Question

1) Which of the following is a false statement as it relates to analysis?

a. Profitability may not be a major consideration as long as the resources for repayment can be projected.

b. Equity capital provides creditors with a cushion against loss

c. There is a difference between the objectives that are sought by short term grantors of credit and those sought by long term grantors of credit.

d. If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected.

e. financial structure of the entity is of interest to creditors.

2). Which of these statements is false?

a. A ratio can be computed for any pair of numbers.

b. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived.

c. Comparing ratios computed from the income statement and balance sheet numbers can create difficulties due to the timing of the financial statements.

d. Financial ratios are usually expressed in percent or times.

e. In a vertical analysis, a figure from this year's statement is compared with a base selected from the prior statement.

Answer 1

1) Which of the following is a false statement as it relates to analysis?
a. Profitability may not be a major consideration as long as the resources for repayment can be projected.
b. Equity capital provides creditors with a cushion against loss
c. There is a difference between the objectives that are sought by short term grantors of credit and those sought by long term grantors of credit.
d. If merchandise with a 20% markup is sold on credit, it would take ten successful sales of the same amount to make up for one sale not collected.	Option D is correct	The companies always make provision for bad debt if they fail to collect one sale they don't need to make 10 sucessful sale to recoup the loss.
e. financial structure of the entity is of interest to creditors.
2). Which of these statements is false?
a. A ratio can be computed for any pair of numbers.
b. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived.
c. Comparing ratios computed from the income statement and balance sheet numbers can create difficulties due to the timing of the financial statements.
d. Financial ratios are usually expressed in percent or times.
e. In a vertical analysis, a figure from this year's statement is compared with a base selected from the prior statement.	Option E is correct	In a vertical analysis, a figure from this year's statement is compared with a base selected from the same statement for income statement sales is the base and balance sheet total assets is the base.