations.
Straight-line depreciation equally distributes an asset's
cost across its useful life, so it's constant each year.
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S. No.
Column B
Answer
a
Activity ratios
1….
b
Assets
2….
c
Balance Sheet
3….
d
Average-Cost
4….
e
First-In, First-Out
f
GDP
5….
6….
g
Last-In, First-Out
7….
g
Liabilities
8….
i
Liquidity ratios
9….
k
Manufacturing
Inventories
Merchandising
Inventory
l
owner’s equity
12….
m
Profitability ratios
13….
n
Solvency ratios
14….
o
Straight-line Method
15….
j
10….
11….
Short Questions:
1. Define Cash Flow Analysis?
Answer: -
2. Define depreciation?
Answer:
3. Define Equity Analysis?
Answer: -
4. Define Finance?
Answer: -
5. Define financial analysis?
Answer: -
6. Define Inventory Analysis?
Answer: -
7. Define Ratio Analysis?
Answer: -
Question: The M&H Manufacturing Company purchased a machine for $450,000.
The company expects the service life of the machine to be four years. The anticipated
residual value is $50,000. The machine was disposed of after four years of use.
Required: Calculate the depreciation by using straight-line method
Year
1
2
3
4
Depreciable
base
X
X
X
X
X
Depreciation rate per
year
1/4
1/4
1/4
1/4
= Depreciation
=
=
=
=
7
Accumulated
depreciation
Book value
end of year
Question: ABC Company has provided the following financial information:
Current Assets: $120,000
Current Liabilities: $80,000
Inventory: $30,000
Total Liabilities: $150,000
Total Assets: $300,000
Stockholders' Equity: $150,000
Gross Profit: $60,000
Net Sales: $200,000
Net Earnings: $40,000
Calculate the following financial ratios:
1. Current Ratio
2. Quick Ratio
3. Debt Ratio
4. Debt to Equity Ratio
5. Gross Profit Margin
6. Net Profit Margin
7. Return on Total Assets
8. Return on Equity
Solution
1. Current ratio = Current assets / Current liabilities = $120,000 /$80,000 = 1.5
2. Quick ratio = (Current assets - inventory) / Current liabilities = $120,000-$30,000) / $80,000 = 0.75
3. Debt ratio = Total liabilities / Total assets
= $150,000 / $300,000 = 0.5
4. Debt to equity ratio = Total liabilities / Stockholders' equity = $150,000 / $150,000 = 1.0
5. Gross profit margin = Gross profit / Net sales = $60,000 / $200,000 = 0.3 or 30%
6. Net profit margin = Net profit / Net sales = $40,000 / $200,000 = 0.2 or 20%
7. Return on total assets = Net earnings / Total assets = $40,000 / $300,000 = 0.1333 or 13.33%
8. Return on equity = Net earnings / Stockholders' equity = $40,000 / $150,000 = 0.2666 or 26.67%
“GOOD LUCK”
The end
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