Question : Multiple Choice Questions 31. There several fundamental purposes decision makers consider when : 1228471

Multiple Choice Questions
 

31. There are several fundamental purposes decision makers consider when they use financial data. Which of the following statements is not one of those fundamental purposes? 
A. Measurement of the current condition of the business.
B. Measurement of past performance of the business.
C. Measurement of the book value of the assets.
D. Prediction of future potential of the business.

32. When considering an investment, which of the following is not one of the three critical factors used to evaluate future earning potential of that investment? 
A. Financial analysts’ reports.
B. Economy wide factors.
C. Industry factors.
D. Individual company factors.

33. Which of the following statements is incorrect? 
A. A company implementing a cost advantage strategy is attempting to reduce investment in assets thereby improving the asset turnover ratio.
B. A company implementing a product differentiation strategy is attempting to improve its profit margin through charging higher prices.
C. A company will attract a higher volume of customers and revenue by following a product differentiation strategy versus a cost advantage strategy.
D. Financial leverage is a function of both total assets and stockholders’ equity.

34. Which of the following statements is correct? 
A. Purchasing fixed assets through debt financing decreases financial leverage.
B. Accruing an expense does not affect the net profit margin ratio.
C. Return on equity increases when the financial leverage ratio decreases.
D. Purchasing treasury stock results in a decrease in asset turnover.

35. Which of the following statements is incorrect? 
A. Purchasing fixed assets through equity financing decreases asset turnover.
B. Accruing an expense increases the financial leverage ratio.
C. The return on equity ratio increases when treasury stock is purchased.
D. The net profit margin ratio decreases when fixed assets are purchased.

36. Which of the following statements is correct? 
A. Selling inventory for cost does not affect the net profit margin ratio.
B. Accruing sales revenue doesn’t affect the net profit margin ratio.
C. The asset turnover ratio increases when fixed assets are sold for a loss.
D. The net profit margin ratio decreases when common stock is issued.

37. Home Depot’s operating strategy is to offer a broad assortment of high-quality merchandise and services at competitive prices using highly knowledgeable service-oriented personnel and aggressive advertising. Which of the following is not as critical to achieving its strategy? 
A. Cost control
B. Product differentiation
C. High level of customer service
D. High sales volume

38. Which of the following statements is false? 
A. When computing the component percentages for the income statement, net income is the base figure.
B. Time series analysis examines a company’s performance over time.
C. It is often useful to compare a company’s performance with that of a competitor.
D. The North American Industry Classification System assigns industry codes based on business operations.

39. Which of the following statements is correct? 
A. A ratio calculation is most relevant in isolation.
B. One of the advantages of ratio analysis is that it allows companies of different sizes to be compared.
C. Finding benchmarks for comparison is a straight-forward task.
D. It is always preferable to compare a company’s performance to industry-wide ratios rather than to use a competitor’s ratios.

40. The base amount in preparing a common-size income statement is usually which of the following? 
A. Income from operations
B. Gross profit
C. Net income
D. Net sales