Question 1

A measure of asset utilization is

Accepted Answer

A)  sales divided by working capital. 
B)  return on total assets. 
C)  return on equity capital. 
D)  operating profit divided by sales. 
E)  None of the options are correct. 
A)  sales divided by working capital. 
B)  return on total assets. 
C)  return on equity capital. 
D)  operating profit divided by sales. 
E)  None of the options are correct.

Question 2

The financial statements of Black Barn Company are given below.   Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2009 is

Accepted Answer

A)  1.65. 
B)  1.89. 
C)  2.64. 
D)  1.31. 
E)  1.56. 
A)  1.65. 
B)  1.89. 
C)  2.64. 
D)  1.31. 
E)  1.56.

Question 3

The financial statements of Black Barn Company are given below.   Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm's P/E ratio for 2009 is

Accepted Answer

A)  8.88. 
B)  7.63. 
C)  7.88. 
D)  7.32. 
A)  8.88. 
B)  7.63. 
C)  7.88. 
D)  7.32.

Question 4

Suppose that Chicken Express, Inc. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be ________, and its ROE will be ________.

Accepted Answer

A)  lower; lower 
B)  higher; higher 
C)  higher; lower 
D)  lower; higher 
E)  It is impossible to predict. 
A)  lower; lower 
B)  higher; higher 
C)  higher; lower 
D)  lower; higher 
E)  It is impossible to predict.

Question 5

The financial statements of Black Barn Company are given below.   Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is

Accepted Answer

A)  2.04. 
B)  2.58. 
C)  2.97. 
D)  1.58. 
E)  None of the options are correct. 
A)  2.04. 
B)  2.58. 
C)  2.97. 
D)  1.58. 
E)  None of the options are correct.

Question 6

To create a common size balance sheet, ____________ all items on the balance sheet by ____________.

Accepted Answer

A)  multiply; owners' equity 
B)  multiply; total assets 
C)  divide; owners' equity 
D)  divide; total assets 
E)  multiply; debt 
A)  multiply; owners' equity 
B)  multiply; total assets 
C)  divide; owners' equity 
D)  divide; total assets 
E)  multiply; debt

Question 7

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes

Accepted Answer

A)  higher reported sales. 
B)  higher incomes taxes. 
C)  lower ending inventory. 
D)  higher incomes taxes and lower ending inventory. 
E)  None of the options are correct. 
A)  higher reported sales. 
B)  higher incomes taxes. 
C)  lower ending inventory. 
D)  higher incomes taxes and lower ending inventory. 
E)  None of the options are correct.

Question 8

The financial statements of Snapit Company are given below.   Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company. The firm's inventory turnover ratio for 2009 is

Accepted Answer

A)  4.64. 
B)  4.16. 
C)  4.41. 
D)  4.87. 
E)  None of the options are correct. 
A)  4.64. 
B)  4.16. 
C)  4.41. 
D)  4.87. 
E)  None of the options are correct.

Question 9

The financial statements of Black Barn Company are given below.   Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2009 is

Accepted Answer

A)  1.79. 
B)  1.63. 
C)  1.34. 
D)  2.58. 
E)  None of the options are correct. 
A)  1.79. 
B)  1.63. 
C)  1.34. 
D)  2.58. 
E)  None of the options are correct.

Question 10

The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because

Accepted Answer

A)  the DDM uses a different price in the numerator. 
B)  the DDM uses different earnings measures in the denominator. 
C)  the prices reported are not accurate. 
D)  the people who construct the ratio from financial statements have inside information. 
E)  They are not different-this is a "trick" question. 
A)  the DDM uses a different price in the numerator. 
B)  the DDM uses different earnings measures in the denominator. 
C)  the prices reported are not accurate. 
D)  the people who construct the ratio from financial statements have inside information. 
E)  They are not different-this is a "trick" question.

Question 11

Which of the financial statements recognizes only transactions in which cash changes hands?

Accepted Answer

A)  Balance sheet 
B)  Income statement 
C)  Statement of cash flows 
D)  Balance sheet and income statement 
E)  All of the options are correct. 
A)  Balance sheet 
B)  Income statement 
C)  Statement of cash flows 
D)  Balance sheet and income statement 
E)  All of the options are correct.

Question 12

Ferris Corp. wants to increase its current ratio from the present level of 1.5 when it closes the books next week. The action of __________ will have the desired effect.

Accepted Answer

A)  payment of current payables from cash 
B)  sales of current marketable securities for cash 
C)  write-down of impaired assets 
D)  delay of next payroll 
E)  None of the options are correct. 
A)  payment of current payables from cash 
B)  sales of current marketable securities for cash 
C)  write-down of impaired assets 
D)  delay of next payroll 
E)  None of the options are correct.

Question 13

Return on total assets is the product of

Accepted Answer

A)  interest rates and pre-tax profits. 
B)  the debt-equity ratio and P/E ratio. 
C)  the after-tax profit margin and the asset turnover ratio. 
D)  sales and fixed assets. 
E)  None of the options are correct. 
A)  interest rates and pre-tax profits. 
B)  the debt-equity ratio and P/E ratio. 
C)  the after-tax profit margin and the asset turnover ratio. 
D)  sales and fixed assets. 
E)  None of the options are correct.

Question 14

The financial statements of Midwest Tours are given below   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours. The firm's return on equity ratio for 2009 is

Accepted Answer

A)  12.24%. 
B)  14.63%. 
C)  15.50%. 
D)  14.50%. 
E)  16.9%. 
A)  12.24%. 
B)  14.63%. 
C)  15.50%. 
D)  14.50%. 
E)  16.9%.

Question 15

The financial statements of Black Barn Company are given below.   Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm's inventory turnover ratio for 2009 is

Accepted Answer

A)  3.15. 
B)  3.63. 
C)  3.69. 
D)  2.58. 
E)  4.20. 
A)  3.15. 
B)  3.63. 
C)  3.69. 
D)  2.58. 
E)  4.20.

Question 16

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

Accepted Answer

A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  The auditor's statement of financial condition 
E)  None of the options are correct. 
A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  The auditor's statement of financial condition 
E)  None of the options are correct.

Question 17

To create a common size income statement, ____________ all items on the income statement by ____________.

Accepted Answer

A)  multiply; net income 
B)  multiply; total revenue 
C)  divide; net income 
D)  divide; total revenue 
E)  multiply; COGS 
A)  multiply; net income 
B)  multiply; total revenue 
C)  divide; net income 
D)  divide; total revenue 
E)  multiply; COGS

Question 18

The financial statements of Snapit Company are given below.   Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company. The firm's average collection period for 2009 is _______ days.

Accepted Answer

A)  47.91 
B)  48.53 
C)  46.06 
D)  47.65 
E)  None of the options are correct. 
A)  47.91 
B)  48.53 
C)  46.06 
D)  47.65 
E)  None of the options are correct.

Question 19

The financial statements of Midwest Tours are given below.   Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2009 is

Accepted Answer

A)  1.86. 
B)  0.63. 
C)  0.83. 
D)  1.63. 
A)  1.86. 
B)  0.63. 
C)  0.83. 
D)  1.63.

Question 20

__________ is a true statement.

Accepted Answer

A)  During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B)  During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C)  After inflation ends, distortion due to LIFO will disappear as inventory is sold 
D)  During periods of inflation, LIFO overstates earnings relative to FIFO 
A)  During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B)  During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C)  After inflation ends, distortion due to LIFO will disappear as inventory is sold 
D)  During periods of inflation, LIFO overstates earnings relative to FIFO

Exam 19: Financial Statement Analysis

A measure of asset utilization is

The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's leverage ratio for 2009 is

The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's P/E ratio for 2009 is

Suppose that Chicken Express, Inc. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be ________, and its ROE will be ________.

The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's fixed asset turnover ratio for 2009 is

To create a common size balance sheet, ____________ all items on the balance sheet by ____________.

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes

The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's inventory turnover ratio for 2009 is

The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's asset turnover ratio for 2009 is

The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because

Which of the financial statements recognizes only transactions in which cash changes hands?

Ferris Corp. wants to increase its current ratio from the present level of 1.5 when it closes the books next week. The action of __________ will have the desired effect.

Return on total assets is the product of

The financial statements of Midwest Tours are given below Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's return on equity ratio for 2009 is

The financial statements of Black Barn Company are given below. Note: The common shares are trading in the stock market for $40 each. Refer to the financial statements of Black Barn Company. The firm's inventory turnover ratio for 2009 is

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

To create a common size income statement, ____________ all items on the income statement by ____________.

The financial statements of Snapit Company are given below. Note: The common shares are trading in the stock market for $100 each. Refer to the financial statements of Snapit Company. The firm's average collection period for 2009 is _______ days.

The financial statements of Midwest Tours are given below. Note: The common shares are trading in the stock market for $36 each. Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2009 is

__________ is a true statement.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Suppose that Chicken Express, Inc. has an ROA of 7% and pays a 6% coupon on its debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative to a firm that is 100% equity-financed, Chicken Express's net profit will be , and its ROE will be .

To create a common size balance sheet, all items on the balance sheet by .

To create a common size income statement, all items on the income statement by .