Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / TRUE-FALSE Questions Read each statement given below carefully and for each statement determine if it is true or false
TRUE-FALSE Questions Read each statement given below carefully and for each statement determine if it is true or false. Please fill in the answers in the table given below by writing "TRUE" or "FALSE” in the space provided. (Rubrics: 1 mark each for a correct answer, for 6 statements - Total 6 marks) Question 123456 Answer 1. EPS is the amount of net income earned in a business that is paid out as cash dividends to stockholders. 2. A decrease in inventory turnover implies that a business is selling its inventory and collecting cash from customers very slowly. 3. Turnover ratios involve both a balance sheet and an income statement account. 4. Times interest earned measures how many times operating income can pay the company's total expense. s. The acid-test ratio is a more rigorous test of a business's capability to pay its short-term liabilities in comparison to the current ratio. 6. It is crucial for managers to analyze their business's financial statements so that they can foresee and answer questions from external users.
Sol:
1. False
Explanation
EPS(earnings per share) is the amount profit earned by the company per each share outstanding.
Formula = (net income - preferred dividents) / number of shares outstanding.
for example, if a company has a profit of $1,00,000 and it pays $20,000 as divident. Number of shares outstanding is 16000. Then,
EPS = (1,00,000-20,000)/16,000 = 5
In short , EPS is the net income earned per each share outstanding, by the company after paying dividents if any.
2. True
Explanation
Inventory turnover points out how much speedily a company transforms it's inventory into profits.
Inventory turnover = Cost of goods sold / average inventory held
average inventory held =( opening inventory+closing inventory)/2
A decrease in inventory turnover means the company can't make the inventory into profit speedily when comparing to earlier periods. The statement mentioned above supports this fact.
3. True
Explanation
General formula for turnover ratio = amount in income statement /an average asset amount
for eg, total assets turnover ratio = net sales / average total assets for the same period
inventory turnover ratio ratio = cost of goods sold / average inventory
From this, it is transparent that turnover ratios involve accounts from income statement and balance sheet.
4. False
Explanation
Times interest earned indicate the number of times the income before tax of the company can cover the interst expense, not the total expense.
5. True
Explanation
Acid test ratio is more appropriate than current ratio to assess the capacity of the company to pay it's short term liabilities. Because while calculating acid test ratio, inventory, which is not a comparatively liquid item, is excluded. So, we will get a more coservative result.
6. False
Explanation
The managers analyse financial statements for decision making and evaluating performance of the company.
