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Basic Financial Analysis MCQ

1. Routine requests should begin with ________.

A clear statement of your request

A buffer that builds up to your main request

A justification for your request

An attention-getting statement, fact or question

Answer

Correct Answer: A clear statement of your request

Note: This Question is unanswered, help us to find answer for this one

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

A sincere apology for the trouble caused

Information highlighting a benefit to the audience

A detailed explanation of the request

A mention of the consequences of non-compliance

Answer

Correct Answer: Information highlighting a benefit to the audience

Note: This Question is unanswered, help us to find answer for this one

3. The size of the sampling error is ________.

Inversely related to the sample size—in other words

The larger the sample size

The smaller the sampling error

All of these

Answer

Correct Answer: All of these

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4. Which of the following is a flaw with financial analysis?

It is complicated

Changes in accounting policy can drastically affect the results of a ratio, making comparison analysis difficult

Companies are required by law to do it, even when they do not want to

Errors are inherent in financial analysis, rendering it useless

Answer

Correct Answer: Changes in accounting policy can drastically affect the results of a ratio, making comparison analysis difficult

Note: This Question is unanswered, help us to find answer for this one

5.
Which of the following are traded in the capital markets?

Convertible securities

Bonds

Common stock

Preferred stock

All of the above

Answer

Correct Answer: All of the above

Note: This Question is unanswered, help us to find answer for this one

6.
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 ______.

Firm A has a higher profit margin than firm B

Firm B has a higher profit margin than firm A

Firm A and B have the same profit margin

Firm A has a higher equity multiplier than firm B

more information is needed to say anything about the firm's profit margin

Answer

Correct Answer: Firm B has a higher profit margin than firm A

Note: This Question is unanswered, help us to find answer for this one

7.
Insider trading _____.

is permitted by the SEC as long as the information becomes public within 30 days

is a victimless crime as no one suffers an economic loss

serves no beneficial or economic purpose

is not legal under any circumstances

is not illegal as long as the person using the information obtained it from someone else

Answer

Correct Answer: is not legal under any circumstances

Note: This Question is unanswered, help us to find answer for this one

8.

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

Interest coverage ratio

Times interest earned ratio

Price earnings ratio

Current ratio

Profit margin

Answer

Correct Answer: Current ratio

Note: This Question is unanswered, help us to find answer for this one

9.

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

increase a company's profits in the long run

drive many companies out of business

have resulted in many instances of unethical behavior on the part of managers

may reduce a company's earnings but are considered a necessary social responsibility for the firm

do not affect a firm's profit potential

Answer

Correct Answer: may reduce a company's earnings but are considered a necessary social responsibility for the firm

Note: This Question is unanswered, help us to find answer for this one

10.
In 2002, the US passed the Sarbanes-Oxley law which ____.

did not change any function of the Boards of Directors of publicly traded corporations

gave the Financial Accounting Standards Board the oversight responsibility for public auditing firms

does not change the responsibilities of independent auditors

was developed in response to the accounting scandals at Enron, Tyco, WorldCom and others

protects senior executives from prosecution for accounting fraud if they are unaware of its existence

Answer

Correct Answer: was developed in response to the accounting scandals at Enron, Tyco, WorldCom and others

Note: This Question is unanswered, help us to find answer for this one

11.
What is the purpose of measuring profitability?

To determine the amount of cash a company brings in on an average in a month

To analyze specific expenses to look for cost cutting measures

To measure a company's ability to earn a profit and continue to grow in the short-term and long-term

To measure a company's ability to pay the highest dividend relative to its competitors

Answer

Correct Answer: To measure a company's ability to earn a profit and continue to grow in the short-term and long-term

Note: This Question is unanswered, help us to find answer for this one

12.
What does the Weighted Average Cost of Capital (WACC) calculate?

Discount rate

Interest rate

Weighted Interest rate

Present Value of Investments

Answer

Correct Answer: Discount rate

Note: This Question is unanswered, help us to find answer for this one

13.
When a company files a statement of their financial plans for the next two years with the SEC, it is called a ______.

Market plan

Shelf registration

Stock plan

Statement of intent

Prospectus

Answer

Correct Answer: Statement of intent

Note: This Question is unanswered, help us to find answer for this one

14.
Which is/are the primary financial statements used to measure solvency?

Balance Sheet

Income Statement

Balance Sheet and Statement of Retained Earnings

Cash Flow Statement and Income Statement

Answer

Correct Answer: Balance Sheet

Note: This Question is unanswered, help us to find answer for this one

15.
What is the purpose of measuring liquidity?

To determine if the firm is keeping enough cash on hand to pay accounts payable

To determine if the firm is investing their liquid assets to earn the highest return available

To measure a firm's ability to remain cash flow positive and meet its short-term obligations

To measure a firm's return on investment

Answer

Correct Answer: To measure a firm's ability to remain cash flow positive and meet its short-term obligations

Note: This Question is unanswered, help us to find answer for this one

16.
Asset Turnover is defined as ______.

Assets/Inventory

Sales/Assets

Sales/Net Income

Assets/Net Income

Answer

Correct Answer: Sales/Assets

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17.
Which of the following is not a fundamental of accounting?

Materiality

Timeliness

Matching

Magnitude

Answer

Correct Answer: Magnitude

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18.
Pro forma statements are _______ statements.

actual

projected

previous years'

next years'

Answer

Correct Answer: projected

Note: This Question is unanswered, help us to find answer for this one

19.
Planning for future growth is called ________.

capital budgeting

working capital management

financial forecasting

none of the above

Answer

Correct Answer: financial forecasting

Note: This Question is unanswered, help us to find answer for this one

20.
Retained earnings will change over time because of several factors. Which of the following factors would lead to an increase in the Retained Earnings?

Net loss

Net income

Dividends

Investments by stockholders

Answer

Correct Answer: Net income

Note: This Question is unanswered, help us to find answer for this one

21.
What is the purpose of measuring stability?

To determine if management is being ethical

To determine if the company has an adequate product mix

To determine the firm's ability to stay in business in the long run

To determine if the company has too many high level executives

Answer

Correct Answer: To determine the firm's ability to stay in business in the long run

Note: This Question is unanswered, help us to find answer for this one

22.
Which cash collection technique is the most cost-effective for companies with many locations?

Self-addressed stamped envelopes

Centralized collection system

Lockbox system

Using a post office box

Regional collection offices

Answer

Correct Answer: Lockbox system

Note: This Question is unanswered, help us to find answer for this one

23.
How does Cash Flow Return on Investment differ from most financial ratios?

It is the only ratio involving cash flow

It can be calculated from the income statement

It assumes the stock market sets prices based on cash flow, not profitability

It is the only ratio where a negative number is a good result

Answer

Correct Answer: It assumes the stock market sets prices based on cash flow, not profitability

Note: This Question is unanswered, help us to find answer for this one

24.
What is the DuPont analysis?

Breaks Return on Equity into 3 pieces: Operating Efficiency, Asset Use Efficiency, Financial Leverage

An analysis created by the DuPont paint company

A ratio analysis style based on factors beyond the financial numbers

A modified cash flow analysis

Answer

Correct Answer: Breaks Return on Equity into 3 pieces: Operating Efficiency, Asset Use Efficiency, Financial Leverage

Note: This Question is unanswered, help us to find answer for this one

25.
The three sections of a Statement of Cash Flows are _____.

Leverage, liquidity, financing

Operating, investing, profit

Operating, investing, financing

Sales, investing, financing

Operating, investing, borrowing

Answer

Correct Answer: Operating, investing, financing

Note: This Question is unanswered, help us to find answer for this one

26.
What type of analysis will describe how changes in volume affect costs and profits?

Trend analysis

Break even analysis

Common size analysis

Ratio analysis

DuPont analysis

Answer

Correct Answer: Break even analysis

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27.
Which security makes up the majority of external financing for corporations?

Common stock

Preferred stock

Bank loans

Bonds

Venture capital funds

Answer

Correct Answer: Common stock

Note: This Question is unanswered, help us to find answer for this one

28.
How often can a company change its inventory valuation methodology and still be compliant with GAAP?

Once per month

Anytime, there are no rules

Once per year, but not every year

Never, you decide once and only once

Answer

Correct Answer: Once per year, but not every year

Note: This Question is unanswered, help us to find answer for this one

29.
Which financial statement best allows a firm to assess its ability to pay dividends?

Statement of Cash Flows

Income Statement

Balance Sheet

Statement of Retained Earnings

Statement of Operations

Answer

Correct Answer: Income Statement

Note: This Question is unanswered, help us to find answer for this one

30.
What is the formula for Return on Investor Capital?

ROIC = (NetOperatingProfitLessAdjustedTaxes) / (Fixed Assets)

ROIC = (NetOperatingProfit) / (InvestedCapital)

ROIC = (NetOperatingProfitLessAdjustedTaxes) / (InvestedCapital)

ROIC = (NetOperatingProfitLess) / (Fixed Assets)

Answer

Correct Answer: ROIC = (NetOperatingProfitLessAdjustedTaxes) / (InvestedCapital)

Note: This Question is unanswered, help us to find answer for this one

31.
Which of the following is not an area which is assessed by financial analysis?

Profitability

Solvency

Stability

Adequate Cash balances

Answer

Correct Answer: Adequate Cash balances

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32.
If two companies have equal risk, which one will have the higher stoack price?

The one with the expectations of higher returns

The one that pays dividends

The one that splits its stock

The one whose stock is traded most frequently

All of the above

Answer

Correct Answer: All of the above

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33.
Which of the following does the cash flow cycle measure?

The time between purchase of raw materials and collection of cash

The time it takes to invest liquid funds

The time it takes for a check to get cleared in the bank

The maturity date of corporate bonds

The time between offering a marketable security and receiving funds from sale of one

Answer

Correct Answer: The time between purchase of raw materials and collection of cash

Note: This Question is unanswered, help us to find answer for this one

34.
Which of the following inventory methods will always produce the same results under both a periodic and a perpetual system?

FIFO

LIFO

Average

All of these

Answer

Correct Answer: FIFO

Note: This Question is unanswered, help us to find answer for this one

35.
Which item swould be accounted for as an expense?

Repayment of a bank loan

Dividends to stockholders

Purchase of land

Payment of the current period's rent

Answer

Correct Answer: Payment of the current period's rent

Note: This Question is unanswered, help us to find answer for this one

36.
Which is an example of a variable cost?

Management salaries

Utilities

Property taxes

Raw material

Depreciation

Answer

Correct Answer: Raw material

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37.
Which of the following is not a financial intermediary?

Commercial banks

Credit unions

Insurance companies

Credit card companies

Pension funds

Answer

Correct Answer: Pension funds

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38.
Rate of profit (r) is defined as ______.

r=(surplus-value)/(fixed assets)

r=(surplus+value)/(capital invested)

r=(surplus+value)/(fixed assets)

r=(surplus-value)/(capital invested)

Answer

Correct Answer: r=(surplus-value)/(capital invested)

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39.
A company wants to increase its current ratio. Which of the following would help the most?

Borrowing a long term loan

Borrowing a short term loan

Creating more stringent collection policies to decrease accounts receivable

Using cash to pay down accounts payable

Answer

Correct Answer: Borrowing a long term loan
Using cash to pay down accounts payable

Note: This question has more than 1 correct answers

Note: This Question is unanswered, help us to find answer for this one

40.
Which short-term financing rate always requires the use of international data?

Cost of failing to take a cash discount

Prime rate

LIBOR

Effective rate

Effective rate with compensating balances

Answer

Correct Answer: LIBOR

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41.
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?

$20,000

$60,000

$140,000

$220,000

Answer

Correct Answer: $60,000

Note: This Question is unanswered, help us to find answer for this one

42.
Which of the following would not be included in a balance sheet?

Accounts receivable

Accounts payable

Sales

Cash

Answer

Correct Answer: Sales

Note: This Question is unanswered, help us to find answer for this one

43.
What does Return on Assets indicate?

How well a company employs its capital investments

How much cash the company has generated over the last year

How much debt the company has to pay relative to its asset base

How profitable a company is before leverage

Answer

Correct Answer: How profitable a company is before leverage

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44.
Which is a characteristic of an efficient market?

Stock prices are high

Prices adjust rapidly to new information

Stock prices are low

Trading is difficult

There are only small daily changes in price

Answer

Correct Answer: Prices adjust rapidly to new information

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45.
What does CAPM stand for?

Current Asset Pricing Model

Capital Asset Pricing Model

Current Average Product Model

Capital Average Product Model

Answer

Correct Answer: Capital Asset Pricing Model

Note: This Question is unanswered, help us to find answer for this one

46.
Which of the following is considered a profitability measure?

Day's sales in inventory

Fixed asset turnover

Price-earnings ratio

Cash coverage ratio

Return on Assets

Answer

Correct Answer: Return on Assets

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47.
What is meant by "the goal of the corporation is to maximize shareholder wealth"?

Pay out dividends

Maximize profits

Achieve the highest possible value for the firm

Control costs

Increase sales

Answer

Correct Answer: Achieve the highest possible value for the firm

Note: This Question is unanswered, help us to find answer for this one

48.
Which of the following types of firms may operate with high operating leverage?

A doctor's office

An auto manufacturing facility

A mental health clinic

None of the above would have high operating leverage

Answer

Correct Answer: An auto manufacturing facility

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49.
The accounting scandals of recent years ______.

had no effect on the level of prices in the US stock markets

were a complete surprise to analysts who followed the stocks of the companies involved as they were issuing positive recommendations of the securities to their clients

brought out the fact that brokerage firms were promoting stocks to earn hefty fees for underwriting new security issues

were of such a small magnitude that the government did not feel it was warranted to prosecute the companies and their officers that were involved

have been dismissed as falling within the latitude of judgment for applying GAAP rules

Answer

Correct Answer: were a complete surprise to analysts who followed the stocks of the companies involved as they were issuing positive recommendations of the securities to their clients

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50.
Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

Attracting and sustaining new customers

Aggressive accounting practices that stretch the intent of accounting standards

Dealing with other firms who use "questionable" ethics

Suppressing information that may negatively affect a firm's reputation

None of the statements above is correct

Answer

Correct Answer: None of the statements above is correct

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51.
CAPM formula calculates which of the following?

Present value of equity

Expected return on equity

Discounted rate on equity

Weighted interest rate on equity

Answer

Correct Answer: Expected return on equity

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52.
Accounting scandals of the past 5 years ______.

resulted in criminal convictions of senior executives at large US corporations like Enron and WorldCom

resulted in the criminal conviction of at least one major independent auditing firm

resulted in record fines being paid by major brokerage companies to the SEC

resulted in the strengthening of the SEC's enforcement powers

All of the above are true

Answer

Correct Answer: All of the above are true

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53.
Which of the following equations properly represents a derivation of the fundamental accounting equation?

Assets + liabilities = owner's equity

Assets = owner's equity

Cash = assets

Assets - liabilities = owner's equity

Answer

Correct Answer: Assets - liabilities = owner's equity

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54.
What is financial analysis?

Comparing ratios using numbers from the income statement and balance sheet

Determining a company's financing needs

Determining the pricing model for the next year

Determining the company's stock price

Answer

Correct Answer: Comparing ratios using numbers from the income statement and balance sheet
Determining a company's financing needs

Note: This question has more than 1 correct answers

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55.
An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the final inventory valuation is ________.

FIFO

LIFO

Retail

Weighted-average

Answer

Correct Answer: FIFO

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56.
In breakeven analysis, if fixed costs rise, then the breakeven point will __________.

fall

rise

stay the same

none of the above

Answer

Correct Answer: rise

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57.
What is one caveat when calculating ROA and comparing to other companies?

Asset values change over time

Carrying value of assets may be valued differently (historical, market) by different companies

Liabilities vary month to month making this ratio difficult to track accurately

Every financial analyst calculates it differently making comparison useless

Answer

Correct Answer: Carrying value of assets may be valued differently (historical, market) by different companies

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58.
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 ?

$75,000

$60,000

$53,000

$40,000

$20,000

Answer

Correct Answer: $53,000

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59.
Which report does a publicly traded company file quarterly with the SEC?

10K

10Q

Prospectus

Answer

Correct Answer: 10Q

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60.
What is operating leverage defined as?

Extent to which variable costs are utilized

Extent to which fixed assets are utilized

Extent to which fixed assets and fixed costs are utilized

Extent to which fixed costs are utilized

Extent to which prices change

Answer

Correct Answer: Extent to which fixed costs are utilized

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61.
Which is the primary financial statement used to measure profitability?

Balance Sheet

Income Statement

Cash Flow Statement

Statement of Retained Earnings

Answer

Correct Answer: Income Statement

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62.
What is historical value?

Prices adjusted for inflation

The current sale value of an asset

The original cost or price paid for an asset

The average value of an asset

Answer

Correct Answer: The original cost or price paid for an asset

Note: This Question is unanswered, help us to find answer for this one

63.
Which of the following transactions would have no impact on the stockholder's equity?

Purchase of land from the proceeds of a bank loan

Dividends to stockholders

Net loss

Investments in cash by stockholders

Answer

Correct Answer: Purchase of land from the proceeds of a bank loan

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64.
With which of the following regulatory bodies would a publicly traded company be much more involved than a private company would be?

SEC

GAAP

IRS

FCC

Answer

Correct Answer: SEC

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65.
Financial managers use the _____________ to plan for monthly financing needs.

capital budget

cash budget

pro forma

income statement

Answer

Correct Answer: cash budget

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66.
If a company has a high P/E ratio relative to it's competitors ____.

it is expected to grow more rapidly

the analyst has inside information

it has a bad year for earnings, making the denominator smaller, and the P/E ratio higher

everyone should invest in this stock and not the competitor's

Answer

Correct Answer: it is expected to grow more rapidly

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67.
Which of the following is not a part of cost of goods sold?

Raw material

Labor

Capital

All of the above are part of cost of goods sold

Answer

Correct Answer: Capital

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68.
What does the Price to Earnings (P/E) ratio demonstrate?

The price of the company's products relative to how much they earn on the sale of those products

A company's stock price relative to its earnings. Higher growth companies have higher P/E ratios

The prices paid for goods relative to how much the company earns on those goods

The ability of a company to pay dividends

Answer

Correct Answer: A company's stock price relative to its earnings. Higher growth companies have higher P/E ratios

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69.
Which of the following is a flaw with financial analysis?

Each company uses different formulas to calculate the ratios

Ratios are too difficult to calculate and require a specialist

Auditors do not look at financial ratios

One ratio alone does not tell much about the entire financial situation of a company

Answer

Correct Answer: One ratio alone does not tell much about the entire financial situation of a company

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70.
Why do you not subtract interest expense from operating profit when calculating Return on Investment Capital?

Denominator includes debt capital

Numerator includes debt capital

Interest is not material in the calculation

It is important to include interest as it is part of expenses

Answer

Correct Answer: Denominator includes debt capital

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71.
By doing/issuing which of the following could a company raise short-term funds by selling receivables?

By factoring receivable

By pledging inventory

By line of credit

By Notes

By term loan

Answer

Correct Answer: By pledging inventory

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72.
How does Gross Income differ from Net Income?

Gross Income determines the company's cash flow, Net Income does not

Gross Income includes several fixed costs, Net Income does not

Gross Income includes all fixed costs, Net Income does not include any

Gross Income measures profitability before operating expenses, whereas Net Income is calculated after all operating expenses

Answer

Correct Answer: Gross Income measures profitability before operating expenses, whereas Net Income is calculated after all operating expenses

Note: This Question is unanswered, help us to find answer for this one

73.
To measure a firm's solvency as completely as possible, we need to consider ______.

the firm's relative proportion of debt and equity in its capital structure

the firm's capital structure and the liquidity of its current assets

the firm's ability to use Net Working Capital to pay off its current liabilities

the firm's leverage and its ability to make interest payments on its long-term debt

the firm's leverage and its ability to turn its assets into sales

Answer

Correct Answer: the firm's leverage and its ability to make interest payments on its long-term debt

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74.
Operating Efficiency is defined as ______.

Net Income/Operating Expenses

Gross Profit/Operating Expenses

Gross Profit/Sales

Net Income/Sales

Answer

Correct Answer: Net Income/Sales

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75.
Why would a company calculate their Risk Adjusted Return on Capital?

Is required by the SEC

Auditors will overlook other abnormalities if a firm demonstrates a favorable RAROC

Gives companies the ability to allocate capital in the optimal structure

Keeps the financial analysis department busy

Answer

Correct Answer: Gives companies the ability to allocate capital in the optimal structure

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76.
Return on Assets is defined as _______.

Net Income/Current Assets

Net Income/Total Assets

Gross Margin/Current Assets

Gross Margin/Total Assets

Answer

Correct Answer: Net Income/Total Assets

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

True

False

Answer

Correct Answer: False

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

True

False

Answer

Correct Answer: False

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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.

False

True

Answer

Correct Answer: False

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

Financing activities

Investing activities

Operating activities

Answer

Correct Answer: Operating activities

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81. 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?

$10.8 million

$13.2 million

At least $12 million

$12 million

Answer

Correct Answer: At least $12 million

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

Interest rates paid by the company on it's bonds

The WACC (Weighted Average Cost of Capital) of the company

The risk of the relative project

Current rate of inflation

Answer

Correct Answer: The risk of the relative project

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83. 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?

Likelihood of failure

Location

The expected return from stock market

Required Return

Answer

Correct Answer: Likelihood of failure

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

Issuing loan

Credit check of prospective borrowers

Generating cash

Loan sales

Answer

Correct Answer: Loan sales

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

True

False

Answer

Correct Answer: True

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

Investment assets

Real assets

Financial assets

Security assets

Answer

Correct Answer: Financial assets

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

Variance

Coefficient of Variation

Standard Variation

Mean/Standard Deviation

Answer

Correct Answer: Coefficient of Variation

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88. What does the market risk premium indicate?

A very general market risk factor

Degree of risk aversion felt by investor

It is the risk free rate of return

It is the market's rate of return

Answer

Correct Answer: Degree of risk aversion felt by investor

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

Tf+Ts(1-Tf)

Ts+Tf(1-Tf)

Ts+Tf(1-Ts)

Tf+Ts(1-Ts)

Answer

Correct Answer: Tf+Ts(1-Tf)

Note: This Question is unanswered, help us to find answer for this one

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

High return on average assets

High net profit margin

High cash flow in comparison with reported net income

High operational leverage

Answer

Correct Answer: High cash flow in comparison with reported net income

Note: This Question is unanswered, help us to find answer for this one

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

Treasury

Semi Annual Corporate Bond

Zero Coupon Bond

30 Year Mortgage

Answer

Correct Answer: 30 Year Mortgage

Note: This Question is unanswered, help us to find answer for this one

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

Principal

Plug

Operator

Option

Answer

Correct Answer: Plug

Note: This Question is unanswered, help us to find answer for this one

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

Close proximity to customers

Hiring smart people and 'leveraging' their talents

Purchases of expensive equipment for production

Government intervention on behalf of the firm

Answer

Correct Answer: Purchases of expensive equipment for production

Note: This Question is unanswered, help us to find answer for this one

94. Which of the following best describes period expense?

Cost of selling and raw material

Cost of raw material and admin activities

Cost of selling and admin activities

Cost of labor and raw material activities

Answer

Correct Answer: Cost of selling and admin activities

Note: This Question is unanswered, help us to find answer for this one

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

Liquidity

Efficiency

Leverage

Business

Answer

Correct Answer: Liquidity

Note: This Question is unanswered, help us to find answer for this one

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

Dividend Discount model

Discounted Cash flow

Adjusted Present Value

WACC or Cost of Capital

Answer

Correct Answer: Adjusted Present Value

Note: This Question is unanswered, help us to find answer for this one

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

Depreciation

Future Value

Interest Rates

Opportunity Cost

Answer

Correct Answer: Opportunity Cost

Note: This Question is unanswered, help us to find answer for this one

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

Complex structure to set up

Double taxation on earnings

Requires personal guarantees

Not easy to get loan

Answer

Correct Answer: Double taxation on earnings

Note: This Question is unanswered, help us to find answer for this one

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

NPV

Payback Period

IRR

MIRR

Answer

Correct Answer: NPV

Note: This Question is unanswered, help us to find answer for this one

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

The required return on a company's outstanding securities

An average number of shares held by its investors

The cost of repaying company debts

The cost of buying fixed assets

Answer

Correct Answer: The required return on a company's outstanding securities

Note: This Question is unanswered, help us to find answer for this one

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

Management will change impacting the projects longevity

Interest rates will increase impacting cash flow

Taxes will increase substantially

Growth rates will stabilize

Answer

Correct Answer: Growth rates will stabilize

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102. The efficient market hypothesis is true in all cases

False

TRUE

It has never been properly tested

Answer

Correct Answer: False

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

False

True

Answer

Correct Answer: True

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

False

True

Answer

Correct Answer: False

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

Treasury

Common Stock

Preferred Stock

Private Placement Bond

Bank Loan

Answer

Correct Answer: Preferred Stock

Note: This Question is unanswered, help us to find answer for this one

106. Why is cost allocation necessary?

There are always dedicated resources for business activities

Finding indirect cost is the ultimate goal

Different products or services often share common resources

Different products or services can not share common resources

Answer

Correct Answer: Different products or services often share common resources

Note: This Question is unanswered, help us to find answer for this one

107. What is a corporation's taxable income?

Revenue

EBTDA

EAT

EBT

Answer

Correct Answer: EBT

Note: This Question is unanswered, help us to find answer for this one

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

Dividend Valuation Technique

Dividend NPV

Dividend Discount Model

Stakeholder Dividend Model

Answer

Correct Answer: Dividend Discount Model

Note: This Question is unanswered, help us to find answer for this one

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

Operating Profit

Net Income

Gross Earnings

Revenue

Answer

Correct Answer: Operating Profit

Note: This Question is unanswered, help us to find answer for this one

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

Budgeting

Planning

Financial statements

Profit & Loss statements

Answer

Correct Answer: Budgeting

Note: This Question is unanswered, help us to find answer for this one

111. A bond covenant is a:

Contract outlining rights and responsibilities of the involved parties

Another term for coupon

Person responsible for administering the bonds coupons and principle payment

Term describing asymmetric risks/returns of bonds

Answer

Correct Answer: Contract outlining rights and responsibilities of the involved parties

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

An investment vehicle only for stocks

A large company responsible for investing for the 'Mutual' benefit of investors

Intermingling of multiple investors money in a single vehicle

An investment vehicle primarily for investing outside of the investor's domestic country

Answer

Correct Answer: Intermingling of multiple investors money in a single vehicle

Note: This Question is unanswered, help us to find answer for this one

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

Size of dividends

Timing of dividends

Seniority of dividends

Quantity of dividends

Answer

Correct Answer: Seniority of dividends

Note: This Question is unanswered, help us to find answer for this one

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

Stock creditor

Safe creditor

Lower creditor

Subordinate creditor

Answer

Correct Answer: Subordinate creditor

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

None of the Above

Reliability

Consistency

Relevance

Answer

Correct Answer: None of the Above

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

Shareholders

Taxes

Fixed Assets

Current Assets

Answer

Correct Answer: Current Assets

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

IRR is not always a reliable method especially with a mixture of positive and negative cash flows.

NPV has a more simple assumption for the discount rate

NPV has more probability of indicating to undertake a project

NPV is the robust formula for capital budgeting

Answer

Correct Answer: IRR is not always a reliable method especially with a mixture of positive and negative cash flows.

Note: This Question is unanswered, help us to find answer for this one

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

Activity based costing

Volume based costing

Unit level costing

Product costing

Answer

Correct Answer: Activity based costing

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119. What is a leveraged buyout?

An acquisition of a business in which the purchasing company becomes a subsidiary of the purchased company

The acquisition of a business by investors using a high percentage of debt carried by the business itself

Two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits

Answer

Correct Answer: The acquisition of a business by investors using a high percentage of debt carried by the business itself

Note: This Question is unanswered, help us to find answer for this one

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

Returns to Market

Diseconomies of Scale

Economies of Scope

Economies of Scale

Answer

Correct Answer: Diseconomies of Scale

Note: This Question is unanswered, help us to find answer for this one

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

None of the above provides

The balance sheet provides

The income statement provides

All of the above provide

The statement of cash flows provides

Answer

Correct Answer: The balance sheet provides

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

It exactly shows stock price for a later date

It attempts to explain company's profit margin

It attempts to explain company's revenue

It attempts to explain how stock prices are set in the market

Answer

Correct Answer: It attempts to explain how stock prices are set in the market

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

near cash

net sales

credit

bonds

Answer

Correct Answer: near cash

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124. The cash conversion cycle (CCC) measures

how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth

how long a firm will be deprived of cash if it decreases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth

Answer

Correct Answer: how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth

Note: This Question is unanswered, help us to find answer for this one

125. 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.

$11,400

$22,800

$14,250

$8,550

Answer

Correct Answer: $22,800

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

False

True

Answer

Correct Answer: False

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127. What is net working capital?

Cash - debt

Total assets - total liabilities

Total assets - current assets

Current assets - current liabilities

Answer

Correct Answer: Current assets - current liabilities

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

FALSE

True

Answer

Correct Answer: True

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

True

False

Answer

Correct Answer: False

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

Liveliness

Going Concern

Comparability

Durability

Answer

Correct Answer: Going Concern

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

Gross profit

Operational cash flow

Net profit

Net worth

Answer

Correct Answer: Net worth

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

Cost of capital for large corporations

Overnight lending rate for large banks.

Risk free lending rate

Cost of doing business with the government

Answer

Correct Answer: Risk free lending rate

Note: This Question is unanswered, help us to find answer for this one

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

A sequential analysis

A blanket analysis

A sensitivity analysis

An A/B analysis

Answer

Correct Answer: A sensitivity analysis

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

False

True

Answer

Correct Answer: True

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

APA

IFAS

IFRS

GAAP

Answer

Correct Answer: GAAP

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136. What is a bond?

Paper money.

A certificate of debt.

A security for a loan.

Answer

Correct Answer: A certificate of debt.

Note: This Question is unanswered, help us to find answer for this one

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

Income statement

Balance sheets

Cash flow statements

All of these

Answer

Correct Answer: All of these

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

Its not a BLUECHIP company

Companies growth in worst poth

company share / stock price will not good investment

Good company grows in better both - eligible Investment & Investor friendly

Its a conservative company & not advisable for investments

Answer

Correct Answer: Good company grows in better both - eligible Investment & Investor friendly

Note: This Question is unanswered, help us to find answer for this one

139. Basic principle for Financial Analysis

Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in.Continue or discontinue its main operation or part of its business

Its is a key factor to determine their suitability for investment.

The process of evaluating businesses, projects, budgets and other finance-related entities

Make decisions regarding investing or lending capital by the board of directors

The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough t

Answer

Correct Answer: The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough t

Note: This Question is unanswered, help us to find answer for this one

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

Mutual Funds

Bonds

Equity

Answer

Correct Answer: Bonds

Note: This Question is unanswered, help us to find answer for this one

141. 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?

Internal Rate of Return

Investment value

Going-concern rate

Historical rate principle

Answer

Correct Answer: Internal Rate of Return

Note: This Question is unanswered, help us to find answer for this one

142. What is a Buy Back?

Buying back of stocks or bonds by the issuing company.

Issuing new company shares

Initial Public Offering

Answer

Correct Answer: Buying back of stocks or bonds by the issuing company.

Note: This Question is unanswered, help us to find answer for this one

143. What is capital?

Dividend.

Paper money.

Any assets ready to be used in the production of new assets .

Answer

Correct Answer: Any assets ready to be used in the production of new assets .

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144. 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.

FALSE

True

Answer

Correct Answer: True

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

FALSE

True

Answer

Correct Answer: True

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

Profit-Sensitivity analysis

Target-Profit analysis

Breakeven-point analysis

Activity based cost analysis

Answer

Correct Answer: Breakeven-point analysis

Note: This Question is unanswered, help us to find answer for this one

147. What is the difference between APR and EAR?

APR is annual rate and EAR is effective rate after compounding

APR and EAR are same

EAR is the rate typically mentioned on loan

APR is greater than EAR

Answer

Correct Answer: APR is annual rate and EAR is effective rate after compounding

Note: This Question is unanswered, help us to find answer for this one

148. What is Arbitrage?

Buying something of value and the selling it for a higher price at another Exchange

Buying stock options.

Answer

Correct Answer: Buying something of value and the selling it for a higher price at another Exchange

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

FALSE

True

Answer

Correct Answer: True

Note: This Question is unanswered, help us to find answer for this one

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

A stock’s volatility in relation to the overall market

Stock's dividend

Company's growth factor

Stock's growth factor

Answer

Correct Answer: A stock’s volatility in relation to the overall market

Note: This Question is unanswered, help us to find answer for this one

151. What does a Bear Market mean?

A market characterized by falling prices for securities.

Volatile market.

A market characterized by rising prices for securities.

Answer

Correct Answer: A market characterized by falling prices for securities.

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

Debt ceiling

Debt to asset ratio

Sale rate

Cutoff rate

Answer

Correct Answer: Cutoff rate

Note: This Question is unanswered, help us to find answer for this one

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

Tangible and fixed

Lucid

Liquid

Illiquid

Answer

Correct Answer: Liquid

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Basic Financial Analysis MCQ

1. Routine requests should begin with ________.

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

3. The size of the sampling error is ________.

4. Which of the following is a flaw with financial analysis?

5. Which of the following are traded in the capital markets?

7. Insider trading _____.

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

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

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

11. What is the purpose of measuring profitability?

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

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

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

15. What is the purpose of measuring liquidity?

16. Asset Turnover is defined as ______.

17. Which of the following is not a fundamental of accounting?

18. Pro forma statements are _______ statements.

19. Planning for future growth is called ________.

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

21. What is the purpose of measuring stability?

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

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

24. What is the DuPont analysis?

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

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

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

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

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

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

31. Which of the following is not an area which is assessed by financial analysis?

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

33. Which of the following does the cash flow cycle measure?

34. Which of the following inventory methods will always produce the same results under both a periodic and a perpetual system?

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

36. Which is an example of a variable cost?

37. Which of the following is not a financial intermediary?

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

39. A company wants to increase its current ratio. Which of the following would help the most?

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

42. Which of the following would not be included in a balance sheet?

43. What does Return on Assets indicate?

44. Which is a characteristic of an efficient market?

45. What does CAPM stand for?

46. Which of the following is considered a profitability measure?

47. What is meant by "the goal of the corporation is to maximize shareholder wealth"?

48. Which of the following types of firms may operate with high operating leverage?

49. The accounting scandals of recent years ______.

50. Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

51. CAPM formula calculates which of the following?

52. Accounting scandals of the past 5 years ______.

53. Which of the following equations properly represents a derivation of the fundamental accounting equation?

54. What is financial analysis?

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

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

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

58. 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 ?

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

60. What is operating leverage defined as?

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

62. What is historical value?

63. Which of the following transactions would have no impact on the stockholder's equity?

64. With which of the following regulatory bodies would a publicly traded company be much more involved than a private company would be?

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

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

67. Which of the following is not a part of cost of goods sold?

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

69. Which of the following is a flaw with financial analysis?

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

71. By doing/issuing which of the following could a company raise short-term funds by selling receivables?

72. How does Gross Income differ from Net Income?

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

74. Operating Efficiency is defined as ______.

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

76. Return on Assets is defined as _______.

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

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

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

81. 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?

5.
Which of the following are traded in the capital markets?

7.
Insider trading _____.

8.

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

9.

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

10.
In 2002, the US passed the Sarbanes-Oxley law which ____.

11.
What is the purpose of measuring profitability?

12.
What does the Weighted Average Cost of Capital (WACC) calculate?

13.
When a company files a statement of their financial plans for the next two years with the SEC, it is called a ______.

14.
Which is/are the primary financial statements used to measure solvency?

15.
What is the purpose of measuring liquidity?

16.
Asset Turnover is defined as ______.

17.
Which of the following is not a fundamental of accounting?

18.
Pro forma statements are _______ statements.

19.
Planning for future growth is called ________.

20.
Retained earnings will change over time because of several factors. Which of the following factors would lead to an increase in the Retained Earnings?

21.
What is the purpose of measuring stability?

22.
Which cash collection technique is the most cost-effective for companies with many locations?

23.
How does Cash Flow Return on Investment differ from most financial ratios?

24.
What is the DuPont analysis?

25.
The three sections of a Statement of Cash Flows are _____.

26.
What type of analysis will describe how changes in volume affect costs and profits?

27.
Which security makes up the majority of external financing for corporations?

28.
How often can a company change its inventory valuation methodology and still be compliant with GAAP?

29.
Which financial statement best allows a firm to assess its ability to pay dividends?

30.
What is the formula for Return on Investor Capital?

31.
Which of the following is not an area which is assessed by financial analysis?

32.
If two companies have equal risk, which one will have the higher stoack price?

33.
Which of the following does the cash flow cycle measure?

34.
Which of the following inventory methods will always produce the same results under both a periodic and a perpetual system?

35.
Which item swould be accounted for as an expense?

36.
Which is an example of a variable cost?

37.
Which of the following is not a financial intermediary?

38.
Rate of profit (r) is defined as ______.

39.
A company wants to increase its current ratio. Which of the following would help the most?

40.
Which short-term financing rate always requires the use of international data?

42.
Which of the following would not be included in a balance sheet?

43.
What does Return on Assets indicate?

44.
Which is a characteristic of an efficient market?

45.
What does CAPM stand for?

46.
Which of the following is considered a profitability measure?

47.
What is meant by "the goal of the corporation is to maximize shareholder wealth"?

48.
Which of the following types of firms may operate with high operating leverage?

49.
The accounting scandals of recent years ______.

50.
Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?

51.
CAPM formula calculates which of the following?

52.
Accounting scandals of the past 5 years ______.

53.
Which of the following equations properly represents a derivation of the fundamental accounting equation?

54.
What is financial analysis?

55.
An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the final inventory valuation is ________.

56.
In breakeven analysis, if fixed costs rise, then the breakeven point will __________.

57.
What is one caveat when calculating ROA and comparing to other companies?

58.
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 ?

59.
Which report does a publicly traded company file quarterly with the SEC?

60.
What is operating leverage defined as?

61.
Which is the primary financial statement used to measure profitability?

62.
What is historical value?

63.
Which of the following transactions would have no impact on the stockholder's equity?

64.
With which of the following regulatory bodies would a publicly traded company be much more involved than a private company would be?

65.
Financial managers use the _____________ to plan for monthly financing needs.

66.
If a company has a high P/E ratio relative to it's competitors ____.

67.
Which of the following is not a part of cost of goods sold?

68.
What does the Price to Earnings (P/E) ratio demonstrate?

69.
Which of the following is a flaw with financial analysis?

70.
Why do you not subtract interest expense from operating profit when calculating Return on Investment Capital?

71.
By doing/issuing which of the following could a company raise short-term funds by selling receivables?

72.
How does Gross Income differ from Net Income?

73.
To measure a firm's solvency as completely as possible, we need to consider ______.

74.
Operating Efficiency is defined as ______.

75.
Why would a company calculate their Risk Adjusted Return on Capital?

76.
Return on Assets is defined as _______.