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Ques : Operating Efficiency is defined as ______.
Ans : Net Income/Operating Expenses
Ques : How does Gross Income differ from Net Income?
Ans : Gross Income measures profitability before operating expenses, whereas Net Income is calculated after all operating expenses
Ques : Which of the following are traded in the capital markets?
Ans : All of the above
Ques : Government mandated requirements, such as installing pollution control equipment ______.
Ans : may reduce a company's earnings but are considered a necessary social responsibility for the firm
Ques : Why do you not subtract interest expense from operating profit when calculating Return on Investment Capital?
Ans : It is important to include interest as it is part of expenses
Ques : What does the Price to Earnings (P/E) ratio demonstrate?
Ans : A company's stock price relative to its earnings. Higher growth companies have higher P/E ratios
Ques : Which of the following is not a part of cost of goods sold?
Ans : Capital
Ques : If a company has a high P/E ratio relative to it's competitors ____.
Ans : everyone should invest in this stock and not the competitor's
Ques : With which of the following regulatory bodies would a publicly traded company be much more involved than a private company would be?
Ans : SEC
Ques : Which of the following transactions would have no impact on the stockholder's equity?
Ans : Purchase of land from the proceeds of a bank loan
Ques : Which is the primary financial statement used to measure profitability?
Ans : Income Statement
Ques : Which report does a publicly traded company file quarterly with the SEC?
Ans : 10Q
Ques : Which is/are the primary financial statements used to measure stability?
Ans : Balance Sheet and Income Statement
Ques : In breakeven analysis, if fixed costs rise, then the breakeven point will __________.
Ans : rise
Ques : In 2002, the US passed the Sarbanes-Oxley law which ____.
Ans : was developed in response to the accounting scandals at Enron, Tyco, WorldCom and others
Ques : Which of the following equations properly represents a derivation of the fundamental accounting equation?
Ans : Assets - liabilities = owner's equity
Ques : Which of the following is considered a profitability measure?
Ans : Return on Assets
Ques : What does Return on Assets indicate?
Ans : How well a company employs its capital investments
Ques : Gerald's had opening total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Their net income was $180,000. No additional investments were made. However, some amount was paid as dividend during the year. What was the amount of the dividend paid?
Ans : $60,000
Ques : Which short-term financing rate always requires the use of international data?
Ans : LIBOR
Ques : If a firm has $100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital?
Ans : $100
Ques : Which of these items would be accounted for as an expense?
Ans : Purchase of land
Ques : Which of the following does the cash flow cycle measure?
Ans : The time between purchase of raw materials and collection of cash
Ques : What type of analysis will describe how changes in volume affect costs and profits?
Ans : Break even analysis
Ques : Which cash collection technique is the most cost-effective for companies with many locations?
Ans : Regional collection offices
Ques : Asset Turnover is defined as ______.
Ans : Assets/Inventory
Ques : Why would a company calculate their Risk Adjusted Return on Capital?
Ans : Gives companies the ability to allocate capital in the optimal structure
Ques : What is the purpose of measuring profitability?
Ans : To measure a company's ability to earn a profit and continue to grow in the short-term and long-term
Ques : To measure a firm's solvency as completely as possible, we need to consider ______.
Ans : the firm's capital structure and the liquidity of its current assets
Ques : By doing/issuing which of the following could a company raise short-term funds by selling receivables?
Ans : By pledging inventory
Ques : Which of the following is a flaw with financial analysis?
Ans : Each company uses different formulas to calculate the ratios
Ques : What is the purpose of measuring solvency?
Ans : To determine a firm's ability to pay its creditors in the short term
Ques : Financial managers use the _____________ to plan for monthly financing needs.
Ans : capital budget
Ques : Which of the following is a flaw with financial analysis?
Ans : Errors are inherent in financial analysis, rendering it useless
Ques : What is historical value?
Ans : The original cost or price paid for an asset
Ques : What is operating leverage defined as?
Ans : Extent to which variable costs are utilized
Ques : If a company using financing has a 60% chance of a $75,000 return under normal conditions but a 40% chance of a $20,000 return when money is tight and borrowing costs are higher, what is the expected return for this firm ?
Ans : $53,000
Ques : What is one caveat when calculating ROA and comparing to other companies?
Ans : Carrying value of assets may be valued differently (historical, market) by different companies
Ques : Which ratio would you use to assess a company's ability to pay bills?
Ans : Current ratio
Ques : Firm A has a Return on Equity (ROE) equal to 24%, while firm B has a ROE of 15% during the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this, it can be assessed that ______.
Ans : Firm B has a higher profit margin than firm A
Ques : An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the final inventory valuation is ________.
Ans : Weighted-average
Ques : What is financial analysis?
Ans : Comparing ratios using numbers from the income statement and balance sheet
Ques : Accounting scandals of the past 5 years ______.
Ans : resulted in criminal convictions of senior executives at large US corporations like Enron and WorldCom
Ques : CAPM formula calculates which of the following?
Ans : Expected return on equity
Ques : Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?
Ans : None of the statements above is correct
Ques : The accounting scandals of recent years ______.
Ans : have been dismissed as falling within the latitude of judgment for applying GAAP rules
Ques : Which ratio would you use to measure how effectively the firm uses the money shareholders have invested?
Ans : Earnings per share
Ques : Which of the following types of firms may operate with high operating leverage?
Ans : An auto manufacturing facility
Ques : What is meant by "the goal of the corporation is to maximize shareholder wealth"?
Ans : Achieve the highest possible value for the firm
Ques : Which is/are the primary financial statements used to measure liquidity?
Ans : Balance Sheet
Ques : What does CAPM stand for?
Ans : Current Asset Pricing Model
Ques : Which is a characteristic of an efficient market?
Ans : There are only small daily changes in price
Ques : Which of the following would not be included in a balance sheet?
Ans : Sales
Ques : A company wants to increase its current ratio. Which of the following would help the most?
Ans : Creating more stringent collection policies to decrease accounts receivable
Ques : Rate of profit (r) is defined as ______.
Ans : r=(surplus-value)/(capital invested)
Ques : Which of the following is not a financial intermediary?
Ans : Pension funds
Ques : Which is an example of a variable cost?
Ans : Raw material
Ques : Insider trading _____.
Ans : is not legal under any circumstances
Ques : Which of the following inventory methods will always produce the same results under both a periodic and a perpetual system?
Ans : All of these
Ques : If two companies have equal risk, which one will have the higher stock price?
Ans : All of the above
Ques : Which of the following is not an area which is assessed by financial analysis?
Ans : Adequate Cash balances
Ques : What is the formula for Return on Investor Capital?
Ans : ROIC = (NetOperatingProfitLessAdjustedTaxes) / (InvestedCapital)
Ques : Which financial statement best allows a firm to assess its ability to pay dividends?
Ans : Statement of Retained Earnings
Ques : Return on Assets is defined as _______.
Ans : Net Income/Total Assets
Ques : How often can a company change its inventory valuation methodology and still be compliant with GAAP?
Ans : Once per year, but not every year
Ques : Which security makes up the majority of external financing for corporations?
Ans : Bank loans
Ques : The three sections of a Statement of Cash Flows are _____.
Ans : Operating, investing, financing
Ques : What is the DuPont analysis?
Ans : Breaks Return on Equity into 3 pieces: Operating Efficiency, Asset Use Efficiency, Financial Leverage
Ques : How does Cash Flow Return on Investment differ from most financial ratios?
Ans : It assumes the stock market sets prices based on cash flow, not profitability
Ques : What is the purpose of measuring stability?
Ans : To determine the firm's ability to stay in business in the long run
Ques : Retained earnings will change over time because of several factors. Which of the following factors would lead to an increase in the Retained Earnings?
Ans : Net income
Ques : Planning for future growth is called ________.
Ans : financial forecasting
Ques : Pro forma statements are _______ statements.
Ans : projected
Ques : Which of the following is not a fundamental of accounting?
Ans : Magnitude
Ques : What is the purpose of measuring liquidity?
Ans : To measure a firm's ability to remain cash flow positive and meet its short-term obligations
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