![]() ![]() ANSWER: True Difficulty: Moderate Keywords: industry averages 7. ![]() Financial ratios that are higher than industry averages may indicate problems which are as detrimental to the firm as ratios that are too low. ANSWER: True Difficulty: Moderate Keywords: ratio analysis 6. Ratios that examine profit relative to investment are useful in evaluating the overall effectiveness of the management. ANSWER: False Difficulty: Easy Keywords: current ratio, acid test ratio, leverage ratios 5. The current ratio and the acid test ratio are both measures of financial leverage. ANSWER: True Difficulty: Easy Keywords: DuPont analysis 4. The focus of DuPont analysis is to provide management information as to how the firm is using its resources to maximize returns on investments. ANSWER: True Difficulty: Easy Keywords: limitations of ratio analysis 3. Firms that engage in multiple lines of business make it difficult to assign them to an industry category for ratio analysis. ANSWER: False Difficulty: Easy Keywords: trend analysis 2. When the present financial ratios of a firm are compared with similar ratios for another firm in the same industry it is called trend analysis. Preview text Chapter 3 Evaluating Financial Performance 1.
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