Deck 3: Financial Statement Analysis

Question 1

Which of the following are included in current assets?
I.Equipment
II.Inventory
III.Trade payables
IV.Cash

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

Answer 1

II and IV only.

Question 2

Which one of the following statements concerning liquidity is correct?

A)If you sold an asset today, it is a liquid asset.
B)If you can sell an asset next year at a price less than its actual value, the asset is highly liquid.
C)Trademarks and patents are highly liquid.
D)The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties.
E)Statement of financial position accounts are listed in order of decreasing liquidity.

Answer 2

Statement of financial position accounts are listed in order of decreasing liquidity.

Question 3

_____ refers to the difference between a firm's current assets and its current liabilities.

A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from assets
E)Cash flow to creditors

Answer 3

Net working capital

Question 4

_____ refers to the changes in net capital assets.

A)Operating cash flow
B)Cash flow from investing
C)Net working capital
D)Cash flow from assets
E)Cash flow to creditors

Question 5

_____ measures the cash generated from operations not counting cash flows arising from investment expenditure or financing.

A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from creditors
E)Cash flow to shareholders

Question 6

The financial statement showing a firm's accounting value on a particular date is the:

A)income statement.
B)statement of financial position.
C)statement of cash flows.
D)tax reconciliation statement.
E)shareholders' equity sheet.

Question 7

A current asset is:

A)an item currently owned by the firm.
B)an item that the firm expects to own within the next year.
C)an item currently owned by the firm that will convert to cash within the next 12 months.
D)the amount of cash on hand the firm currently shows on its statement of financial position.
E)the market value of all items currently owned by the firm.

Question 8

The non-current liabilities of a firm are liabilities:

A)that come due within the next 12 months.
B)that do not come due for at least 12 months.
C)owed to the firm's suppliers.
D)owed to the firm's shareholders.
E)the firm expects to incur within the next 12 months.

Question 9

Net working capital is defined as:

A)total liabilities minus shareholders' equity.
B)current liabilities minus shareholders' equity.
C)non-current assets minus non-current liabilities.
D)total assets minus total liabilities.
E)current assets minus current liabilities.

Question 10

Your _____ tax rate is the amount of tax payable on the next taxable euro you earn.

A)deductible
B)residual
C)total
D)average
E)marginal

Question 11

The financial statement summarizing a firm's accounting performance over a period of time is the:

A)income statement.
B)statement of financial position.
C)statement of cash flows.
D)tax reconciliation statement.
E)shareholders' equity sheet.

Question 12

Earnings per share is equal to:

A)net income divided by the total number of shares outstanding.
B)net income divided by the par value of the ordinary equity.
C)gross income multiplied by the par value of the ordinary equity.
D)operating income divided by the par value of the ordinary equity.
E)net income divided by total shareholders' equity.

Question 13

_____ is current assets minus current liabilities.

A)Operating cash flow
B)Capital spending
C)Net working capital
D)Cash flow from shareholders
E)Cash flow to creditors

Question 14

Which of the following are included in current liabilities?
I.Note payable to a supplier in eighteen months.
II.Debt payable to a mortgage company in nine months.
III.Trade payables to suppliers.
IV.Loan payable to the bank in fourteen months.

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

Question 15

A(n) ____ asset is one which can be quickly converted into cash without significant loss in value.

A)current
B)non-current
C)intangible
D)liquid
E)illiquid

Question 16

_____ is calculated by adding back non-cash expenses to net income and adjusting for changes in current assets and liabilities.

A)Cash generated from operations
B)Capital spending
C)Net working capital
D)Cash flow from operating activities
E)Cash flow to creditors

Question 17

Which one of the following accounts is generally the most liquid?

A)Inventory.
B)Building.
C)Accounts receivable.
D)Equipment.
E)Patent.

Question 18

An increase in total assets:

A)means that net working capital is also increasing.
B)requires an investment in non-current assets.
C)means that shareholders' equity must also increase.
D)must be offset by an equal increase in liabilities and shareholders' equity.
E)can only occur when a firm has positive net income.

Question 19

The Cash ratio is equal to:

A)Cash and cash equivalents divided by Current Liabilities.
B)Cash and cash equivalents divided by Current Assets
C)Operating cash flow divided by Current Liabilities.
D)Operating cash flow divided by Net working capital.
E)Net working capital divided by Current Liabilities.

Question 20

Noncash items refer to:

A)the credit sales of a firm.
B)the trade payables of a firm.
C)the costs incurred for the purchase of intangible non-current assets.
D)expenses charged against revenues that do not directly affect cash flow.
E)all accounts on the statement of financial position other than cash on hand.

Question 21

Depreciation:

A)is a noncash expense that is recorded on the income statement.
B)increases the net non-current assets as shown on the statement of financial position.
C)reduces both the net non-current assets and the costs of a firm.
D)is a non-cash expense which increases the net operating income.
E)decreases net non-current assets, net income, and operating cash flows.

Question 22

Which of the following accounts are included in shareholders' equity?
I.Interest paid.
II.Retained earnings.
III.Capital surplus.
IV.Non-current liabilities.

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

Question 23

According to International Accounting Standards,

A)income is recorded based on the matching principle.
B)income is recorded based on the realization principle.
C)costs are recorded based on the liquidity principle.
D)net income is recorded based on the realization principle.
E)depreciation is recorded as it affects the cash flows of a firm.

Question 24

Which of the following statements concerning the income statement is true?

A)It measures performance over a specific period of time.
B)It determines after-tax income of the firm.
C)It includes deferred taxes.
D)It treats interest as an expense.
E)All of the above.

Question 25

When you are making a financial decision, the most relevant tax rate is the _____ rate.

A)average
B)non-current
C)marginal
D)total
E)variable

Question 26

Under International Accounting Standards, a firm's assets are reported at:

A)market value.
B)liquidation value.
C)intrinsic value.
D)cost.
E)None of the above.

Question 27

Assets are listed on the statement of financial position in order of:

A)decreasing liquidity.
B)decreasing size.
C)increasing size.
D)relative life.
E)None of the above.

Question 28

The net change in cash flow from investing activities equals:

A)the acquisition of current assets plus any interest payable and dividends paid minus the sales of current
Assets.
B)the addition of nom-current assets minus the sales of non-current assets divided by any security
Investments.
C)any security investments minus the sales of non-current assets divided by the acquisition of any non-current
Assets.
D)the acquisition of non-current assets plus any security investments minus the sales of non-current assets.
E)the acquisition of current assets plus any security investments minus the sales of current assets.

Question 29

When making financial decisions related to assets, you should:

A)always consider market values.
B)place more emphasis on book values than on market values.
C)rely primarily on the value of assets as shown on the statement of financial position.
D)place primary emphasis on historical costs.
E)only consider market values if they are less than book values.

Question 30

An increase in which one of the following will cause the operating cash flow to increase?

A)Depreciation.
B)Change in net working capital.
C)Net working capital.
D)Taxes.
E)Costs.

Question 31

According to International Accounting Standards, costs are:

A)recorded as incurred.
B)recorded when paid.
C)matched with revenues.
D)matched with production levels.
E)expensed as management desires.

Question 32

Liquidity is:

A)a measure of the use of debt in a firm's capital structure.
B)equal to current assets minus current liabilities.
C)equal to the market value of a firm's total assets minus its current liabilities.
D)valuable to a firm even though liquid assets tend to be less profitable to own.
E)generally associated with intangible assets.

Question 33

Which equality is the basis for the statement of financial position?

A)Non-current Assets = Shareholder's Equity + Current Assets
B)Assets = Liabilities + Shareholder's Equity
C)Assets = Current Non-current liabilities + Retained Earnings
D)Non-current Assets = Liabilities + Shareholder's Equity
E)None of the above.

Question 34

The earnings per share will:

A)increase as net income increases.
B)increase as the number of shares outstanding increase.
C)decrease as the total revenue of the firm increases.
D)increase as the tax rate increases.
E)decrease as the costs decrease.

Question 35

Operating cash flow must be positive when:

A)capital spending exceeds any tax payments due.
B)the cash flow generated by business activities exceeds any tax payments due.
C)changes in net working capital exceeds the cash flow generated by business activities.
D)the cash flows generated by investing activities exceeds the cash flows generated by financing activities.
E)the cash flows generated by financing activities exceeds any tax payments due.

Question 36

A firm starts its year with a positive net working capital.During the year, the firm acquires more short-term debt than it does short-term assets.This means that:

A)the ending net working capital will be negative.
B)both accounts receivable and inventory decreased during the year.
C)the beginning current assets were less than the beginning current liabilities.
D)trade payables increased and inventory decreased during the year.
E)the ending net working capital can be positive, negative, or equal to zero.

Question 37

Fixed assets can be comprised of both tangible and intangible assets.Intangible assets can be:

A)Equipment.
B)Patents, copyrights, branding and goodwill.
C)Cash
D)Land
E)Property

Question 38

As seen on an income statement:

A)interest is deducted from income and increases the total taxes incurred.
B)the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and
Interest expenses.
C)depreciation is shown as an expense but does not affect the taxes payable.
D)depreciation reduces both the pretax income and the net income.
E)interest expense is added to earnings before interest and taxes to get pretax income.

Question 39

Dividends per share:

A)increase as the net income increases as long as the number of shares outstanding remains constant.
B)decrease as the number of shares outstanding decrease, all else constant.
C)are inversely related to the earnings per share.
D)are based upon the dividend requirements established by International Accounting Standards.
E)are equal to the amount of net income distributed to shareholders divided by the number of shares
Outstanding.

Question 40

Book value:

A)is equivalent to market value for firms with non-current assets.
B)is based on historical cost.
C)generally tends to exceed market value when non-current assets are included.
D)is more of a financial than an accounting valuation.
E)is adjusted to market value whenever the market value exceeds the stated book value.

Question 41

Peggy Grey's Cookies has at the end of the year, Sales of $140,000, Total Assets of $115,000 and Net Income of $50,000.Calculate the Total asset turnover and Capital intensity?

A)1.2174 and 0.8214.
B)1.2174 and 1.
C)1 and 0.8214
D)2.8 and 0.3571.
E)2.3 and 0.4348.

Question 42

The tax rates are as shown.Your firm currently has taxable income of €79,400.How much additional tax will you owe if you increase your taxable income by €21,000?

A)€7,004
B)€7,014
C)€7,140
D)€7,160
E)€7,174

Question 43

Thompson's Jet Skis has at the end of the year Total assets of £650,000, Total Equity of £300,000, EBIT of £200,000 and Interest of £15,000? Calculate the Total debt ratio and Cash coverage ratio?

A)3.25 and 13.3333.
B)1.5 and 0.6667.
C)1.1667 and 0.6667
D)1.1667 and 13.3333.
E)3.175 and 13.3333.

Question 44

Teddy's Pillows has beginning net non-current assets of £480 and ending net non-current assets of £530.Assets valued at £300 were sold during the year.Depreciation was £40.What is the amount of capital spending?

A)£10
B)£50
C)£90
D)£260
E)£390

Question 45

Your firm has net income of £198 on total sales of £1,200.Costs are £715 and depreciation is £145.The tax rate is 34%. The firm does not have interest expenses.What is the operating cash flow?

A)£93
B)£241
C)£340
D)£383
E)£485

Question 46

What is the change in the net working capital from 2013 to 2014?

A)£1,235 million.
B)£1,035 million.
C)£1,335 million.
D)£3,405 million.
E)£4,740 million.

Question 47

A firm has £300 in inventory, £600 in non-current assets, £200 in accounts receivables, £100 in trade payables, and £50 in cash.What is the amount of the current assets?

A)£500
B)£550
C)£600
D)£1,150
E)£1,200

Question 48

Net capital spending is equal to:

A)net additions to net working capital.
B)the net change in non-current assets plus depreciation for that year.
C)net income plus depreciation.
D)total cash flow to shareholders less interest and dividends paid.
E)the change in total assets.

Question 49

Pete's Boats has at the end of the year has a Net Income of £100,000, Total Assets of £50,000 and Sales of £75,000. What is the firms Profit margin and Return on Assets (ROA)?

A)1.3333 and 0.5.
B)0.75 and 2.
C)1.3333 and 2.
D)0.6666 and 2.
E)0.6666 and 0.5.

Question 50

Which of the following are all components of the statement of cash flows?

A)Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.
B)Cash flow from operating activities, cash flow from investing activities, and cash flow from divesting activities.
C)Cash flow from internal activities, cash flow from external activities, and cash flow from financing activities.
D)Cash flow from brokering activities, cash flow from profitable activities, and cash flow from non-profitable
Activities.
E)None of the above.

Question 51

Art's Boutique has sales of £640,000 and costs of £480,000.Interest expense is £40,000 and depreciation is £60,000.The tax rate is 34%.What is the net income?

A)£20,400
B)£39,600
C)£50,400
D)£79,600
E)£99,600

Question 52

Given the tax rates as shown, what is the average tax rate for a firm with taxable income of €126,500?

A)21.38%
B)23.88%
C)25.76%
D)34.64%
E)39.00%

Question 53

At the end of the year, current liabilities of a firm is €280, current assets is €340 and the inventory is €110.What is the firms Current and Quick ratios?

A)1.214 and 0.8214
B)0.8235 and 0.5
C)0.3571 and 0.5294
D)1.214 and 0.5294
E)0.3571 and 0.8214

Question 54

At the beginning of the year, a firm has current assets of £380 and current liabilities of £210.At the end of the year, the current assets are £410 and the current liabilities are £250.What is the change in net working capital?

A)-£30
B)-£10
C)£0
D)£10
E)£30

Question 55

Which of the following is not included in the computation of operating cash flow?

A)Earnings before interest and taxes.
B)Interest paid.
C)Depreciation.
D)Current taxes.
E)All of the above are included.

Question 56

Free cash flow is:

A)without cost to the firm.
B)net income plus taxes.
C)an increase in net working capital.
D)cash that the firm is free to distribute to creditors and shareholders.
E)None of the above.

Question 57

The cash flow of the firm must be equal to:

A)cash flow to equity minus cash flow to debtholders.
B)cash flow to debtholders minus cash flow to equity.
C)cash flow to governments plus cash flow to equity.
D)cash flow to equity plus cash flow to debtholders.
E)None of the above.

Question 58

Martha's Enterprises spent €2,400 to purchase equipment three years ago.This equipment is currently valued at €1,800 on today's statement of financial position but could actually be sold for €2,000.Net working capital is €200
And non-current liabilities is €800.Assuming the equipment is the firm's only non-current asset, what is the book Value of shareholders' equity?

A)€200
B)€800
C)€1,200
D)€1,400
E)The answer cannot be determined from the information provided.

Question 59

Cash flows from financing activities could include:

A)Sales of non-current assets.
B)Buying back it's own shares..
C)Purchase of intangible assets.
D)Purchase of property, plant and equipment.
E)Cash generated from operations.

Question 60

According to International Accounting Standards, revenue is recognized as income when:

A)a contract is signed to perform a service or deliver a good.
B)the transaction is complete and the goods or services are delivered.
C)payment is requested.
D)income taxes are paid.
E)All of the above.

Question 61

What is the operating cash flow for 2014?

A)£845 million.
B)£1,930 million.
C)£2,215 million.
D)£2,845 million.
E)£3,060 million.

Question 62

What is the cash flow of the firm for 2014?

A)£430 million.
B)£485 million.
C)£1,340 million.
D)£2,590 million.
E)£3,100 million.

Question 63

What is the amount of the net capital spending for 2014?

A)-£290 million.
B)£795 million.
C)£1,080 million.
D)£1,660 million.
E)£2,165 million.

Question 64

What is the operating cash flow for 2014?

A)€143
B)€297
C)€325
D)€353
E)€367

Question 65

What is net capital spending for 2014?

A)-€250
B)-€57
C)€0
D)€57
E)€477

Question 66

What is the operating cash flow for 2014?

A)£520
B)£800
C)£1,015
D)£1,110
E)£1, 390

Question 67

What is the cash flow to creditors for 2014?

A)-€170
B)-€35
C)€135
D)€170
E)€205

Question 68

What are the sales for 2014?

A)£4, 225
B)£4, 385
C)£4, 600
D)£4, 815
E)£5, 000

Question 69

What is the amount of net new borrowing for 2014?

A)-£225 million.
B)-£25 million.
C)£0
D)£25 million.
E)£225 million.

Question 70

What is the taxable income for 2014?

A)£360
B)£520
C)£640
D)£780
E)£800

Question 71

What is the net working capital for 2014?

A)€345
B)€405
C)€805
D)€812
E)€1,005

Question 72

What is the cash flow to shareholders for 2014?

A)€408
B)€417
C)€452
D)€482
E)€503

Question 73

Calculate net income based on the following information.Sales are £250, cost of goods sold is £160, depreciation expense is £35, interest paid is £20, and the tax rate is 34%.

A)£11.90
B)£23.10
C)£35.00
D)£36.30
E)£46.20

Question 74

What is net new borrowing for 2014?

A)-€70
B)-€35
C)€35
D)€70
E)€105

Question 75

What is the change in net working capital from 2013 to 2014?

A)-€93
B)-€7
C)€7
D)€85
E)€97

Question 76

What is the amount of the non-cash expenses for 2014?

A)£570 million.
B)£630 million.
C)£845 million.
D)£1,370 million.
E)£2,000 million.

Question 77

What is the cash flow to creditors for 2014?

A)-£405 million.
B)-£225 million.
C)£225 million.
D)£405 million.
E)£630 million.

Question 78

Why is interest expense excluded from the operating cash flow calculation?

Question 79

What is the cash flow of the firm for 2014?

A)€50
B)€247
C)€297
D)€447
E)€517

Question 80

What is a liquid asset and why is it necessary for a firm to maintain a reasonable level of liquid assets?