True/False Quiz

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Chapter 6:   Financial Statement Analysis

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1. The income statement summarizes the assets, liabilities and owners' equity of a company at a moment in time.

2. The current ratio is never larger than the quick ratio.

3. Assets are listed in order of increasing liquidity on the balance sheet.

4. A problem with a balance sheet based on historical costs is that in a period of inflation a company with old fixed assets will show a much better return on investment than a similar firm with new fixed assets.

5. A short average collection period assures us that accounts receivable are being efficiently managed.

6. A firm's operating cycle is equal to its inventory turnover in days (ITD) plus its receivable turnover in days (RTD).

7. All companies should have at least a 1.5 to 1 current ratio.

8. The shareholders' equity figure on a balance sheet represents what the firm is worth to shareholders.

9. A high inventory turnover would be more important to a dairy company than to a jewelry store.

10. A common-size balance sheet analysis compares the firm's performance with the consumer price index.

The following item is NEW to the 13th edition.

11. The United States and a few European Union (EU) countries all adhere to US Generally Accepted Accounting Principles (US GAAP).

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