1. Trend analysis is the forecasting of the? firm's financial ratios for a future time period by using its own ratios from previous periods.

True

False

2. In an ideal? world, which of the following would be used to evaluate firm? performance?

A. corporate retained earnings from the day of incorporation

B. market value of assets

C. accounting assets and profits

D. book value of assets

3. Smith Corporation has earned a return on capital invested of? 10% for the past two? years, but an investment analyst reviewing the company has stated the company is not creating shareholder value. This may be due to the fact that

A. ?investors' required rate of return is? 8%.

B. ?investors' required rate of return is? 12%.

C. the? corporation's inventory turnover is high.

D. the risk-free rate of interest is? 3%.

4. Which differences in the accounting practices of firms limit the usefulness of financial? ratios? (Select the best choice? below.)

A. Different firms choose different methods to depreciate their fixed assets. Differences such as these can make thecomputed ratios of different firms difficult to compare.

B. Different firms choose different methods to allocate their inventory. Differences such as these can make thecomputed ratios of different firms difficult to compare.

C. Different firms choose different methods to book revenues and expenses. Differences such as these can make the computed ratios of different firms difficult to compare.

D. A and B only.

E. ?A, B and C.