UNIVERSIDAD DE ZAMBOANGA – IPIL

FINANCIAL MANAGEMNT
PRE-FINAL EXAMINATION
ACADEMIC YEAR 2019-2020
2ND SEMESTER

Name: Date:
Year & Section: Score

TEST I. MULTIPLE CHOICE: Write the letter that corresponds to the BEST answer on the space provided before the
number. There is only one BEST answer for each question.

______1.Which one of the following is primarily interested in the liquidity of a company?

a. Federal government. b. Stockholders.
c. Long-term creditors. d. Short-term creditors.

______2. Comparisons of financial data made within a company are called

a. intracompany comparisons. b. interior comparisons.
c. intercompany comparisons d. intramural comparisons.

______3. A technique for evaluating financial statements that expresses the relationship amongselected items of
financial statement data is
a. common size analysis. b. horizontal analysis.
c. ratio analysis. d. vertical analysis.

_______4. Which one of the following is not a tool in financial statement analysis?
a. Horizontal analysis b. Circular analysis
c. Vertical analysis d. Ratio analysis

_______5. In analyzing financial statements, horizontal analysis is a

a. requirement. b. tool. c. principle d. theory.

_______6. Assume the following sales data for a company:

2008 P1,000,000
2007 900,000
2006 750,000
2005 500,000
If 2005 is the base year, what is the percentage increase in sales from 2005 to 2007?
a. 100% b. 180% c. 80% d. 55.5%

______7. In performing a vertical analysis, the base for cost of goods sold is
a. total selling expenses. b. net sales. c. total revenues. d. total expenses.

______8. Each of the following is a liquidity ratio except the

a. acid-test ratio. b. current ratio. c. debt to total assets ratio. d. inventory turnover.

______9. A liquidity ratio measures the

a. income or operating success of an enterprise over a period of time.
b. ability of the enterprise to survive over a long period of time.
c. short-term ability of the enterprise to pay its maturing obligations and to meetunexpected needs for cash.
d. number of times interest is earned.

______10. The current ratio is

a. calculated by dividing current liabilities by current assets.
b. used to evaluate a company's liquidity and short-term debt paying ability.
c. used to evaluate a company's solvency and long-term debt paying ability.
d. calculated by subtracting current liabilities from current assets.

______11. The acid-test (quick) ratio

a. is used to quickly determine a company's solvency and long-term debt paying ability.
b. relates cash, short-term investments, and net receivables to current liabilities.
c. is calculated by taking one item from the income statement and one item from thebalance sheet.
d. is the same as the current ratio except it is rounded to the nearest whole percent.

_______12. Walker Clothing Store had a balance in the Accounts Receivable account of P780,000 atthe beginning
of the year and a balance of $820,000 at the end of the year. Net creditsales during the year amounted to
P5,840,000. The average collection period of thereceivables in terms of days was
 a. 30 days. b. 365 days. c. 100 days. d. 50 days.

_______13. Parr Hardware Store had net credit sales of $3,900,000 and cost of goods sold of P3,000,000 for the
year. The Accounts Receivable balances at the beginning and end ofthe year were P600,000 and P700,000,
respectively. The receivables turnover was
a. 5.6 times. b. 6.5 times. c. 4.6 times. d. 6 times.

Use the following information for questions 14-15.

Waters Department Store had net credit sales of P 8,000,000 and cost of goods sold of P 6,000,000 for the year. The
average inventory for the year amounted to P 2,000,000.
_______14. Inventory turnover for the year is
a. 4 times. b. 7 times c. 3 times d. 2 times.

_______15. The average number of days to sell the inventory during the year was
a. 183 days b. 122 days. c. 91 days. d. 52 days.

_______16. 1. firm has a higher quick (or acid test) ratio than the industry average, which implies.
A. the firm has a higher P/E ratio than other firms in the industry.
B. the firm is more likely to avoid insolvency in short run than other firms in the industry.
C. the firm may be less profitable than other firms in the industry.
D. A and B.
E. B and C.

_______17. 2. A firm has a lower quick (or acid test) ratio than the industry average, which implies.
A. the firm has a lower P/E ratio than other firms in the industry.
B. the firm is less likely to avoid insolvency in short run than other firms in the industry.
C. the firm may be more profitable than other firms in the industry.
D. A and B.
E. B and C.
_______18. An example of a liquidity ratio is _______.
A. fixed asset turnover
B. current ratio
C. acid test or quick ratio
D. A and C
E. B and C

_______19. __________ a snapshot of the financial condition of the firm at a particular time.
A. The balance sheet provides
B. The income statement provides
C. The statement of cash flows provides
D. All of the above provide
E. None of the above provides
________20. __________ of the cash flow generated by the firm's operations, investments and financial activities.
A. The balance sheet is a report
B. The income statement is a report
C. The statement of cash flows is a report
D. the auditor's statement of financial condition
E. None of the above is a report

_______21. A firm has a higher asset turnover ratio than the industry average, which implies
A. the firm has a higher P/E ratio than other firms in the industry.
B. the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C. the firm is more profitable than other firms in the industry.
D. the firm is utilizing assets more efficiently than other firms in the industry.
E. the firm has higher spending on new fixed assets than other firms in the industry.

_______22. A firm has a lower asset turnover ratio than the industry average, which implies
A. the firm has a lower P/E ratio than other firms in the industry.
B. the firm is less likely to avoid insolvency in the short run than other firms in the industry.
C. the firm is less profitable than other firms in the industry.
D. the firm is utilizing assets less efficiently than other firms in the industry.
E. the firm has lower spending on new fixed assets than other firms in the industry.
The financial statements of Black Barn Company are given below.

Black Barn Company

Income Statement (2017)
Sales P 8,000,000.00
Cost of goods sold 5,260,000.00
Gross profit 2,740,000.00
Selling &Administarttive expenses 1,500,000.00
Operating profit 12,400,000.00
Interest expenses 140,000.00
Income before tax 1,100,000.00
Tax expense 440,000.00
Net income P 660,000.00

Balance Sheet
2017 2016
Cash P 200,000.00 50,000.00
Accounts Receivable 1,200,000.00 950,000.00
Inventory 1,840,000.00 1,500,000.00
Total current assets 3,240,000.00 2,500,000.00
Fixed assets 3,200,000.00 3,000,000.00
Total assets 6,440,000.00 5,500,000.00

Accounts payable 800,000.00 720,000.00

Bank loan 600,000.00 100,000.00
Total current liabilities 1,400,000.00 820,000.00
Bonds payable 900,000.00 1,000,000.00
Total liabilities 2,300,000.00 1,820,000.00
Common Stock (130,000) shares 300,000.00 300,000.00
Retained earnings 3,840,000.00 3,380,000.00
Total liabilities & equity P6.440,000.00 P5,500,000.00

Note: The common shares are trading in the

stock market for 40 each.

_______23. Refer to the financial statements of Black Barn Company. The firm's current ratio for 2017 is _____.
A. 2.31 B. 1.87 C. 2.22 D. 2.46 E. none of the above

_______24. Refer to the financial statements of Black Barn Company. The firm's quick ratio for 2017 is _____.
A. 1.69 B. 1.52 C. 1.23 D. 1.07 E. 1.00

_______25. Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2017 is _____.
A. 1.65 B. 1.89 C. 2.64 D. 1.31 E. 1.56

______26. Refer to the financial statements of Black Barn Company. The firm's average collection period for 2017 is
A. 59.31 B. 55.05 C. 61.31 D. 49.05 E. none of the above

______27. Refer to the financial statements of Black Barn Company. The firm's inventory turnover ratio for 2017 is
A. 3.15 B. 3.63 C. 3.69 D. 2.58 E. 4.20

_______28. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2017
is _____.
A. 2.04 B. 2.58 C. 2.97 D. 1.58 E. none of the above
.
_______29. Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for2017is
A. 1.79 B. 1.63 C. 1.34 D. 2.58 E. none of the above

_______30. Refer to the financial statements of Black Barn Company. The firm's return on equity ratio for 2017 is
A. 16.90% B. 15.63% C. 14.00% D. 15.00% E. 16.24

_______31. Refer to the financial statements of Black Barn Company. The firm's P/E ratio for 2007 is _____.
A. 8.88 B. 7.63 C. 7.88 D. 7.32 E. none of the above
_______31. A measure of asset utilization is ________.
A. sales divided by working capital
B. return on total assets
C. return on equity capital
D. operating profit divided by sales
E. none of the above

_______32. FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of
(long term debt/equity) that is below the industry average. These ratios suggest that the firm _________.
A. utilizes assets effectively
B. has too much equity in the capital structure
C. has relatively high current liabilities
D. has a relatively low dividend payout ratio

_______33. A firm's current ratio is above the industry average; however, the firm's quick ratio is below the
industry average. These ratios suggest that the firm _________.
A. has relatively more total current assets and even more inventory than other firms in the industry
B. is very efficient at managing inventories
C. has liquidity that is superior to the average firm in the industry
D. is near technical insolvency
E. none of the above

_______34. Which of the following would best explain a situation where the ratio of (net income/total equity) of a
firm is higher than the industry average, while the ratio of (net income/total assets) is lower than the
industry average?
A. The firm's net profit margin is higher than the industry average.
B. The firm's asset turnover is higher than the industry average.
C. The firm's equity multiplier must be lower than the industry average.
D. The firm's debt ratio is higher than the industry average.
E. None of the above.

_______35. If a firm's ratio of (total liabilities/total assets) is higher than the industry average while the total
capitalization of the firm's stockholders' equity) is lower than the industry average, the most likely
assumption is that the firm ________.
A. has more current liabilities than the industry average
B. has more leased assets than the industry average
C. will be more profitable than the industry average
D. has more current assets than the industry average
E. none of the above

_______36. What best explains why a firm's ratio of (long-term debt/total capital) is lower than the industry average,
while the ratio of (income before interest and taxes/debt interest charges) is lower than the industry
average.
A. The firm pays lower interest on long-term debt than the average firm
B. The firm has more short-term debt than average
C. The firm has a high ratio of (current assets/current liabilities)
D. The firm has a high ratio of (total cash flow/long term debt)
E. none of the above

_______37. Which of the financial statements recognizes only transactions in which cash changes hands?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. A and B
E. A, B, and C

_______38. To create a common size income statement ____________ all items on the income statement by
A. multiply; net income
B. multiply; total revenue
C. divide; net income
D. divide; total revenue
E. multiply; COGS
 Midwest Tours
Income Statement (2017)
Sales P 2,500,000.00
Cost of goods sold 1,260,000.00
Gross profit 1,240,000.00
Selling &Administrative expenses 700,000.00
Operating profit 540,000.00
Interest expenses 160,000.00
Income before tax 380,000.00
Tax expense 152,000.00
Net income P 228,000.00

Balance Sheet
2017 2016
Cash 60,000.00 50,000.00
Accounts Receivable 500,000.00 450,000.00
Inventory 300,000.00 270,000.00
Total current assets 860,000.00 770,000.00
Fixed assets 2,180,000.00 2,000,000.00
Total assets 3,040,000.00 2,770,000.00

Accounts payable 200,000.00 170,000.00

Bank loan 460,000.00 440,000.00
Total current liabilities 660,000.00 610,000.00
Bonds payable 860,000.00 860,000.00
Total liabilities 1,520,000.00 1,470,000.00
Common Stock (130,000) shares 120,000.00 120,000.00
Retained earnings 1,400,000.00 1,300,000.00
Total liabilities & equity P3.040,000.00 P2,890,000.00

Note: The common shares are trading in the

stock market for 36 each.

_______39. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2017 is _____.
A. 1.82 B. 1.03 C. 1.30 D. 1.65 E. none of the above

_______40. Refer to the financial statements of Midwest Tours. The firm's quick ratio for 2017 is __________.
A. 1.71 B. 0.78 C. 0.85 D. 1.56 E. none of the above

_______41. Refer to the financial statements of Midwest Tours. The firm's leverage ratio for 2017 is __________.
A. 1.62 B. 1.56 C. 2.00 D. 2.42 E. 2.17

_______42. 59. Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2017 is
A. 2.897 B. 2.719 C. 3.375 D. 3.462 E. none of the above

_______43. Refer to the financial statements of Midwest Tours. The firm's average collection period for 2017 is _
A. 69.35 B. 69.73 C. 68.53 D. 67.77 E. 68.52

_______44. Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2017 is
A. 2.86 B. 1.23 C. 5.96 D. 4.42 E. 4.86

_______45. Refer to the financial statements of Midwest Tours. The firm's fixed asset turnover ratio for 2017 is
A. 1.45 B. 1.63 C. 1.20 D. 1.58 E. none of the above

_______46 Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2017 is __________.
A. 1.86 B. 0.63 C. 0.86 D. 1.63 E. none of the above

_______47. Refer to the financial statements of Midwest Tours. The firm's P/E ratio for 2017 is __________.
A. 4.74 B. 6.63 C. 5.21 D. 5.00 E. none of the above

_______48. To create a common size balance sheet ____________ all items on the balance sheet by ____________.
A. multiply; owners equity
B. multiply; total assets
C. divide; owners equity
D. divide; total assets
 E. multiply; deb
________39. Common size financial statements make it easier to compare firms ____________.
A. of different sizes
B. in different industries
C. with different degree of leverage
D. that use different inventory valuation methods (FIFO vs. LIFO)
E. none of the above

________40. n finance, "working capital" means the same thing as

A. total assets.
B. fixed assets.
C. current assets.
D. current assets minus current liabilities.

TEST II. MODIFIED TRUE OR FALSE. Put X on the TRUE Column if the statement is correct, if it is FALSE put X on
the false column and underline the word(s) that make the statement incorrect.

TRUE FALSE

1. Financial statements that reflect financial data for two or more periods are
often referred to as comparative statements

2. Development of data that measure changes occurring from one

accounting period to another is a form of horizontal analysis

3. Common size financial statements are a widely used vertical analysis

technique

4. A common-size income statement usually shows each revenue or

expense item as a percentage of net sales

5. Comparability between enterprises is more difficult to obtain than

comparability within a single enterprise

6. Computation of ratios for an accounting period is a form of horizontal

analysis

7. Generally, the first concern of a financial analyst is a firm’s liquidity

8. The working capital ratio is regarded as fundamental measurement of a

company’s liquidity

9. Normally, an analyst would believe that a manufacturing company with a

current ratio of 3 to 1 was in serious liquidity trouble

10. The acid test ratio is regarded primarily as a measure of a company’s

long term liquidity situation

11. Usually quick ratio of 1.5 o 1 would be considered satisfactory

12. The accounts receivable turnover is both a measure of liquidity and a

measure of activity

13. Average receivables may also be expressed in terms of the number of

days’ sales in receivables

14. The receivable position and the approximate collection time may be
evaluated by computing the accounts receivable turnover

15. The inventory turnover is computed by dividing cost of goods sold by

average inventory

16. A natural business year relates to a fiscal year ending when operations
are at their lowest point

17. Normally a relatively low inventory turnover is desirable

18. The ratio of the net sales to total assets is often called the profitability
ratio

19. The ratio called profit margin on sales is a measure of the profit
percentage per dollar of sales

20. Return on investment (ROI) is a measure of overall asset productivity

21. The price earnings ratio is a measure of the relative attractiveness of

common stock as an investment

22. The internal users of financial statement are managers, employees and
creditors

23. Horizontal analysis is a technique to compare company’s financial

condition over a period of time

24. Vertical analysis is a technique to evaluate each item in a financial

statement as a percent of a base amount or item

25. The four classification of ratio analysis are liquidity ratio, fixed asset ratio,
profitability ratio and efficiency ratios

26. Liquidity ratio measure the ability of a business to meet long term
obligations

27. Solvency ratios measure the business’ very short-term ability to meet all
financial obligations

28 Debt to asset ratio measures the extent to which borrowed funds have
been used to finance the acquisition of assets

29 Price earnings ratio shows how much an investor is willing to pay for each
dollar of earnings given the actual market price

30. Current assets divided by current liabilities is a current ratio

TEST – III. IDENTIFICATION. Write your answer on the space provided before the number that best describe the
statement.

____________________1. A method of financial statement analysis that uses comparative financial statements to
calculate monetary or percentage changes in a financial statement item from one period to
the next.
____________________2. Financial statements that show only percentages and no absolute monetary amounts.
____________________3. It shows changes over time in given financial statement items and it can help evaluate
financial information of several years.
____________________4. It is an expression of logical relationship between financial items in a financial statement of
a single period.
____________________5. It is a business strategy designed to ensure that a company operates efficiently by
monitoring and using its current assets and liabilities to the best effect.

TEST – IV. ESSAY. Read the question(s) carefully. Make it sure you understand the questions before responding. Be
brief and concise in answering the questions.

1. What are the basic financial statements that should be prepared by a business firm? What are the uses of each
of the basic financial statements? (10pts)
2. What is financial statement analysis and why it is important? (5pts)

PREPARED BY: REVIEWED BY: APPROVED BY:

CHRISTINE H. LEAL NEMIA B. HULAGNO, MBA GERALDINE R. TABLATE

Instructor Program Chairperson BSA & BSBA School Administrator