Deck 12: Suggestions for Case Analysis

Question 1

A typical financial analysis of a firm would include a study of the operating statements for five or so years.

Answer 1

True

Question 2

Ratios are only useful for large firms where their ratios may be compared with industry averages.

Answer 2

False

Question 3

The case method provides the opportunity to move from a broader, less precise analysis of the overall corporation to a narrow, specialized view that emphasizes functional techniques.

Answer 3

False

Question 4

A company's annual report from the year of the case can be helpful, but the 10-K form is not beneficial for those conducting a case analysis.

Question 5

An important liquidity ratio is Earnings per Share (EPS).

Question 6

10-K forms include detailed information not usually available in an annual report.

Question 7

The debt to asset ratio measures the extent to which borrowed funds have been used to finance the company's assets.

Question 8

Ratio analysis is a valuable part of SWOT analysis, helping to assess the company's overall situation and pinpoint some problem areas.

Question 9

According to Schilit, forensic accounting is a search for hidden weaknesses in a company's performance.

Question 10

When conducting a financial analysis, select and discuss those financial ratios that have an impact on the company's problems.

Question 11

According to Schilit, unusually high goodwill gains related to recent acquisitions is a red flag, suggesting an underlying problem.

Question 12

One of the most important categories of financial ratios are the liquidity ratios.

Question 13

According to Yankelovich Partners survey firm, eight out of 10 portfolio managers and 75 percent of security analysts use annual reports when making decisions.

Question 14

Key liquidity ratios include the current ratio, quick ratio, and cash ratio.

Question 15

Cases present actual business situations and enable you to examine ONLY successful corporations.

Question 16

In case analysis, it is best to make an exhibit that includes all the financial ratios.

Question 17

When preparing a case analysis, you should always undertake outside research and go beyond the decision date of the case.

Question 18

According to Schilit, a change of more than 2% in gross margins from year to year is worth a closer look.

Question 19

A typical financial analysis would compare the firm under study with industry standards.

Question 20

Common-size statements are income statements and balance sheets in which the dollar figures have been converted into percentages.

Question 21

What is the main purpose of conducting outside research into the environmental setting of the case?

A) It allows students to identify how the company addressed the problem.
B) It provides a learning experience on library usage which is helpful in all courses.
C) It gives a realistic background of the industry during a specified period.
D) It gives you clues as to what the organization should be doing in the future.
E) It furnishes large amounts of data - both pertinent and extraneous.

Question 22

The amount of change from one year to the next in GDP indicates how much that country's economy is growing.

Question 23

The gross domestic product (GDP)is used ONLY in the United States to measure the total output of goods and services within the country's borders.

Question 24

The index of sustainable growth indicates how much of the growth rate of sales can be sustained by internally generated funds.

Question 25

The public interest rate is the rate of interest banks charge on their lowest risk loans.

Question 26

The Z-value formula combines five ratios by weighting them according to their importance to a corporation's financial strength.

Question 27

According to the text, what percentage of security analysts use annual reports when making decisions?

A) 20%
B) 35%
C) 50%
D) 75%
E) 100%

Question 28

In case analysis, how the company actually dealt with the case problem is the most important part of the solution.

Question 29

A Z-value below 10 indicates significant credit problems.

Question 30

According to the text, what percentage of portfolio managers use annual reports when making decisions?

A) 20%
B) 35%
C) 50%
D) 60%
E) 80%

Question 31

Which of the following is a red flag according to Schilit?

A) cash flow from operations drops below net income
B) accounts receivable growing faster than sales
C) fluctuating gross margins over time
D) nepotism on the board of directors
E) all of the above

Question 32

Constant dollars are dollars adjusted for inflation to make them comparable over various years.

Question 33

If the corporation being studied appears to be in poor financial condition, use Altman's Bankruptcy Formula to calculate its Z-value.

Question 34

All of the following are true of annual reports EXCEPT

A) 80% of portfolio managers use annual reports when making decisions.
B) annual reports contain income statements and balance sheets.
C) annual reports contain cash flow statements.
D) annual reports contain all the information found in the 10-K form.
E) annual reports contain notes to the financial statements indicating why certain actions were taken.

Question 35

According to Schilit, the search for hidden weaknesses in a company's performance is known as

A) a strategic audit.
B) a SWOT analysis.
C) forensic accounting.
D) activity based accounting.
E) competitive analysis.

Question 36

According to the text, what information can be obtained by accessing the SEC website?

A) corporate annual reports and 10-k forms
B) press releases
C) product specifications
D) research and development trends
E) information about graduate school

Question 37

What has been the most popular method of teaching strategy and policy for years?

A) lecture
B) case analysis
C) team teaching
D) group presentations
E) student teaching

Question 38

Among the most useful and important documents that can be used to understand why actions were taken are

A) news releases.
B) product specification reports.
C) its corporate history.
D) annual reports.
E) 10-Q forms.

Question 39

One way to adjust for inflation for global operations outside the United States is to use the U.S.Consumer Price Index (CPI).

Question 40

If a firm's trends in common-size statements are generally in line with those of the rest of the industry, problems are less likely than if the firm's trends are worse than the industry average.

Question 41

Which financial indicator measures the number of one day's worth of inventory that a company has on hand at any given time?

A) days of cash
B) days of inventory
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 42

Net profit margin is what type of financial ratio?

A) liquidity ratio
B) profitability ratio
C) activity ratio
D) leverage ratio
E) revenue ratio

Question 43

"Days of inventory" is an example of a(n)

A) leverage ratio.
B) liquidity ratio
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 44

Which financial ratio measures the extent to which the company's capital is in cash or cash equivalents?

A) quick ratio
B) current ratio
C) cash ratio
D) strategic ratio
E) inventory ratio

Question 45

Which of the following financial ratios is NOT a profitability ratio?

A) net profit margin
B) gross profit margin
C) asset turnover
D) ROE
E) ROI

Question 46

Return on equity

A) is the ratio of net profit after taxes to shareholders' equity.
B) is a profitability ratio.
C) is referred to by the acronym ROE.
D) measures the rate of return on the book value of shareholders' total investment in the company.
E) all of the above

Question 47

Which financial ratio measures the number of times that average inventory of finished goods was turned over or sold during a period of time?

A) days of inventory
B) asset turnover
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 48

Which of the following is NOT one of the categories of important financial ratios that is mentioned in the text to help assess an organization's overall financial situation?

A) leverage ratios
B) liquidity ratios
C) asset management ratios
D) activity ratios
E) profitability ratios

Question 49

"Earnings per share" is an example of a(n)

A) leverage ratio.
B) liquidity ratio
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 50

Which financial ratio measures the rate of return on the book value of shareholders' total investment in the company?

A) return on investment
B) return on equity
C) gross profit margin
D) net profit margin
E) earnings per share

Question 51

What financial ratio serves as a short-term indicator of the company's ability to pay its short-term liabilities from its short-term assets?

A) quick ratio
B) current ratio
C) cash ratio
D) strategic ratio
E) inventory ratio

Question 52

Which financial ratio measures the utilization of all of the company's assets?

A) days of inventory
B) asset turnover
C) inventory turnover
D) fixed asset turnover
E) average collection period

Question 53

The calculation of ratios from financial data is referred to as

A) SWOT analysis.
B) ratio analysis.
C) receivables analysis.
D) integration analysis.
E) diversification analysis.

Question 54

Which financial ratio measures the company's ability to pay off its short-term obligations from current assets, excluding inventories?

A) quick ratio
B) current ratio
C) cash ratio
D) strategic ratio
E) inventory ratio

Question 55

"Inventory to net working capital" is an example of a(n)

A) leverage ratio.
B) liquidity ratio.
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 56

The quick ratio is also known as the

A) key profitability ratio.
B) EPS.
C) acid test.
D) asset turnover.
E) key activity ratio.

Question 57

All of the following ratios represent activity ratios EXCEPT

A) accounts payable period.
B) days of inventory.
C) net working capital turnover.
D) earnings per share.
E) days of cash.

Question 58

All of the following represent liquidity ratios EXCEPT

A) cash ratio.
B) inventory to net working capital.
C) quick ratio.
D) gross profit margin.
E) current ratio.

Question 59

Which financial ratio shows the return on all of the assets under its control regardless of source of financing?

A) return on investment
B) return on equity
C) earnings per share
D) gross profit margin
E) net profit margin

Question 60

Which financial ratio shows the after-tax earnings generated for each share of common stock?

A) return on investment
B) return on equity
C) gross profit margin
D) earnings per share
E) net profit margin

Question 61

Which financial indicator is calculated as the ratio of annual credit sales to accounts receivable?

A) days of cash
B) average collection period
C) accounts receivable turnover
D) inventory turnover
E) net working capital turnover

Question 62

Between 1997 and 1999, what percent of the mergers used the pooling approach to account for the value of the companies' stocks?

A) 95%
B) 80%
C) 55%
D) 40%
E) 20%

Question 63

Which financial indicator is calculated by the ratio of annual dividends per share to current market price per share?

A) return on equity
B) dividend payout ratio
C) dividend yield on common stock
D) price/earnings ratio
E) debt to equity ratio

Question 64

Which financial indicator shows the current market's evaluation of a stock, based on its earnings?

A) debt to asset ratio
B) price/earnings ratio
C) coverage of fixed charges
D) debt to equity ratio
E) times interest earned

Question 65

"Times interest earned" is an example of a(n)

A) leverage ratio.
B) liquidity ratio.
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 66

Inventory turnover and asset turnover are both examples of which type of financial ratio?

A) liquidity ratio
B) profitability ratio
C) activity ratio
D) leverage ratio
E) revenue ratio

Question 67

Which two basic statements provide most of the financial data needed for analysis?

A) statement of retained earnings and income statement
B) sources and uses of working capital and the balance sheet
C) non-operating gains and losses and statement of financial position
D) historical income statement and balance sheet
E) statement of financial position and statement of owner's equity

Question 68

To get a proper picture of the position of the organization, common-size statements and ratios should be compared to

A) the organization's future historical performance.
B) the leading competitor in the industry.
C) the financial performance of the overall U.S. gross domestic production (GDP).
D) the direct competitor least like the organization.
E) industry-wide average trends.

Question 69

Which financial indicator measures the ratio of sales to fixed assets?

A) days of inventory
B) asset turnover
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 70

Converting categories on financial statements from dollar terms to percentages results in

A) inflation-adjusted statements.
B) diverse rates of returns.
C) common-size statements.
D) constant dollar denominations.
E) equivalency comparison.

Question 71

Which financial ratio indicates the dividend rate of return to common shareholders at the current market price?

A) return on equity
B) dividend yield on common stock
C) price/earnings ratio
D) dividend payout ratio
E) earnings per share

Question 72

Which financial ratio indicates the percentage of profit that is paid out as dividends?

A) return on equity
B) dividend payout ratio
C) dividend yield on common stock
D) price/earnings ratio
E) debt to asset ratio

Question 73

Which financial ratio indicates the ability of the company to meet its annual interest costs?

A) debt to asset ratio
B) debt to equity ratio
C) times interest earned
D) long-term debt to capital structure
E) coverage of fixed charges

Question 74

Which financial ratio is a measure of the ability of the company to meet all of its fixed-charge obligations?

A) debt to asset ratio
B) debt to equity ratio
C) times interest earned
D) long-term debt to capital structure
E) coverage of fixed charges

Question 75

Which financial indicator is calculated by the ratio of market price per share to earnings per share?

A) return on investment
B) price/earnings ratio
C) return on equity
D) dividend yield on common stock
E) dividend payout ratio

Question 76

Which financial ratio measures the utilization of plant and equipment?

A) days of inventory
B) asset turnover
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 77

All of the following ratios reflect leverage ratios EXCEPT

A) debt to asset ratio.
B) times interest earned.
C) coverage of fixed charges.
D) price/earnings ratio.
E) debt to equity ratio.

Question 78

Fixed asset turnover is what type of financial ratio?

A) liquidity ratio
B) profitability ratio
C) leverage ratio
D) activity ratio
E) revenue ratio

Question 79

Which financial indicator is calculated by the ratio of annual dividends per share to annual earnings per share?

A) dividend payout ratio
B) dividend yield on common stock
C) price/earnings ratio
D) return on investment
E) return on equity

Question 80

Which financial ratio indicates the number of days of cash on hand, at present sales levels?

A) days of inventory
B) fixed asset turnover
C) days of cash
D) average collection period
E) inventory turnover