Question 1

Which of the following is not one of Porter's five forces?
A) Buyer Power
B) Supplier Power
C) Threat of Regulation
D) Threat of Substitutes

Accepted Answer

Porter's five forces include buyer power, supplier power, threat of new entrants, threat of substitutes, and competitive rivalry. The threat of regulation is not one of the five forces.

Question 2

The tools for studying industry economics does not include:
A) Value chain analysis
B) Classification using Porter's five forces
C) Classification of cash flows
D) Economic attributes framework

Accepted Answer

Classification of cash flows is not a tool used for studying industry economics. The other choices are commonly used frameworks for analyzing industry economics.

Question 3

On a common size basis, which of the following assets is normally largest for an electric utility?
A) Accounts receivable
B) Inventory
C) Property, Plant and Equipment
D) Cash and Marketable Securities

Accepted Answer

Property, Plant and Equipment is typically the largest asset for an electric utility company as it requires significant infrastructure such as power generation plants, transmission lines, and distribution networks. These long-term assets are crucial to the utility's ability to generate revenue and serve customers. Accounts receivable, inventory, and cash and marketable securities are typically much smaller in comparison.

Question 4

Which of the following assets would appear on the balance sheet at an amount greatly below its fair market value?
A) Inventory
B) Marketable securities
C) Equipment
D) Brand name

Accepted Answer

The answer of Which of the following assets would appear...

Question 5

Which of the following would not appear as a liability on the balance sheet?
A) A labor contract
B) A note due to a bank
C) Salary due employees at year-end
D) Accounts payable

Accepted Answer

Labor contracts are not considered liabilities because they are not yet fulfilled obligations. They may result in future liabilities, but until the work is performed, they are not recorded as such on the balance sheet.

Question 6

The cash basis method of accounting can be best described as:
A) The recording of transactions and adjustments so that debits equal credits.
B) The method that equates assets with liabilities and owners' equity.
C) The method that recognizes revenue when money is received and expenses when money is paid.
D) The method that matches incurred expenses with related revenues when they are earned.

Accepted Answer

The cash basis method of accounting recognizes revenue when money is received and expenses when money is paid. This means that transactions are recorded based on the actual cash inflow and outflow, rather than when they are earned or incurred.

Question 7

When assessing buyer power using Porter's five forces, which of the following is not consistent with low buyer power?
A) Brand loyalty
B) Control of distribution channel
C) Large number of suppliers
D) Low price

Accepted Answer

The answer of When assessing buyer power using Porter's five...

Question 8

Which of the following economic characteristics is consistent with a commercial bank?
A) Low barriers to entry.
B) High levels of research and development.
C) Low profit margin on lending activities.
D) Low profit margin on fee-based financial services, such as merger consulting.

Accepted Answer

Commercial banks typically make most of their profits through lending activities, so a low profit margin on lending would not be consistent with the business model of a commercial bank.

Question 9

A value chain for an industry sets forth:
A) The layers of management the needed to be successful
B) Sequence of activities involved in the creation, manufacture, and distribution of its products.
C) Sequence of activities involved in a firm's research and development activities.
D) Whether the industry is horizontally or vertically integrated.

Accepted Answer

A value chain outlines the various activities involved in the production and distribution of a product or service, from the acquisition of raw materials to the final delivery to the customer. It helps to identify the key areas of the process where a firm can create value and obtain a competitive advantage. It does not necessarily relate to management layers, R&D activities, or whether the industry is horizontally or vertically integrated.

Question 10

Which of the following economic characteristics is consistent with a grocery store chain?
A) Minimal competition
B) Extensive competition
C) High net income to sales
D) Differentiated product

Accepted Answer

Grocery stores typically face extensive competition from other grocery chains, local stores, and online retailers. This competition results in lower profit margins and a focus on cost efficiency. Minimal competition, high net income to sales, and differentiated products are not typically associated with the grocery store industry.

Question 11

The accrual basis of accounting recognizes:
A) Revenue when cash is received from customers
B) Expenses when paid
C) Revenue when all or a substantial portion is performed
D) Revenue when contracts are signed

Accepted Answer

The accrual basis of accounting recognizes revenue when all or a substantial portion is performed, regardless of when cash is received from customers. Similarly, expenses are recognized when they are incurred, rather than when they are paid. Option D is incorrect as revenue cannot be recognized simply based on the signing of a contract. Option A is incorrect because revenue recognition on the basis of cash receipts would be incorrect in cases where revenue is earned before cash is received (for example, when customers are allowed to pay at a later date). Option B is incorrect as it would result in incorrect reporting of expenses, particularly those expenses that result in long-term benefits.

Question 12

On a common size basis, which of the following assets is normally largest for a commercial bank?
A) Accounts and Notes Receivable
B) Inventory
C) Property, Plant and Equipment
D) Cash and Marketable Securities

Accepted Answer

The answer of On a common size basis, which of...

Question 13

Which of the following economic characteristics is consistent with a grocery store chain?
A) Low barriers to entry.
B) High levels of research and development.
C) High profit margins.
D) Low capital intensity.

Accepted Answer

The answer of Which of the following economic characteristics is...

Question 14

Which of the following is not an activity reported in the Statement of cash Flows?
A) Operating
B) Investing
C) Manufacturing
D) Financing

Accepted Answer

The manufacturing activity is not reported in the Statement of Cash Flows as it is a part of the income statement and balance sheet. The Statement of Cash Flows only reports cash inflows and outflows related to operating, investing, and financing activities.

Question 15

The second step in financial statement analysis is to identify the company strategy. Which of the following is a question an analyst should ask when performing a strategy analysis?
A) Are industry sales growing rapidly or slowly?
B) Do earnings include revenues that appear mismatched with the business model employed by the firm?
C) Does the industry include a large number of firms selling similar products?
D) What is the company's degree of geographical diversification?

Accepted Answer

When identifying the company strategy, a key question to ask is regarding the company's degree of geographical diversification. This can help determine whether the company is aiming to expand its market share or diversify its risk. The other options - A, B, and C - are relevant questions to ask during a different stage of financial statement analysis or for a different purpose.

Question 16

Which of the following economic characteristics is consistent with a pharmaceutical company?
A) Low barriers to entry.
B) High levels of research and development.
C) Low profit margins.
D) Low business risk.

Accepted Answer

High levels of research and development are consistent with a pharmaceutical company. Pharmaceutical companies invest heavily in R&D to develop new drugs and treatments, which can be a long and costly process. This is a key characteristic of the industry, which sets it apart from other industries with low levels of R&D investment.

Question 17

An example of an intangible asset is:
A) A patent
B) Land
C) Investment in another company
D) Raw material inventory

Accepted Answer

An intangible asset is a non-physical asset that has no intrinsic value but can provide value over time. A patent is an example of an intangible asset as it provides exclusive rights to an invention or process and has value in terms of protecting and monetizing it. Land, investment in another company, and raw material inventory are all physical assets.

Question 18

The third step in financial statement analysis is to assess the quality of the firm's financial statements. Which of the following is a question an analyst should ask when performing this step?
A) Are industry sales growing rapidly or slowly?
B) Do earnings include revenues that appear mismatched with the business model employed by the firm?
C) Does the industry include a large number of firms selling similar products?
D) What is the company's degree of geographical diversification?

Accepted Answer

Assessing the quality of financial statements includes examining whether the financial statements fairly represent the company's financial position, operating results, and cash flows. An analyst should check if the earnings reported include revenues that appear to be mismatched with the company's business model or if there are any unusual accounting practices employed by the firm. Options A, C, and D do not directly relate to assessing the quality of financial statements.

Question 19

When attempting to identify the economic characteristics of the industry in which a particular firm participates an analyst might ask which of the following questions?
A) Does technological change play an important role in the firm maintaining a competitive advantage?
B) Has the firm diversified across several geographic markets?
C) Has the firm recognized revenues at the proper time?
D) Has the firm structured transactions to make it look more profitable than economic conditions suggest?

Accepted Answer

The answer of When attempting to identify the economic characteristics...

Question 20

Which of the following is a question an analyst would ask when assessing the quality of a firm's financial statements?
A) Are the company's products designed to meet a specific market segment?
B) Has the firm integrated forward into retailing to final consumers?
C) Is the firm diversified across several geographical markets?
D) Do earnings include nonrecurring gains or losses?

Accepted Answer

An analyst would ask whether earnings include nonrecurring gains or losses since these can distort the true performance of a company and affect future projections. Options A, B, and C are not relevant to the assessment of a company's financial statements.

Quiz 1: Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Which of the following is not one of Porter's five forces?

The tools for studying industry economics does not include:

On a common size basis, which of the following assets is normally largest for an electric utility?

Which of the following assets would appear on the balance sheet at an amount greatly below its fair market value?

Which of the following would not appear as a liability on the balance sheet?

The cash basis method of accounting can be best described as:

When assessing buyer power using Porter's five forces, which of the following is not consistent with low buyer power?

Which of the following economic characteristics is consistent with a commercial bank?

A value chain for an industry sets forth:

Which of the following economic characteristics is consistent with a grocery store chain?

The accrual basis of accounting recognizes:

On a common size basis, which of the following assets is normally largest for a commercial bank?

Which of the following economic characteristics is consistent with a grocery store chain?

Which of the following is not an activity reported in the Statement of cash Flows?

The second step in financial statement analysis is to identify the company strategy. Which of the following is a question an analyst should ask when performing a strategy analysis?

Which of the following economic characteristics is consistent with a pharmaceutical company?

An example of an intangible asset is:

The third step in financial statement analysis is to assess the quality of the firm's financial statements. Which of the following is a question an analyst should ask when performing this step?

When attempting to identify the economic characteristics of the industry in which a particular firm participates an analyst might ask which of the following questions?

Which of the following is a question an analyst would ask when assessing the quality of a firm's financial statements?