To accurately determine the financial performance of a company, it is necessary to compare its performance from year to year, with a competing company, and with the same industry as a whole.

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The auditor"s report ____________.A) does not include an assessment of the effectiveness of the company"s internal controlsB) is prepared by the internal auditorsC) attests that the financial statements are error-freeD) states whether the financial statements are presented in accordance with GAAP
An external auditor is responsible for assessing the effectiveness of a company"s internal controls.
An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
The income statement is also known as the _______________.A) statement of operationsB) statement of stockholder"s equityC) statement of financial positionD) statement of cash flows
A summary of significant accounting policies and explanations of specific items on the financial statements are included in ________. A) the balance sheetB) the income statementC) the notes to financial statementsD) the report of the independent registered public accounting firm
An annual report (10-K) is a report required by the Securities and Exchange Commission that provides information about a company"s financial condition. The annual report includes the following:- An overview of the business- Management"s discussion and analysis of financial condition and results of operations- The report of an independent registered public accounting firm- Financial statements- Notes to financial statements
Ration analysis _____________.A) cannot be used to measure a company against other companies in the same industry because the necessary information is not availableB) is used most effectively to measure a company against other companies in the same industry and to denote trends within the companyC) provides way to compare different companiesD) provides a year-to year comparison of a company"s performance in different periods
is used most effectively to measure a company against other companies in the same industry and to denote trends within the company
Which of the following best describes horizontal analysis? A) comparing financial statement amounts from year to year for the same companyB) expressing each financial statement amount as a percentage of a budgeted amountC) comparing a company"s financial statements with other companiesD) calculating key ratios to evaluate performance
Which of the following best describes trend analysis? A) calculating key ratios to evaluate performanceB) expressing each financial statement amount as a percentage of a budgeted amountC) comparing a company"s financial statements with that of other companiesD) expressing each year"s financial statement amounts as a percentage of the base year amounts
When performing vertical analysis of an income statement, the base amount is ________. A) total expensesB) net salesC) sales revenueD) gross profit
When performing vertical analysis of a balance sheet, the base amount is ________. A) total assetsB) total cash and cash equivalentsC) net incomeD) gross profit
Which of the following is used to see how a company"s operating expenses, as a percentage of net sales, have changed from one year to the next? A) vertical analysisB) horizontal analysisC) ratio analysisD) analysis of internal control system
Common-size statementsA) show the same percentages that appear in a horizontal analysisB) allow the users to compare numbers in relative terms rather than absolute amounts C) create dollar value biasD) report dollar amounts and percentages
In regards to benchmarking, which of the following statements is incorrect? A) Benchmarking is the practice of comparing a company with other leading companies.B) The industry average is not a useful benchmark for evaluating a company.C) Providing common-size percentages in a graphical manner highlights differences.D) The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor.
A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount, which is 100%.
The cash ratio helps to determine a company"s ability to meet its short-term obligations using cash and cash equivalents.
The acid-test ratio measures a company"s ability to pay all its current liabilities if they came due immediately.
Which of the following items is a measure of a company"s ability to collect receivables? A) inventory turnover ratioB) current ratioC) days" sales in receivablesD) account receivable balance
The rate of return on total assets measures a company"s success in using its assets to earn a profit.
The rate of return on common stockholders" equity shows how much income is earned for each $1 of total stockholders equity.

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Working capital measures a business"s ability to meet its short-term obligations with its current assets.
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Fundamentals of Corporate Finance11th EditionBradford D. Jordan, Randolph W. Westerfield, Stephen A. Ross
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