Question 1

Shareholders analyse financial statements in order to:

Accepted Answer

A)   assess the cash flows that the company will generate from operations
B)   determine the company's profitability, their return for that period, and the dividend they are likely to receive.
C)   focus on the value of the shares they hold.
D)   All of the above.E) A) and B)
F) C) and D)

Question 2

Efficiency ratio: Ellicott City Manufacturers Ltd has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the company's cost of sales?

Accepted Answer

A)   $2,074,557
B)   $2,745,640
C)   $274,560
D)   None of the aboveE) All of the above
F) C) and D)

Question 3

Which one of the following statements about trend analysis is NOT correct?

Accepted Answer

A)   This benchmark is based on a company's historical performance.
B)   It allows management to examine each ratio over time and determine whether the trend is good or bad for the company.
C)   The Global Industry Classification Standard (GICS)  uses trend analysis to classify companies.
D)   All of the above are true statements.E) A) and B)
F) A) and C)

Question 4

Market-value ratios: Perez Electronics Company has reported that its profit for 2006 is $1,276,351. The company has 420,000 shares outstanding and a P-E ratio of 11.2 times. What is the company's share price?

Accepted Answer

A)   $34.05
B)   $3.68
C)   $11.20
D)   $36.80E) B) and C)
F) A) and B)

Question 5

Shareholders focus on the value of their shares but not on how much cash they can expect to receive from dividends and/or capital appreciation.

Accepted Answer

A) True 
 B)False

Question 6

Leverage ratio: Your company has an equity multiplier of 2.47. What is its debt-to-equity ratio?

Accepted Answer

A)   0.60
B)   1.47
C)   1.74
D)   0E) None of the above
F) A) and B)

Question 7

A benchmark for a financial statement analysis is the performance of a multinational company in the same industry from another country.

Accepted Answer

A) True 
 B)False

Question 8

Efficiency ratio: Gateway Company has an inventory turnover ratio of 5.6. What is the company's days' sales in inventory?

Accepted Answer

A)   65.2 days
B)   64.3 days
C)   61.7 days
D)   57.9 daysE) B) and D)
F) None of the above

Question 9

A company increased its days' sales outstanding from 35 days to 43 days. This implies the company is more efficient.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following is NOT an advantage of using ROE as a goal?

Accepted Answer

A)   ROE is highly correlated with shareholder wealth maximisation.
B)   ROE and the DuPont analysis allow management to break down the performance and identify areas of strengths and weaknesses.
C)   ROE does not consider risk.
D)   All of the above are advantages of using ROE as a goal.E) All of the above
F) B) and C)

Question 11

All but one of the following is true about quick ratios.

Accepted Answer

A)   The quick ratio is calculated by dividing the most liquid of current assets by current liabilities.
B)   Service companies that tend not to carry too much inventory will see significantly higher quick ratios than current ratios.
C)   Inventory, being not very liquid, is subtracted from total current assets to determine the most liquid assets.
D)   Quick ratios will tend to be much smaller than current ratio for manufacturing companies or other industries that have a lot of inventory.E) None of the above
F) A) and B) B

Question 12

A company's management analyses financial statements so that:

Accepted Answer

A)   they can get feedback on their investing, financing, and working capital decisions by identifying trends in the various accounts that are reported in the financial statements.
B)   similar to shareholders, they can focus on profitability, dividend, capital appreciation, and return on investment.
C)   they can get more share options.
D)   a and b.E) B) and D)
F) B) and C)

Question 13

A company that has no debt will have its ROA equal to its ROE.

Accepted Answer

A) True 
 B)False

Question 14

DuPont equation: Andrade Corp has debt of $2,834,950, total assets of $5,178,235, sales of $8,234,121, and profit of $812,355. What is the company's return on equity?

Accepted Answer

A)   7.1%t
B)   34.7%
C)   28.1%
D)   43.2%E) C) and D)
F) A) and D)

Question 15

Compare how a company's creditor would analyse a company's financial statements relative to those of a company's shareholders.

Accepted Answer

A company's creditors' primary concern i...

Question 16

Which of the following is NOT true of common-size income statements?

Accepted Answer

A)   Each income statement item is standardised by dividing it by total assets.
B)   Income statement accounts are represented as percentages of sales.
C)   Each income statement item is standardised by dividing it by sales.
D)   Common-size financial statement analysis is a specialised application of ratio analysis.E) None of the above
F) C) and D)

Question 17

Which one of the following statements is NOT true?

Accepted Answer

A)   The accounts receivables turnover ratio measures how quickly the company collects on its credit sales.
B)   One ratio that measures the efficiency of a company's collection policy is days' sales outstanding (DSO) .
C)   The more days that it takes the company to collect on its receivables, the more efficient the company is.
D)   DSO measures in days, the time the company takes to convert its receivables into cash.E) B) and C)
F) A) and D)

Question 18

Which one of the following statements is NOT correct?

Accepted Answer

A)   The DuPont system is based on two equations that relate a company's ROA and ROE.
B)   The DuPont system is a set of related ratios that links the balance sheet and the income statement.
C)   Both management and shareholders can use this tool to understand the factors that drive a company's ROE.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 19

Efficiency ratio: Jet Ltd has net sales of $712,478 and accounts receivables of $167,435. What are the company's accounts receivables turnover and days' sales outstanding?

Accepted Answer

A)   0.24 times; 78.5 days
B)   4.26 times; 85.7 days
C)   5.2 times; 61.3 days
D)   None of the aboveE) C) and D)
F) None of the above B

Question 20

Which one of the following statements is correct?

Accepted Answer

A)   The lower the level of a company's debt, the higher the company's leverage.
B)   The lower the level of a company's debt, the lower the company's equity multiplier.
C)   The lower the level of a company's debt, the higher the company's equity multiplier.
D)   The tax benefit from using debt financing reduces a company's risk.E) A) and B)
F) B) and C) B

Exam 4: Analysing Financial Statements

Shareholders analyse financial statements in order to:

Correct AnswerverifiedShow Answer

Efficiency ratio: Ellicott City Manufacturers Ltd has sales of $6,344,210, and a gross profit margin of 67.3 percent. What is the company's cost of sales?

Correct AnswerverifiedShow Answer

Which one of the following statements about trend analysis is NOT correct?

Correct AnswerverifiedShow Answer

Market-value ratios: Perez Electronics Company has reported that its profit for 2006 is $1,276,351. The company has 420,000 shares outstanding and a P-E ratio of 11.2 times. What is the company's share price?

Correct AnswerverifiedShow Answer

Shareholders focus on the value of their shares but not on how much cash they can expect to receive from dividends and/or capital appreciation.

Correct AnswerverifiedShow Answer

Leverage ratio: Your company has an equity multiplier of 2.47. What is its debt-to-equity ratio?

Correct AnswerverifiedShow Answer

A benchmark for a financial statement analysis is the performance of a multinational company in the same industry from another country.

Correct AnswerverifiedShow Answer

Efficiency ratio: Gateway Company has an inventory turnover ratio of 5.6. What is the company's days' sales in inventory?

Correct AnswerverifiedShow Answer

A company increased its days' sales outstanding from 35 days to 43 days. This implies the company is more efficient.

Correct AnswerverifiedShow Answer

Which one of the following is NOT an advantage of using ROE as a goal?

Correct AnswerverifiedShow Answer

All but one of the following is true about quick ratios.

Correct AnswerverifiedB

A company's management analyses financial statements so that:

Correct AnswerverifiedShow Answer

A company that has no debt will have its ROA equal to its ROE.

Correct AnswerverifiedShow Answer

DuPont equation: Andrade Corp has debt of $2,834,950, total assets of $5,178,235, sales of $8,234,121, and profit of $812,355. What is the company's return on equity?

Correct AnswerverifiedShow Answer

Compare how a company's creditor would analyse a company's financial statements relative to those of a company's shareholders.

Correct AnswerverifiedA company's creditors' primary concern i...View AnswerShow Answer

Which of the following is NOT true of common-size income statements?

Correct AnswerverifiedShow Answer

Which one of the following statements is NOT true?

Correct AnswerverifiedShow Answer

Which one of the following statements is NOT correct?

Correct AnswerverifiedShow Answer

Efficiency ratio: Jet Ltd has net sales of $712,478 and accounts receivables of $167,435. What are the company's accounts receivables turnover and days' sales outstanding?

Correct AnswerverifiedB

Which one of the following statements is correct?

Correct AnswerverifiedB

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B

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A company's creditors' primary concern i...
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B

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B