Question

4. common-size _______ computes all account as percent of total asset.

a. balance sheet

b. income statement

c. standardized statements

d. both A&B

5. Ratios allow for better comparison _____ and ______.

a. internally, externally

b. through time, between company

c. same industry, different industry

d. Both a&b

6. whicih of the following is/are the typical categories of finance ratio?

a. non liquidity ratio

b. finance leverage ratio

c. profitbility ratio

d. market calue ratio

7. which of the following is/are the external user of a company’s financial statements?

a. company staff

b. creditors

c. shareholders

d. only b&c

8. if we expect EBIT to be ______ the breakeven point, the leverage ratio may be ______ to our stockholders.

a. greater than, beneficial

b. less than, beneficial

c. less than, detrimental

d. both a&c

9. which 3 of the following statement are conclusive?

​A.​The effect of financial levarage depends on the company's EBIT. When ​​​EBIT is relatively high, leverage is beneficial.

​B.​Under the expected scenario, leverage increase the returns to ​​​​shareholders, as measured by both ROE and EPS.

​C.​Shareholders are exposed to more risk under the proposed capital ​​​​structure because the EPS and ROE are much more sensitive to changes ​​​in EBIT.

​D.​Because of the impact that financial leverage has on both the expected ​​​return to stockholders and the riskiness of the stock, capital structure is an ​​important consideration.

10. There are three case for Capital Structure Theory, The Assumptions for ​Case I are:

​A.​No corporate or personal taxes, No bankruptcy costs

​B.​With corporate taxes but no personal taxes, No bankruptcy costs

​C.​No corporate or personal taxes, With bankruptcy costs

​D.​With corporate taxes but no personal taxes, No bankruptcy costs

11.​The Propositions for Case I of the Capital Structure Theory are:

​A.​The value of the firm is NOT affected by changes in the capital structure

​B.​The WACC of the firm is NOT affected by capital structure

​C.​Both value of the firm and the WACC of the firm is affected by capital ​​​structure

​D.​Both A and B

Answer 1

4. Common size Balance sheet calculates all account as a percentage of Total Assets or Total liabilities.

In common size income statement   you calculate each item of income statement as a percentage of Sales.

5. Ratios allow better comparison through time and between company.

that means Ratios allow if you want to compare liquidity of firm of previous year with current year.

and they also allow if you want to compare your company's liquidity position with other company in the same industry.

6. financial leverage and profitability ratio and market value ratios are financial ratios .

Leverage ratios include Debt Ratio , Debt to Equity Ratio ,Interest Coverage Ratio, Debt Service Coverage Ratio.

Profitability Ratios include Gross Profit Ratio , Operating Profit Ratio, Return on Equity Ratio, Return on Total Assets Ratio and Net Profit Ratio.

Market Value Ratios include Book Value per share Ratio, Dividend Yield ratio, Earnings Per Share Ratio, Price Earnings Ratio.

7. Creditors and Shareholders are the External users of company's financial statements.

Company Staff is the internal user of company's Financial Statements