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  An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that A

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1. An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that
   A. the method reduces the potential understatement inherent in average balances.
   B. the method can introduce artificial volatility in ending balances.
   C. the method results in understating inventory each year.
   D. the method results in overstating inventory each year.
2. The objective of a forecast is to develop
   A.stand-alone financial statements for future analysis
   B. a set of realistic expectations for future value-relevant payoffs.
   C. a balance sheet and income statement that articulate.
   D. financial statements for comparison to industry averages.
3. Projected financial statements can be used to assess the sensitivity of all of the following except:
   A. a firm's liquidity
   B. a firm's leverage to changes in assumptions
   C. conditions under which the firm's debt covenants may become problematic
   D. unusual patterns for projected total assets.
4. Common-size financial statements recast each statement item as
   A. a percentage of the "bottom line"
   B. a percentage using industry averages for the "base number."
   C. a percentage using a base year number for each line item.
   D. a percentage of some "base number" on the financial statement in question.
5. Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following types of companies would most likely be able to increase prices?
   A. A firm in a capital intensive industry that is expected to operate near capacity for the near future.
   B. A firm in a capital intensive industry in which excess capacity exists.
   C. A firm operating in an industry that is expected to experience technological improvements in its production process.
   D. A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life cycle
6. Financial statement forecasts rely on additivity within financial statements and articulation across financial statements. Given this information sales growth forecasts will most likely affect growth in
   A. accounts receivable
   B. accounts payable
   C. depreciation
   D. salaries payable
7. When projecting operating expenses it is important to determine the mix of fixed and variable costs, one clue suggesting the presence of fixed costs is
   A. the percentage change in cost of goods sold in prior years is significantly greater than the percentage change in sales.
   B. the percentage change in cost of goods sold in prior years is significantly less than the percentage change in sales.
   C. low capital intensity in the production process.
   D. the percentage change in sales in prior years is significantly greater than the percentage change in receivables.
8. All of the following are the fundamental bases for future payoffs to equity shareholders and share value except:
   A. earnings
   B. cash flows
   C. dividends
   D. depreciation
9. All of the following statements are true regarding ratios and forecasts except:
   A. Ratios cannot confirm whether forecast assumptions will turn out to be correct.
   B. Ratios can tell whether future sales growth was accurately captured.
   C. Ratios cannot tell whether assumptions about future cash flows are realistic.
   D. Ratios can tell whether growth rates for sales are consistent with past sales growth performance.
10. If a firm competes in a capital-intensive industry with excess capacity, all of the following are true except:
    A. price increases will be less likely
    B. price increases will be more likely
    C. companies in competitive industries face high exit barriers.
    D. companies in competitive industries may experience future price decreases.