Question : 1. Which of the following statements regarding financial analysis true? A. Financial analysis : 1295717

1. Which of the following statements regarding financial analysis is true? 
A. Financial analysis will show how a company is guaranteed to perform in the future.
B. Financial analysis should not be relied upon as an indicator of future performance.
C. Financial analysis should be performed by only managers and creditors.
D. Financial analysis provides supplemental information not provided directly by the financial statements.

2. Ratio analysis is least likely to indicate: 
A. past performance.
B. future performance.
C. the effects of inflation.
D. trends in a company’s performance.

3. The easiest part of ratio analysis is: 
A. the interpretation of the ratio.
B. analyzing trends or changes in them.
C. using the ratio to make decisions.
D. the computation of the ratio.

4. Which of the following is not a limitation in performing financial statement analysis on a company that uses generally accepted accounting principles? 
A. Variety of methods used by different companies.
B. Use of estimates by a company.
C. Use of assumptions by a company.
D. Use of technology by a company.

5. Which of the following statements is true regarding ratio analysis? 
A. A ratio for a particular company is often compared to industry standards using various publications.
B. A ratio for a particular company is unique and, therefore, should not be compared to other companies’ ratios.
C. Ratio analysis should be kept as simple as possible, often accomplished by using just one ratio to measure a company’s performance.
D. Ratio analysis will not be affected by different accounting methods or assumptions.

6. Bingham Inc. is a retailer with annual sales of less that $10 million. At the end of 2008, ratio analysis is performed on Bingham’s financial statements by various stakeholders. Bingham’s 2008 ratios are not likely to be compared to: 
A. Bingham’s 2007 ratios.
B. Bingham’s 2008 budgeted ratios.
C. Other retailers with annual sales of less than $10 million.
D. A manufacturer with annual sales of less than $10 million.

7. Which of the following items is not typically used to prepare financial statements? 
A. Historical costs
B. Inflation adjustments
C. Estimations
D. Assumptions

8. Financial statements prepared using generally accepted accounting principles: 
A. use historical costs and are not adjusted for the effects of increasing prices.
B. use historical costs and are adjusted for the effects of increasing prices.
C. use market-based costs and are adjusted for the effects of increasing prices.
D. use market-based costs and are not adjusted for the effects of decreasing prices.

9. Analyzing financial statement account balances over time for the same company is called: 
A. vertical analysis.
B. horizontal analysis.
C. common-size analysis.
D. price analysis.

10. Which of the following statements regarding horizontal analysis is false? 
A. Horizontal analysis can include more than two years of financial data.
B. Horizontal analysis is facilitated by computing dollar and percentage changes in financial statement items.
C. Horizontal analysis analyzes ratio differences occurring between companies.
D. Horizontal analysis can include the statement of cash flows.