CHAPTER 3Financial Statement Analysis, Planning, and GrowthMultiple Choice Questions:I.DEFINITIONSLONG-TERM PLANNINGc1.One key reason a long-term financial plan is developed is because:a.the plan determines your financial policy. b.the plan determines your investment policy. c.there are direct connections between achievable corporate growth and the financial policy. d.there is unlimited growth possible in a well-developed financial plan. e.None of the above. PRO FORMA STATEMENTSb2.Projected future financial statements are called:a.plug statements. b.pro forma statements. c.reconciled statements. d.aggregated statements. e.none of the above.PERCENTAGE OF SALESe3.The percentage of sales method: a.requires that all accounts grow at the same rate. b.separates accounts that vary with sales and those that do not vary with sales. c.allows the analyst to calculate how much financing the firm will need to support the predicted sales level. d.Both A and B. e.Both B and C. COMMON-SIZE STATEMENTSe4.A _ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.a.tax reconciliation statementb.statement of standardizationc.statement of cash flowsd.common-base year statemente.common-size statementFINANCIAL RATIOSa5.Relationships determined from a firms financial information and used for comparison purposes are known as:a.financial ratios.b.comparison statements.c.dimensional analysis.d.scenario analysis.e.solvency analysis.SHORT-TERM SOLVENCY RATIOSc6.Financial ratios that measure a firms ability to pay its bills over the short run without undue stress are known as _ ratios.a.asset managementb.long-term solvencyc.short-term solvencyd.profitabilitye.market valueCURRENT RATIOb7.The current ratio is measured as:a.current assets minus current liabilities.b.current assets divided by current liabilities.c.current liabilities minus inventory, divided by current assets.d.cash on hand divided by current liabilities.e.current liabilities divided by current assets.QUICK RATIOd8.The quick ratio is measured as:a.current assets divided by current liabilities.b.cash on hand plus current liabilities, divided by current assets.c.current liabilities divided by current assets, plus inventory.d.current assets minus inventory, divided by current liabilities.e.current assets minus inventory minus current liabilities.CASH RATIOe9.The cash ratio is measured as:a.current assets divided by current liabilities.b.current assets minus cash on hand, divided by current liabilities.c.current liabilities plus current assets, divided by cash on hand.d.cash on hand plus inventory, divided by current liabilities.e.cash on hand divided by current liabilities.LONG-TERM SOLVENCY RATIOSb10.Ratios that measure a firms financial leverage are known as _ ratios.a.asset managementb.long-term solvencyc.short-term solvencyd.profitabilitye.market valueTOTAL DEBT RATIOa11.The financial ratio measured as total assets minus total equity, divided by total assets, is the:a.total debt ratio.b.equity multiplier.c.debt-equity ratio.d.current ratio.e.times interest earned ratio.DEBT-EQUITY RATIOc12.The debt-equity ratio is measured as total:a.equity minus total debt.b.equity divided by total debt.c.debt divided by total equity.d.debt plus total equity.e.debt minus total assets, divided by total equity.EQUITY MULTIPLIERe13.The equity multiplier ratio is measured as total:a.equity divided by total assets.b.equity plus total debt.c.assets minus total equity, divided by total assets.d.assets plus total equity, divided by total debt.e.assets divided by total equity.TIMES INTEREST EARNED RATIOc14.The financial ratio measured as earnings before interest and taxes, divided by interest expense is the:a.cash coverage ratio.b.debt-equity ratio.c.times interest earned ratio.d.gross margin.e.total debt ratio.CASH COVERAGE RATIOa15.The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is the:a.cash coverage ratio.b.debt-equity ratio.c.times interest earned ratio.d.gross margin.e.total debt ratio.ASSET MANAGEMENT RATIOSa16.Ratios that measure how efficiently a firm uses its assets to generate sales are known as _ ratios.a.asset managementb.long-term solvencyc.short-term solvencyd.profitabilitye.market valueINVENTORY TURNOVERc17.The inventory turnover ratio is measured as:a.total sales minus inventory.b.inventory times total sales.c.cost of goods sold divided by inv