Indicate Whether Each of the Following Statements About Financial Statement

question 145

Short Answer

Indicate whether each of the following statements about financial statement analysis is true or false.
1. The asset turnover ratio is calculated by dividing net income by average total assets.
2. The asset turnover ratio is likely to be high in an industry in which operations require only a minimal investment in assets.
3. Return on equity measures the wealth generated by the amount of assets invested in a business.
4. A higher value for the return on investment ratio would generally indicate more effective company management.
5. The use of financial leverage often causes a business's return on equity to be lower than its return on investment.

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Definitions:

Financial Statements

Documents that provide an overview of a company's financial condition, including balance sheet, income statement, and cash flow statement.

Post-closing Trial Balance

A list of all balances in a company’s ledger accounts after the closing entries are made, serving as a check to ensure debits and credits are balanced at the end of an accounting period.

Operating Cycle

The time it takes for a company to purchase inventory, sell products, and collect cash from customers.

Classified Balance Sheet

A balance sheet that organizes assets and liabilities into subcategories like current and long-term.