(Choose the correct answer. 1 mark is awarded for a correctresponse while 1.5 is deducted for an incorrect answer) 2. Why isthe amount of debt in a company’s capital structure important tothe financial analysis? b) Debt implies risk b) Debt is less costlythan equity c) Equity is riskier than debt d) Debt is equal tototal assets 2. Which activity is reflected in the statement in thestatement of financial position? a) Operating b) Investing c)Financing d) Investing and financing e) All of the above 3. Whichof the following ratios could not be used to measure the extent ofa firm’s debt financing? a) Debt ratio b) Debt to equity c) Timesinterest earned d) Long term debt to total capitalization 4. Whichis a serious limitation of financial ratios? a) Ratios arescreening devices b) Ratios can be used only by themselves. c)Ratios indicate weaknesses only d) Ratios are not predictive. 5.What is a common size financial statement? d) Statement based oncommon sales and judgement. e) Statement that relates the firm tothe industry in which it operates. f) Statement that standardizesfinancial dates in terms of trends. g) Statement that express eachaccount on a statement of financial position as a percentage oftotal assets and each account on the statements as a percentage ofnet sales. h) Statement that express each account on a statement offinancial position as a percentage of total assets and each accounton the income statement as a percentage total sales. 7. What is aninvestor’s KEY objective in financial statement analysis? a) Todetermine if the firm is risky b) To determine the stability ofearnings. c) To determine the changes necessary to improve thefuture performance. d) To determine whether an investment iswarranted by estimating a company’s future earnings stream. e) Allof the above 7. What is the first step in an analysis of financialstatement? a) Gather the relevant materials for the analysis b)Specify the objectives of the analysis. c) Do a common sizeanalysis d) Check the auditor’s report 8. Which of the following isnot required to be discussed in the management discussion ofanalysis of the financial condition and the result of theoperations? a) Liquidity b) Capital resources d) Operations d)Earning projections e) All of the above 9. When carrying outprofitability analysis the following are looked into except? a)Return on investment b) Operating performance c) Asset utilizationd) Liquidity 10. Cash flow analysis is used to arrive at thefollowing except? a) Evaluate sources and uses of funds. b) Obtainhow a company acquires and deploying its resources. c) Used in cashflow forecasting d) To gauge the solvency of the organization(Total 25 marks)