Deck 28: Financial Analysis

Question 1

Given the following data: Long term debt = 100; Value of leases = 20; Book value of equity = 80; Market value of equity = 100, calculate the debt ratio.

A) 0.56
B) 0.50
C) 0.55
D) 0.60

Answer 1

0.60

Question 2

German laws and accounting procedures are designed, generally, to protect interests of the:

A) Shareholders
B) Managers
C) Creditors
D) Employees

Answer 2

Creditors

Question 3

Inventory consists of:

A) finished goods
B) raw material and finished goods
C) raw material, work in process, and finished goods
D) none of the above

Answer 3

raw material, work in process, and finished goods

Question 4

In the U.S.A. and the U.K. laws and accounting procedures are designed, generally, to benefit the:

A) Shareholders
B) Managers
C) Creditors
D) Employees

Question 5

The following are known as current assets:
I. Cash
II. Marketable securities
III. Receivables
IV. Inventories V) Payables

A) I, II and III only
B) I, II, III and IV only
C) II, III, IV and V only
D) III, IV and V only

Question 6

If the debt ratio is 0.5 what is the debt-equity ratio? (assume no leases)

A) 0.5
B) 1.0
C) 2.0
D) 4.0

Question 7

Which of the following is an example of liquidity ratios?

A) Times interest earned (TIE)
B) P/E ratio
C) Return on equity
D) Quick ratio

Question 8

The difference between Current Assets of a firm and its Current Liabilities is called.

A) Net worth
B) Net working capital
C) Gross working capital
D) None of the above

Question 9

Assets are listed on the balance sheet in order of:
I. Decreasing liquidity
II. Decreasing size
III. Increasing size
IV. Relative life

A) I only
B) III and IV only
C) II only
D) IV only

Question 10

The difference between Total Assets of a firm and its Total Liabilities is called.

A) Net working capital
B) Net current assets
C) Net worth
D) None of the above

Question 11

Given the following data: Long term debt = 100; Value of leases = 20; Book value of equity = 80; Market value of equity = 100, calculate the debt-equity ratio.

A) 0.50
B) 0.60
C) 1.50
D) 1.0

Question 12

The following groups are stakeholders of a public company:
I. Shareholders
II. The government
III. Suppliers
IV. Employees
V. Bondholders
VI. Management

A) I and II only
B) I, II, and III only
C) I, II, III, and IV only
D) I, II, III, IV, V, and VI

Question 13

Earnings before interest and taxes is calculated as:

A) Total revenues-costs
B) Total revenues-costs-depreciation
C) Total revenues-costs-depreciation-taxes
D) None of the above

Question 14

Which of the following is an example of leverage ratios?

A) Debt-Equity ratio
B) Quick ratio
C) Payout ratio
D) Return on equity

Question 15

Given the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200; calculate the quick ratio:

A) 1.0
B) 2.0
C) 1.2
D) None of the above

Question 16

Total uses of funds are calculated as:

A) investments in net working capital + investments in fixed assets
B) investments in fixed assets + dividend paid to shareholders
C) investments in net working capital + investments in fixed assets + dividend paid to shareholders
D) investments in net working capital + investments in fixed assets-dividend paid to shareholders

Question 17

Net working capital (NWC) is calculated as:

A) Total assets-total liabilities
B) Current assets + current liabilities
C) Current assets-current liabilities
D) None of the above

Question 18

Given the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200; calculate the current ratio:

A) 2.0
B) 1.0
C) 1.5
D) None of the above

Question 19

Given the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10;
Calculate the Times Interest Earned (TIE) ratio.

A) 7.0
B) 5.0
C) 4.7
D) 14.0

Question 20

Total sources of funds are calculated as:

A) operating cash flows + new issues of equity
B) operating cash flows + new issues of equity + new issues of long-term debt
C) operating cash flows + new issues of equity-new issues of long-term debt
D) operating cash flows + new issues of equity-dividend paid to shareholders

Question 21

Which of the following factors would be influential in a typical financial plan?
I. how a firm can generate superior long-term returns
II. choice of industry
III. position within the industry

A) I only
B) I and II only
C) II and III only
D) I, II and III

Question 22

Market value ratios indicate:
I. How productively is the firm utilizing its assets. II) How liquid is the firm.
III. How profitable is the firm.
IV. How highly is the firm valued by the investors.

A) I only
B) II only
C) II and III only
D) IV only

Question 23

When a firm improves (lowers) its days in inventories it generally:

A) Requires additional cash investment in inventory
B) Releases cash locked up in inventory
C) Does not alter its cash position
D) A firm cannot reduce its inventories

Question 24

Given the following data: Sales = 3200; Cost of goods sold = 1600; Average total assets =
1600; Average inventory = 200, calculate the asset turnover ratio:

A) 2.0
B) 0.9375
C) 1.33
D) None of the above

Question 25

Net profit margin is calculated as:

A) (EBIT-tax)/Sales
B) Net income/sales
C) Net income/Cost of goods sold
D) none of the above

Question 26

Given a book value per share of $10 and a market value of $24, what is the market capitalization of a firm with 2,000,000 outstanding shares?

A) $2,000,000
B) $20,000,000
C) $28,000,000
D) $48,000,000

Question 27

Which measure would be most useful in comparing the operating profitability of two firms in different industries?

A) Net profit margin
B) Return on equity
C) Sales to total assets
D) Return on assets

Question 28

When a firm improves (lowers) its average collection period it generally:

A) Requires additional cash investment in inventory
B) Releases cash locked up in accounts receivables
C) Does not alter its cash position
D) A firm cannot reduce its inventories

Question 29

Given the following data: Sales = 3200; Cost of goods sold = 1600; Average total assets =
1600; Average inventory = 200, calculate the days in inventory:

A) 18.3
B) 45.6
C) 22.8
D) None of the above

Question 30

Profitability ratios indicate:
I. How productively is the firm utilizing its assets.
II. How liquid is the firm.
III. How profitable is the firm.
IV. How highly is the firm valued by the investors.

A) I only
B) II only
C) III only
D) III and IV only

Question 31

Given the following data: EBIT = 400; NI = 100; Average Equity = 1000, calculate the
ROE (Return on Equity):

A) 10%
B) 12%
C) 7.5%
D) None of the above

Question 32

Given the following data: Earnings per share = $5; Dividends per share = $3; Price per share = $50. Calculate the payout ratio:

A) 10%
B) 5%
C) 60%
D) None of the above

Question 33

Given the following data: Earnings per share = $6; Dividends per share = $3; Price per share = $60, calculate the P/E ratio:

A) 16.7
B) 10
C) 25
D) None of the above

Question 34

Given the following data: EBIT = 400; Tax = 100; Sales = 3000; Average Total Assets =
1500, calculate net profit margin:

A) 10%
B) 18.3%
C) 7.5%
D) None of the above

Question 35

Given the following data: EBIT = 400; Tax = 100; Sales = 3000; Average Total Assets =
1500, calculate the ROA (Return on Assets):

A) 10%
B) 20%
C) 7.5%
D) None of the above

Question 36

Given a book value per share of $5 and a market value of $12, what is the market value added of a firm with 2,000,000 outstanding shares?

A) $1,000,000
B) $10,000,000
C) $14,000,000
D) $24,000,000

Question 37

Given the following data: Sales = 3200; Cost of good sold = 1600; Average receivables =
200, calculate the average collection period:

A) 24.3
B) 22.8
C) 137
D) None of the above

Question 38

Efficiency ratios indicate:
I. How productively is the firm utilizing its assets.
II. How liquid is the firm.
III. How profitable is the firm.
IV. How highly is the firm valued by investors.

A) I only
B) II only
C) III only
D) III and IV only

Question 39

Given the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200; calculate the cash ratio: (assume that the firm has no marketable securities)

A) 0.4
B) 2.0
C) 1.5
D) None of the above

Question 40

Given the following data: Earnings per share = $5; Dividends per share = $3; Price per share = $50. calculate the dividend yield:

A) 10%
B) 5%
C) 60%
D) None of the above

Question 41

Discuss the DuPont system.

Question 42

What are the three basic financial statements?

Question 43

Why is liquidity relevant?

Question 44

Briefly explain the relationship between accounting standards and the legal traditions.

Question 45

ROA can be increased by increasing asset turnover.

Question 46

What are the common ratios used to measure liquidity of a firm?

Question 47

Ratios can help you to ask the right questions, they rarely answer these questions.

Question 48

Net working capital is equal to total assets minus total liabilities.

Question 49

How are "uses and sources" of funds are calculated?

Question 50

The calculation of market value added for a firm requires the use of the book value per share.

Question 51

According to the Du Pont system:
ROE = (assets/equity) × (sales/assets) × [(EBIT - Tax)/sales] × [(EBIT - Tax - Interest)/(EBIT
- Tax)]

Question 52

What are the primary reasons for a company to use debt in its capital structure?

Question 53

Leverage ratios show how heavily the company is in debt.

Question 54

Briefly explain the different categories of financial ratios.

Question 55

P/E ratio measures the price that investors are prepared to for each dollar of earnings.

Question 56

Market value ratios indicate how highly the firm is valued by the managers.

Question 57

Total uses of funds is equal to investments in net working capital plus investments in fixed assets plus dividends paid to shareholders.

Question 58

Efficiency ratios indicate how productively the company is using its assets to generate profits.