General Financial Analysis MCQs

1. Assets that that can be converted into cash quickly are considered:

2. The minimum rate of return that capital investment projects have to meet, usually based on the cost of capital, is known as the:

3. What does a Bear Market mean?

4. What does the Beta Coefficient of a stock indicate?

5. Fiduciary duty effectively requires all financial organizations and people to act in the best interests of their client

6. What is Arbitrage?

7. What is the difference between APR and EAR?

8. Which technique is used to find volume of sales at which a company just covers the total cost?

9. True or False: Projections and Simulators (Monte Carlo etc) are only as good as their assumptions

10. True or False The purpose of auditing financial statements is to form a view that the information presented is an accurate general view of the financial situation of a company at a given date.

11. What is capital?

12. What is a Buy Back?

13. What do you call the discount rate that equates the cash inflows and cash outflows of an investment project, resulting in a net present value of zero?

14. __________ of the cash flow generated by the firm's operations, investments and financial activities.

15. Which of the following is an example of fixed income security?

16. Basic principle for Financial Analysis

17. Ratio Interpretation : High EPS , high book value & high Dividend pay out per share represents

18. What are the three financial statements that are used for business analysis?

19. What is a bond?

20. __________ of the profitability of the firm over a period of time such as a year

21. In the US most companies follow which accounting standard?

22. True or False? Depreciation is not affected by how an asset purchase is financed.

23. The process of testing the impact on the results of an analysis from changes of one or more of the input variables is called:

24. The interest on government bonds (treasuries, t-bills etc) are typically considered:

25. The recorded value of the shareholders equity on the balance sheet reflects:

26. The accounting term for a company to continue functioning into the foreseeable future is

27. True or False? At the half-way time of mortgage period, the remaining balance is half of the original loan amount.

28. Among other responsibilities The Federal Reserve is the lender of last resort

29. Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company

30. What is net working capital?

31. True or False? Retained earnings are largely the same as paid-in capital

32. Company A is incorporated in the US and operates in the US only. Calculate the corporate tax on EBT of $57,000 for 2012, assuming no tax reduction practices and 40% tax rate.

33. The cash conversion cycle (CCC) measures

34. An "acid test" measures the ability of a company to use its ______ to extinguish or retire its current liabilities immediately.

35. How does Capital Asset Pricing Model (CAPM) help?

36. __________ a snapshot of the financial condition of the firm at a particular time.

37. If a company faces a 15% increase in production while production costs increase 35% it is most likely experiencing:

38. What is a leveraged buyout?

39. Which costing method allocates overhead cost to a product using activities required to produce the product?

40. In the case of conflict, why is the NPV method preferred over IRR?

41. Banks relative to most other types of companies are more likely to have more

42. Which of the following is not a quality of accounting information?

43. A creditor whose claim is specifically designed as ranking below the claims of other creditors in the company is called a:

44. Regarding dividend payments: common stock and preferred stock differ in which way most importantly?

45. The term "fund" as in Mutual Fund suggests

46. A bond covenant is a:

47. Which process shows an internal detailed plan of the use of financial and operating resources over a specific period of time?

48. What is the other name for Earnings before interest and taxes?

49. The standard model for valuing a company based on it's dividends is called?

50. What is a corporation's taxable income?

51. Why is cost allocation necessary?

52. What is an equity security that has some of the characteristics of debt?

53. The appropriate objective of an enterprise is

54. True or False: It is the job of auditors to comment on the capabilities of management and governance

55. True or False? Equity is historically much riskier than debt.

56. The efficient market hypothesis is true in all cases

57. When creating projections over a long period of time it is important to assume

58. Which one of the following best describes the Cost of Capital?

59. When comparing mutually exclusive projects to undertake which methodology is most appropriate?

60. What is the main financial disadvantage of a C-Corp?

61. Accounting Profit and Economic Profit differ most in their attention to:

62. Which valuation method is suitable to use when a company's leverage structure is constantly changing over time?

63. When valuing a start-up with limited funding these types of ratios are most important

64. Which of the following best describes period expense?

65. A firm faces leverage both explicitly and implicitly. Which of the following is a type of leverage?

66. A method to represent an unknown variable in a financial plan is known as a:

67. Which of these is an example of an amortized bond?

68. A company has a high quality of earnings, when it has ....

69. In the American tax system, what is total Effective Tax Rate (TETR)? (Tf=federal tax, Ts=state tax)

70. What does the market risk premium indicate?

71. What is the relative measure of variation in Risk Theory?

72. What type of asset is 'Stock' classified as?

73. True or False? APR is always less than or equal to EAR.

74. Which of the following indicates off-balance-sheet activities of a bank?

75. When discussing the NPV of a start-up company in addition to considering the cost of capital its important to consider this concept to properly discount cash flows?

76. When using NPV the discount rate should take into account:

77. B&A Company has an EBIT of $20 million and faces a tax rate of 40% and an interest rate of 6%. What are B&A's Earnings?

78. Under U.S GAAP, where is the dividend received so it will be presented in the cash flow statement?

79. The profitability of a vacation resort in Hawaii that does all its transactions in USD cannot be exposed to fluctuations of the USD against other currencies.

80. A firm should not hedge its short-term (up to 1 year) foreign currency exposure since exchange rates are unpredictable in the short run.

81. Deviations from Purchasing Power Parity (PPP) disappear quickly such that the real exchange rate is one most of the time.

82. Return on Assets is defined as _______.

83. Why would a company calculate their Risk Adjusted Return on Capital?

84. Operating Efficiency is defined as ______.

85. To measure a firm's solvency as completely as possible, we need to consider ______.

86. How does Gross Income differ from Net Income?

87. By doing/issuing which could a company raise short-term funds by selling receivables?

88. Why do you not subtract interest expense from operating profit when calculating Return on Investment Capital?

89. Which is a flaw with financial analysis?

90. What does the Price to Earnings (P/E) ratio demonstrate?

91. Which is not a part of cost of goods sold?

92. If a company has a high P/E ratio relative to it's competitors ____.

93. Financial managers use the _____________ to plan for monthly financing needs.

94. With which regulatory bodies would a publicly traded company be much more involved than a private company would be?

95. Which transaction would have no impact on the stockholder's equity?

96. What is historical value?

97. Which is the primary financial statement used to measure profitability?

98. What is operating leverage defined as?

99. Which report does a publicly traded company file quarterly with the SEC?

100. If a company using financing has a 60% chance of a $75,000 return under normal conditions but a 40% chance of a $20,000 return when money is tight and borrowing costs are higher, what is the expected return for this firm ?

101. What is one caveat when calculating ROA and comparing to other companies?

102. In breakeven analysis, if fixed costs rise, then the breakeven point will __________.

103. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the final inventory valuation is ________.

104. What is financial analysis?

105. Which equation properly represents a derivation of the fundamental accounting equation?

106. Accounting scandals of the past 5 years ______.

107. CAPM formula calculates which of the following?

108. Which is an example of an area of business where use of 'questionable' ethics is considered a necessity?

109. The accounting scandals of recent years ______.

110. Which type of firm may operate with high operating leverage?

111. What is meant by 'the goal of the corporation is to maximize shareholder wealth'?

112. Which is considered a profitability measure?

113. What does CAPM stand for?

114. Which is a characteristic of an efficient market?

115. What does Return on Assets indicate?

116. Which would not be included in a balance sheet?

117. Gerald's had opening total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Their net income was $180,000. No additional investments were made. However, some amount was paid as dividend during the year. What was the amount of the dividend paid?

118. Which short-term financing rate always requires the use of international data?

119. A company wants to increase its current ratio. Which would help the most?

120. Rate of profit (r) is defined as ______.

121. Which is not a financial intermediary?

122. Which is an example of a variable cost?

123. If a firm has $100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital?

124. Which item swould be accounted for as an expense?

125. Which inventory method will always produce the same results under both a periodic and a perpetual system?

126. Which does the cash flow cycle measure?

127. If two companies have equal risk, which one will have the higher stoack price?

128. Which is not an area which is assessed by financial analysis?

129. What is the formula for Return on Investor Capital?

130. Which financial statement best allows a firm to assess its ability to pay dividends?

131. How often can a company change its inventory valuation methodology and still be compliant with GAAP?

132. Which security makes up the majority of external financing for corporations?

133. What type of analysis will describe how changes in volume affect costs and profits?

134. The three sections of a Statement of Cash Flows are _____.

135. What is the DuPont analysis?

136. How does Cash Flow Return on Investment differ from most financial ratios?

137. Which cash collection technique is the most cost-effective for companies with many locations?

138. What is the purpose of measuring stability?

139. Retained earnings will change over time because of several factors. Which factor would lead to an increase in the Retained Earnings?

140. Planning for future growth is called ________.

141. Pro forma statements are _______ statements.

142. Which is not a fundamental of accounting?

143. Asset Turnover is defined as ______.

144. What is the purpose of measuring liquidity?

145. Which is/are the primary financial statements used to measure solvency?

146. When a company files a statement of their financial plans for the next two years with the SEC, it is called a ______.

147. What does the Weighted Average Cost of Capital (WACC) calculate?

148. What is the purpose of measuring profitability?

149. In 2002, the US passed the Sarbanes-Oxley law which ____.

150. Government mandated requirements, such as installing pollution control equipment ______.

151. Which ratio would you use to assess a company's ability to pay bills?

152. Insider trading _____.

153. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has a ROE of 15% during the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this, it can be assessed that ______.

154. Which is traded in the capital markets?

155. Which is a flaw with financial analysis?

156. The size of the sampling error is ________.

157. Routine replies and positive messages should close with ________.

158. Routine requests should begin with ________.