1. In a common size cash flow statement, all items are expressed as a percentage of:A. sales. B. total assets. C. net income. D. total equity.2. Which one of the following successful strategies will increase the Return on Assets (ROA)?A. Increase the investment in assets used in the business B. Increase the profit margin C. Decrease sales volume D. Increase the annual depreciation amounts of long-lived assets3. 2014 2013 2012 SALES 178,400 162,500 155,500COST OF GOODS SOLD 115,000 102,500 100,000OPERATING EXPENSES 50,000 50,000 45,000NET INCOME 13, 400 10,000 10,500In a trend income statement for 2014, where 2012 is the base year, sales are expressed as: A. 87.2%. B. 100.0%. C. 114.7%. D. 148.7%.4. Although a companyâ€™s earnings are important in financial statement analysis, with respect to credit evaluations and lending decisions an analysis of its cash flows is:A. optional. B. central. C. only important if the company has a high debt/equity ratio. D. required by banking regulations.5. 2014 2013 ACCOUNTS RECEIVABLE 267,500 230,000 INVENTORY 312,500 257,500 TOTAL CURRENT ASSETS 670,000 565,000 INTANGIBLE ASSETS 50,000 60,000 TOTAL ASSETS 825,000 695,000 CURRENT LIABILITIES 252,000 200,000 LONG TERM LIABILITIES 77,500 75,000 SALES 1,640,000 COSTS OF GOODS SOLD 982,500 INTEREST EXPENSE 10,000 INCOME TAX EXPENSE 77,500 NET INCOME 127,500 CASH FLOW FROM OPERATIONS 71,000 CASH FLOW FROM INVESTING ACTIVITIES (6,000) CASH FLOW FROM FINANCING ACTIVITIES (62,500) TAX RATE 30%The current ratio for 2014 is (rounded):A. 1.4 to 1. B. 2.0 to 1. C. 2.7 to 1. D. 3.4 to 1.6. Return on Assets (ROA) measures a firmâ€™s:A. cost effectiveness of its operating activities. B. profitable use of its assets. C. profitability of sales. D. return on shareholdersâ€™ investment.7. Trend statements are better than common size statements at indicating which of the following?A. Stability B. Monetary changes C. Profitability D. Growth and decline8. Financial ratios used to determine credit risk include an assessment of:A. liquidity and asset utilization. B. asset utilization and profitability. C. solvency and liquidity. D. profitability and solvency.9. The financial statement reporting â€œfilterâ€ is:A. SEC reporting regulations that vary from GAAP for publicly traded companies. B. SEC required reporting regulations for all entities. C. managementâ€™s manipulation of accounting data. D. managementâ€™s discretion to choose alternative accounting procedures within GAAP.10. Which of the following financial ratios is NOT a component of the Z score model?A. Working capital/total assets B. Sales/total assets C. Common stock/total assets D. Retained earnings/total assets11. Strategies to gain a competitive advantage include product differentiation and:A. low-cost leadership. B. building brand loyalty. C. developing superior products. D. improving product quality and reliability.12. Trend statements help the user:A. determine the reason(s) for changes over time in each financial statement line item. B. spot relationships among financial statement items. C. spot changes over time in each financial statement line item. D. identify variations between companies in financial statement line items.13. 2014 2013 ACCOUNTS RECEIVABLE 267,500 230,000 INVENTORY 312,500 257,500 TOTAL CURRENT ASSETS 670,000 565,000 INTANGIBLE ASSETS 50,000 60,000 TOTAL ASSETS 825,000 695,000 CURRENT LIABILITIES 252,000 200,000 LONG TERM LIABILITIES 77,500 75,000 SALES 1,640,000 COSTS OF GOODS SOLD 982,500 INTEREST EXPENSE 10,000 INCOME TAX EXPENSE 77,500 NET INCOME 127,500 CASH FLOW FROM OPERATIONS 71,000 CASH FLOW FROM INVESTING ACTIVITIES (6,000) CASH FLOW FROM FINANCING ACTIVITIES (62,500) TAX RATE 30%The inventory turnover for 2014 is (rounded) __________ times.A. 2.61 B. 3.12 C. 3.45 D. 3.8014. PLEASE USE DATA FROM QUESTION NUMBER 13The interest coverage for 2014 is __________ times.A. 12.8 B. 13.8 C. 20.5 D. 21.515. USE DATA FROM QUESTION NUMBER 3 TO ANSWER THIS QUESTIONIn a common size income statement for 2014, the operating expenses are expressed as:A. 28.0%. B. 30.3%. C. 43.8%. D. 100.0%.16. Companies that consistently earn rates of return above the competitive floor in the industry are considered to possess a:A. dominant market share. B. niche market. C. competitive advantage. D. monopolistic advantage.17.A type of analysis that helps identify similarities and differences across companies or business units at a single moment in time is __________ analysis.A. trend B. common size statementsâ€™ C. time-series D. cross-sectional18. When operating earnings and cash flows from operations are dissimilar, which of the following ratios is a better measure of long-term solvency?A. Interest coverage B. Long-term debt to asset C. Long-term debt to tangible assets D. Operating cash flow to total liabilities19. Time-series analysis helps identify financial trends:A. across companies at a single point in time. B. across business units at a single point in time. C. over time for a single company or business unit. D. among the companies that comprise an industry group.20. Post Corporation purchases from suppliers on net 30 day terms, has an Accounts Receivable Turnover of 8 times, and an Inventory Turnover of 12 times. Cash inflows and outflows are:A. evenly matched. B. negatively mismatched by 60 days. C. positively mismatched by 30 days. D. negatively mismatched by 45 days.21. The degree to which cash needs can be satisfied during periods of fiscal stress is known as:A. credit availability. B. credit worthiness. C. working capital. D. financial flexibility.22. Which one of the following is an example of sustainable earnings?A. Loss from debt retirement B. Expenditures for advertising C. Earnings from repeat customers D. Gain from corporate restructuring23. The fundamental valuation approach to business valuation uses basic accounting measures to assess the amount, timing, and __________ cash flows or earnings.A. certainty of a companyâ€™s past operating B. certainty of a companyâ€™s future non-operating C. uncertainty of a companyâ€™s future operating D. uncertainty of a companyâ€™s future non-operating24. To obtain a better current price, the net present value of future growth opportunities (NPVGO) can be calculated and __________ the price per share calculated from the P/E ratio.A. added to B. subtracted from C. multiplied byD. divided into25. FIRM A FIRM B FIRM CREPORTED EPS $12 $15 $18ANALYST’S EPS DECOMPOSITION:PERMANENT COMPONENT 80% 60% 75%TRANSITORY COMPONENT 10% 35 % 25%VALUE- IRRELEVANT COMPONENT 10% 5% 0%The implied share price of Firm Câ€™s stock is:A. $18.00. B. $63.00. C. $72.00. D. $90.00.26. A bond that is considered unsecured is referred to as a:A. debenture. B. sinking fund bond. C. senior bond. D. callable bond.27. An adjustment to income due to an extraordinary item is regarded as:A. permanent earnings. B. transitory earnings. C. value-irrelevant earnings. D. quiet.28. Recent research indicates that stock returns correlate better with:A. accrual earnings than realized operating cash flows. B. cash basis earnings than realized operating cash flows. C. realized operating cash flows than accrual earnings. D. future operating cash flows than accrual earnings.29. An earnings surprise:A. usually precedes a negative drift downward in a companyâ€™s stock price. B. means that some bias must exist (as unbiased means that the marketâ€™s earnings expectations will be correct).C. demonstrates the inherent inefficiency of securities markets. D. occurs when earnings deviate from investorsâ€™ expectations.30. Income from continuing operations, excluding special or nonrecurring items, is generally regarded as:A. permanent earnings. B. transitory earnings. C. value-irrelevant earnings. D. quiet.31. The interest rate charged on bank loans must be sufficient to cover all of the following EXCEPT:A. a risk premium when loans are personally guaranteed by the borrower. B. the lenderâ€™s cost of borrowing funds. C. the costs of administering, monitoring, and servicing the loan. D. a premium for exposure to default risk.32. When determining the fair value of an asset using an exit price approach:A. fair value is determined by how the company uses the asset. B. management may choose to reduce the fair value of the asset by the approximate amount of expected transaction costs (i.e., costs to dispose of the asset) if such costs are deemed to be material. C. transaction costs do not reduce the assetâ€™s fair value. D. transaction costs reduce the assetâ€™s fair value.33. Through the use of accruals and deferrals, accrual accounting:A. produces a cash flow number that smoothes out the unevenness in year-to-year earnings. B. produces information about current cash receipts and payments. C. enables management to estimate future free cash flows. D. produces an earnings number that smoothes out the unevenness in year-to-year cash flows.34. A qualitative assessment of the business, its customers and suppliers, and managementâ€™s character and capability is known as: A. covenant waivers. B. due diligence. C. indenture evaluation. D. a debenture.35.A simplified version of the discounted free cash flow valuation model assumes a zero-growth perpetuity for future cash flows. This assumption is best applied to __________ cash flow patterns.A. start-up companies with stable B. growth companies with increasing C. growth companies with stable D. mature firms with stable36. A component that is valuation-relevant, but is NOT expected to persist into the future is a __________ component.A. permanent earnings B. transitory earnings C. noise D. quiet37.In general, the growth rate in earnings will depend on the portion of earnings reinvested each period and the:A. earnings retention rate. B. rate of return earned on new investment. C. companyâ€™s cost of equity capital. D. companyâ€™s weighted average cost of capital.38. FIRM A FIRM B FIRM CACTUAL EARNINGS $6,000 $14,000 $18,000r 10% 8% 12%BV $100,000 $150,000 $190,000Assume that Firm B can divest itself of $20,000 of unproductive capital with earnings falling by only $3,000. Abnormal earnings are:A. $200. B. $400. C. $600. D. $800.39. The interest rate on a revolving loan will usually:A. be below prime interest. B. be equal to prime interest. C. remain fixed. D. float. 40. USE DATA FROM QUESTION 38What are the abnormal earnings for Firm A?A. $(4,000) B. $(6,000) C. $4,000 D. $6,000
1. In a common size cash flow statement, all items are expressed as a percentage of:A. sales. B. tot
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