Deck 2: Introduction to Financial Statement Analysis

Question 1

Which of the following balance sheet equations is INCORRECT?

A)Assets - Liabilities = Shareholders' Equity
B)Assets = Liabilities + Shareholders' Equity
C)Assets - Current Liabilities = Long Term Liabilities
D)Assets - Current Liabilities = Long Term Liabilities + Shareholders' Equity

Answer 1

Assets - Current Liabilities = Long Term Liabilities

Question 2

Use the following information for ECE incorporated:

If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding,then ECE's market-to-book ratio is closest to:

A)0.24.
B)4.
C)6.
D)30.

Answer 2

6.

Question 3

Zoe Dental Implements has gross property,plant and equipment totaling $1.4 million,depreciation expense this year of $200,000,and accumulated depreciation of $750,000.What is the book value of Zoe's property,plant and equipment?

A)$1.4 million
B)$1.2 million
C)$550,000
D)$650,000

Answer 3

$650,000

Question 4

Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago.This reduction in value results in:

A)an impairment charge.
B)depreciation expense.
C)an operating expense.
D)goodwill.

Question 5

The statement of financial position is also known as the:

A)balance sheet.
B)income statement.
C)statement of cash flows.
D)statement of stockholder's equity.

Question 6

The firm's assets and liabilities at a given point in time are reported on the firm's:

A)income statement or statement of financial performance.
B)income statement or statement of financial position.
C)balance sheet or statement of financial performance.
D)balance sheet or statement of financial position.

Question 7

The third party who checks annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the:

A)NYSE Enforcement Board.
B)Accounting Standards Board.
C)Securities and Exchange Commission (SEC).
D)auditor.

Question 8

What are the four financial statements that all public companies must produce?

Question 9

A 30-year mortgage loan is a:

A)long-term liability.
B)current liability.
C)current asset.
D)long-term asset.

Question 10

U.S.public companies are required to file their annual financial statements with the U.S.Securities and Exchange Commission on which form?

A)10-A
B)10-K
C)10-Q
D)10-SEC

Question 11

On the balance sheet,current maturities of long-term debt appear:

A)in the Stockholders' Equity section.
B)in the Operating Expenses section.
C)in the Current Assets section.
D)in the Current Liabilities section.

Question 12

Which of the following is an example of an intangible asset?

A)Brand names and trademarks
B)Patents
C)Customer relationships
D)All of the above are intangible assets.

Question 13

Which of the following is NOT a financial statement that every public company is required to produce?

A)Income Statement
B)Statement of Sources and Uses of Cash
C)Balance Sheet
D)Statement of Stockholders' Equity

Question 14

Zoe Dental Implements has gross property,plant and equipment totaling $1.4 million,depreciation expense this year of $200,000,and accumulated depreciation last year of $550,000.What is Zoe's net property,plant and equipment?

A)$1.4 million
B)$1.2 million
C)$550,000
D)$650,000

Question 15

Accounts payable is a:

A)long-term liability.
B)current asset.
C)long-term asset.
D)current liability.

Question 16

On the balance sheet,short-term debt appears:

A)in the Stockholders' Equity section.
B)in the Operating Expenses section.
C)in the Current Assets section.
D)in the Current Liabilities section.

Question 17

What is the role of an auditor in financial statement analysis?

Question 18

Use the information for the question(s)below.
In November 2009,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's market capitalization is closest to:

A)$952.16 million.
B)$3580.14 million.
C)$4168.06 million.
D)$4425.15 million.

Question 19

Which of the following statements regarding the balance sheet is INCORRECT?

A)The balance sheet provides a snapshot of the firm's financial position at a given point in time.
B)The balance sheet lists the firm's assets and liabilities.
C)The balance sheet reports stockholders' equity on the right-hand side.
D)The balance sheet reports liabilities on the left-hand side.

Question 20

Cash is a:

A)long-term asset.
B)current asset.
C)current liability.
D)long-term liability.

Question 21

Which of the following includes other sources of income or expenses that arise from activities that are not a central part of a company's business?

A)Earnings Before Interest and Taxes (EBIT)
B)Gross Profit
C)Operating Income
D)Operating Expenses

Question 22

Use the table for the question(s)below.
Consider the following balance sheet:
If in 2019 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then Luther's market-to-book ratio would be closest to:

A)0.39.
B)0.76.
C)1.29.
D)2.57.

Question 23

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Assuming that Luther has no convertible bonds outstanding,then for the year ending December 31,2019 Luther's diluted earnings per share are closest to:

A)$1.01.
B)$1.04.
C)$1.28.
D)$1.33.

Question 24

Use the table for the question(s)below.
Consider the following balance sheet:
If on December 31,2018 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's enterprise value?

Question 25

Use the table for the question(s)below.
Consider the following balance sheet:
If on December 31,2018 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's market-to-book ratio?

Question 26

Use the information for the question(s)below.
In November 2009,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's enterprise value is closest to:

A)$952.16 million.
B)$3580.14 million.
C)$4168.06 million.
D)$4425.15 million.

Question 27

Use the table for the question(s)below.
Consider the following balance sheet:
What is Luther's net working capital in 2018?

A)$12 million
B)$27 million
C)$39 million
D)$63.6 million

Question 28

Dolan Corporation has Gross Profit of $2.3 million,cost of sales of $1.7 million,operating expenses of $0.8 million,and "other" income of $0.5 million.What is its EBIT?

A)$2 million
B)$0.3 million
C)$1 million
D)$0.6 million

Question 29

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
For the year ending December 31,2019 Luther's earnings per share are closest to:

A)$0.96.
B)$1.04.
C)$1.28.
D)$1.33.

Question 30

Which of the following is (are)deducted from EBIT to determine pretax income?

A)Earnings per share
B)Interest expense
C)Corporate taxes
D)Both B and C

Question 31

The statement of financial performance is also known as the:

A)balance sheet.
B)income statement.
C)statement of cash flows.
D)statement of stockholder's equity.

Question 32

Use the table for the question(s)below.
Consider the following balance sheet:
If in 2019 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then what is Luther's Enterprise Value?

A)-$63.3 million
B)$353.1 million
C)$389.7 million
D)$516.9 million

Question 33

Use the information for the question(s)below.
In November 2009,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's book value of equity is closest to:

A)$952.16 million.
B)$3580.14 million.
C)$4168.06 million.
D)$4425.15 million.

Question 34

Gross profit is calculated as:

A)Total sales - cost of sales - selling,general and administrative expenses - depreciation and amortization.
B)Total sales - cost of sales - selling,general and administrative expenses.
C)Total sales - cost of sales.
D)None of the above

Question 35

Which of the following is NOT an operating expense?

A)Interest expense
B)Depreciation and amortization
C)Selling,general and administrative expenses
D)Research and development

Question 36

Which of the following is (are)deducted from EBIT to determine net income?

A)Earnings per share
B)Interest expense
C)Corporate taxes
D)Both B and C

Question 37

The firm's revenues and expenses over a period of time are reported on the firm's:

A)income statement or statement of financial performance.
B)income statement or statement of financial position.
C)balance sheet or statement of financial performance.
D)balance sheet or statement of financial position.

Question 38

Use the information for the question(s)below.
In November 2018,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's earnings per share (EPS)is closest to:

A)$0.19.
B)$1.79.
C)$2.81.
D)$3.76.

Question 39

Which of the following statements regarding the income statement is INCORRECT?

A)The income statement shows the earnings and expenses at a given point in time.
B)The income statement shows the flow of earnings and expenses generated by the firm between two dates.
C)The last or "bottom" line of the income statement shows the firm's net income.
D)The first line of an income statement lists the revenues from the sales of products or services.

Question 40

Which of the following is NOT a section on the cash flow statement?

A)Income generating activities
B)Investing activities
C)Operating activities
D)Financing activities

Question 41

In addition to the balance sheet,income statement,and the statement of cash flows,a firm's complete financial statements will include all of the following EXCEPT:

A)management discussion and analysis.
B)notes to the financial statements.
C)securities and Exchange Commission's (SEC)commentary.
D)statement of stockholders' equity.

Question 42

Use the table for the question(s)below.
Consider the following balance sheet:
When using the book value of equity,the debt to equity ratio for Luther in 2019 is closest to:

A)0.43.
B)2.29.
C)2.98.
D)3.57.

Question 43

Which of the following is NOT a reason why cash flow may not equal net income?

A)Amortization is added in when calculating net income.
B)Changes in inventory will change cash flows but not income.
C)Capital expenditures are not recorded on the income statement.
D)Depreciation is deducted when calculating net income.

Question 44

Use the table for the question(s)below.
Consider the following balance sheet:
Luther's current ratio for 2019 is closest to:

A)0.84.
B)0.92.
C)1.09.
D)1.19.

Question 45

Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities?

A)Add increases in accounts payable
B)Add back depreciation
C)Add increases in accounts receivable
D)Deduct increases in inventory

Question 46

Use the tables for the question(s)below.Consider the following financial information:
Luther Corporation
Consolidated Balance Sheet
December 31,2019 and 2018 (in $ millions)
For the year ending December 31,2009 Luther's cash flow from investing activities is:

A)$122.49 million.
B)$358.2 million.
C)$66.39 million.
D)$295.71 million.

Question 47

Use the table for the question(s)below.
Consider the following balance sheet:
The change in Luther's quick ratio from 2018 to 2019 is closest to:

A)a decrease of .10.
B)an increase of .10.
C)a decrease of .15.
D)an increase of .15.

Question 48

Which of the following adjustments is NOT correct if you are trying to calculate cash flow from financing activities?

A)Add dividends paid
B)Add any increase in long-term borrowing
C)Add any increase in short-term borrowing
D)Add proceeds from the sale of stock

Question 49

Use the tables for the question(s)below.Consider the following financial information:
Luther Corporation
Consolidated Balance Sheet
December 31,2019 and 2018 (in $ millions)
For the year ending December 31,2019 Luther's cash flow from financing activities is (in $ millions):

Question 50

Which of the following statements regarding net income transferred to retained earnings is correct?

A)Net income = net income transferred to retained earnings - dividends
B)Net income transferred to retained earnings = net income + dividends
C)Net income = net income transferred to retained earnings + dividends
D)Net income transferred to retained earnings - net income = dividends

Question 51

Use the table for the question(s)below.
Consider the following balance sheet:
If in 2019 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then using the market value of equity,the debt to equity ratio for Luther in 2009 is closest to:

A)1.47.
B)1.78.
C)2.31.
D)4.07.

Question 52

Use the tables for the question(s)below.Consider the following financial information:
Luther Corporation
Consolidated Balance Sheet
December 31,2019 and 2018 (in $ millions)
For the year ending December 31,2019 Luther's cash flow from operating activities is:

Question 53

Use the information for the question(s)below.
In November 2019,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's debt to equity ratio is closest to:

A)0.24.
B)0.50.
C)0.75.
D)0.89.

Question 54

Use the tables for the question(s)below.Consider the following financial information:
Luther Corporation
Consolidated Balance Sheet
December 31,2019 and 2018 (in $ millions)
For the year ending December 31,2019 Luther's cash flow from operating activities is:

A)$9.4 million.
B)-$18.8 million.
C)$47.2 million.
D)$40.0 million.

Question 55

Use the information for the question(s)below.
In November 2019,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's market debt-to-equity ratio is closest to:

A)0.24.
B)0.50.
C)0.75.
D)0.89.

Question 56

Details of acquisitions,spin-offs,leases,taxes,and risk management activities are given:

A)in the management discussion and analysis.
B)in the Securities and Exchange Commission's commentary.
C)in the auditor's report.
D)in the notes to the financial statements.

Question 57

Chloe Floral Company had segment earnings as follows (in thousands):

Which segment had the highest percentage growth?

A)Greenery
B)Blooms
C)Pottery and Vases
D)Answer cannot be determined from information given.

Question 58

Use the tables for the question(s)below.Consider the following financial information:
Luther Corporation
Consolidated Balance Sheet
December 31,2019 and 2018 (in $ millions)
For the year ending December 31,2009 Luther's cash flow from financing activities is:

A)$127.1 million.
B)$123.2 million.
C)$137.3 million.
D)$132.6 million.

Question 59

Use the table for the question(s)below.
Consider the following balance sheet:
Luther's quick ratio for 2018 is closest to:

A)0.77.
B)0.87.
C)1.15.
D)1.30.

Question 60

Off-balance sheet transactions are required to be disclosed:

A)in the management discussion and analysis.
B)in the auditor's report.
C)in the Securities and Exchange Commission's commentary.
D)in the statement of stockholders' equity.

Question 61

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's EBIT coverage ratio for the year ending December 31,2019 is closest to:

A)1.64.
B)1.78.
C)1.98.
D)2.19.

Question 62

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's Net Profit Margin for the year ending December 31,2018 is closest to:

A)1.8%.
B)2.7%.
C)5.4%.
D)16.7%.

Question 63

Use the information for the question(s)below.
In November 2019,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's price-earnings ratio (P/E)is closest to:

A)15.96.
B)21.85.
C)29.77.
D)35.64.

Question 64

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's return on assets (ROA)for the year ending December 31,2019 is closest to:

A)1.6%.
B)6.7%.
C)2.3%.
D)2.6%.

Question 65

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's price - earnings ratio (P/E)for the year ending December 31,2019 is closest to:

A)7.9.
B)10.1.
C)15.4.
D)16.0.

Question 66

Use the information for the question(s)below.
In November 2017,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Perrigo's return on equity (ROE)is closest to:

A)4.6%.
B)9.1%.
C)17.2%.
D)27%.

Question 67

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Calculate Luther's return of equity (ROE),return of assets (ROA),and price-to-earnings ratio (P/E)for the year ending December 31,2018.

Question 68

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's EBITDA coverage ratio for the year ending December 31,2019 is closest to:

A)1.64.
B)1.78.
C)1.98.
D)2.19.

Question 69

Use the following information for ECE incorporated:

If ECE's return on assets (ROA)is 12%,then ECE's net income is:

A)$6 million.
B)$12 million.
C)$22 million.
D)$36 million.

Question 70

Use the information for the question(s)below.
In November 2019,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
Luther's Operating Margin for the year ending December 31,2018 is closest to:

A)0.5%.
B)0.7%.
C)5.4%.
D)6.8%.

Question 71

Use the following information for ECE incorporated:

If ECE's return on assets (ROA)is 12%,then ECE's return on equity (ROE)is:

A)10%.
B)12%.
C)18%.
D)22%.

Question 72

Use the following information for ECE incorporated:

If ECE reported $15 million in net income,then ECE's Return on Equity (ROE)is:

A)5.0%.
B)7.5%.
C)10.0%.
D)15.0%.

Question 73

Wyatt Oil has a net profit margin of 4.0%,a total asset turnover of 2.2,total assets of $525 million,and a book value of equity of $220 million.Wyatt Oil's current return-on-equity (ROE)is closest to:

A)8.8%.
B)9.5%.
C)21.0%.
D)22.8%.

Question 74

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's return on equity (ROE)for the year ending December 31,2019 is closest to:

A)2.0%.
B)6.5%.
C)8.4%.
D)12.7%.

Question 75

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Wyatt Oil has a net profit margin of 4.0%,a total asset turnover of 2.2,total assets of $525 million,and a book value of equity of $220 million.Wyatt Oil's current return-on-assets (ROA)is closest to:

A)8.8%.
B)9.5%.
C)21.0%.
D)22.8%.

Question 76

Use the following information for ECE incorporated:

ECE's Return on Assets (ROA)is:

A)5.0%.
B)8.5%.
C)7.5%.
D)15.0%.

Question 77

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
If Luther's accounts receivable were $55.5 million in 2019,then calculate Luther's accounts receivable days for 2009.

Question 78

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's EBIT coverage ratio for the year ending December 31,2018 is closest to:

A)1.64.
B)1.78.
C)1.98.
D)2.19.

Question 79

Use the following information for ECE incorporated:

If ECE's net profit margin is 8%,then ECE's return on equity (ROE)is:

A)10%.
B)12%.
C)24%.
D)30%.

Question 80

Use the table for the question(s)below.
Consider the following income statement and other information:
Luther Corporation
Consolidated Income Statement
Year ended December 31 (in $ millions)
Luther's earnings before interest,taxes,depreciation,and amortization (EBITDA)for the year ending December 31,2019 is closest to:

A)$19.7 million.
B)$37.6 million.
C)$41.2 million.
D)$44.8 million.