Question 1

A reason that equity earnings create a problem in analyzing profitability is that equity earnings are:

Accepted Answer

A)  usually greater than the related cash flow 
B)  less than dividends declared 
C)  more than dividends declared 
D)  extraordinary 
E)  nonrecurring 
A)  usually greater than the related cash flow 
B)  less than dividends declared 
C)  more than dividends declared 
D)  extraordinary 
E)  nonrecurring A

Question 2

Redeemable preferred stock is best considered as equity for ratio analysis.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following is not a reporting requirement on interim reports?

Accepted Answer

A)  seasonal information 
B)  major changes in income tax provision 
C)  full, although condensed, balance sheet 
D)  earnings per share 
E)  significant changes in financial position 
A)  seasonal information 
B)  major changes in income tax provision 
C)  full, although condensed, balance sheet 
D)  earnings per share 
E)  significant changes in financial position C

Question 4

In the analysis of profitability, if equity earnings are substantial, it is advisable to:

Accepted Answer

A)  consider them as extraordinary 
B)  consider them as nonrecurring 
C)  investigate the earning power of the parent outside of the related investing activities 
D)  recompute the debt ratio and times interest earned to remove the impact of equity earnings 
E)  use the DuPont method to lessen the impact of equity earnings 
A)  consider them as extraordinary 
B)  consider them as nonrecurring 
C)  investigate the earning power of the parent outside of the related investing activities 
D)  recompute the debt ratio and times interest earned to remove the impact of equity earnings 
E)  use the DuPont method to lessen the impact of equity earnings

Question 5

The use of debt with high interest charges may cause the net profit margin to be low.

Accepted Answer

A) True 
 B)False

Question 6

In the formula for return on investment, interest expense is multiplied by (1 - tax rate).Why is this adjustment made?

Accepted Answer

A)  Interest is not tax deductible. 
B)  Debt is excluded from the denominator. 
C)  Net income in the formula is after tax. 
D)  Dividends are not deductible for tax purposes. 
E)  None of the answers are correct. 
A)  Interest is not tax deductible. 
B)  Debt is excluded from the denominator. 
C)  Net income in the formula is after tax. 
D)  Dividends are not deductible for tax purposes. 
E)  None of the answers are correct.

Question 7

Return on investment measures:

Accepted Answer

A)  return to all suppliers of funds 
B)  return to all long-term creditors 
C)  return to all long-term suppliers of funds 
D)  return to stockholders 
E)  return to all short-term suppliers of funds 
A)  return to all suppliers of funds 
B)  return to all long-term creditors 
C)  return to all long-term suppliers of funds 
D)  return to stockholders 
E)  return to all short-term suppliers of funds

Question 8

Sales to fixed assets will have the least meaning if assets are relatively new.

Accepted Answer

A) True 
 B)False

Question 9

DuPont analysis breaks return on assets into net profit margin and borrowing capacity.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following could cause return on assets to decline when net profit margin is increasing?

Accepted Answer

A)  sale of investments at year-end 
B)  increased turnover of operating assets 
C)  decline in book value 
D)  a stock split 
E)  purchase of a new building at year-end 
A)  sale of investments at year-end 
B)  increased turnover of operating assets 
C)  decline in book value 
D)  a stock split 
E)  purchase of a new building at year-end

Question 11

Interim reports are usually audited.

Accepted Answer

A) True 
 B)False

Question 12

In profitability analysis, absolute numbers are more meaningful than relative numbers because the analyst needs to know if one firm earned more dollars than the other.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would most likely cause a rise in net profit margin?

Accepted Answer

A)  increased sales 
B)  decreased preferred dividends 
C)  increased cost of sales 
D)  decreased operating expenses 
E)  decreased earnings per share 
A)  increased sales 
B)  decreased preferred dividends 
C)  increased cost of sales 
D)  decreased operating expenses 
E)  decreased earnings per share

Question 14

Interim reporting recognizes that timeliness of data offsets lack of detail and requires only minimum data.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is not a base against which profits are measured?

Accepted Answer

A)  owners' equity 
B)  owners' and creditors' funds provided 
C)  intangibles 
D)  revenues 
E)  productive assets 
A)  owners' equity 
B)  owners' and creditors' funds provided 
C)  intangibles 
D)  revenues 
E)  productive assets

Question 16

Gross profit margin is an important ratio of merchandising firms because:

Accepted Answer

A)  their investments in real property are high 
B)  cost of goods sold is usually the largest expense 
C)  selling expenses, like advertising, are usually quite high 
D)  it measures their ability to collect receivables 
E)  it measures their ability to use total assets 
A)  their investments in real property are high 
B)  cost of goods sold is usually the largest expense 
C)  selling expenses, like advertising, are usually quite high 
D)  it measures their ability to collect receivables 
E)  it measures their ability to use total assets

Question 17

Which of the following is not a type of operating asset?

Accepted Answer

A)  inventory 
B)  cash 
C)  land 
D)  Long-term investments 
E)  equipment 
A)  inventory 
B)  cash 
C)  land 
D)  Long-term investments 
E)  equipment

Question 18

Operating assets equals:

Accepted Answer

A)  cash, accounts receivable, and equipment 
B)  current assets plus tangible assets 
C)  total assets minus intangible assets 
D)  only long-term assets 
E)  only current assets 
A)  cash, accounts receivable, and equipment 
B)  current assets plus tangible assets 
C)  total assets minus intangible assets 
D)  only long-term assets 
E)  only current assets

Question 19

Interim reports are useful in analyzing the impact of seasonality.

Accepted Answer

A) True 
 B)False

Question 20

The SEC requires interim financial data on Form 10-Q.

Accepted Answer

A) True 
 B)False

A reason that equity earnings create a problem in analyzing profitability is that equity earnings are:

Redeemable preferred stock is best considered as equity for ratio analysis.

Which of the following is not a reporting requirement on interim reports?

In the analysis of profitability, if equity earnings are substantial, it is advisable to:

The use of debt with high interest charges may cause the net profit margin to be low.

In the formula for return on investment, interest expense is multiplied by (1 - tax rate).Why is this adjustment made?

Return on investment measures:

Sales to fixed assets will have the least meaning if assets are relatively new.

DuPont analysis breaks return on assets into net profit margin and borrowing capacity.

Which of the following could cause return on assets to decline when net profit margin is increasing?

Interim reports are usually audited.

In profitability analysis, absolute numbers are more meaningful than relative numbers because the analyst needs to know if one firm earned more dollars than the other.

Which of the following would most likely cause a rise in net profit margin?

Interim reporting recognizes that timeliness of data offsets lack of detail and requires only minimum data.

Which of the following is not a base against which profits are measured?

Gross profit margin is an important ratio of merchandising firms because:

Which of the following is not a type of operating asset?

Operating assets equals:

Interim reports are useful in analyzing the impact of seasonality.

The SEC requires interim financial data on Form 10-Q.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters

Exam 8: Profitability

A reason that equity earnings create a problem in analyzing profitability is that equity earnings are:

Redeemable preferred stock is best considered as equity for ratio analysis.

Which of the following is not a reporting requirement on interim reports?

In the analysis of profitability, if equity earnings are substantial, it is advisable to:

The use of debt with high interest charges may cause the net profit margin to be low.

In the formula for return on investment, interest expense is multiplied by (1 - tax rate).Why is this adjustment made?

Return on investment measures:

Sales to fixed assets will have the least meaning if assets are relatively new.

DuPont analysis breaks return on assets into net profit margin and borrowing capacity.

Which of the following could cause return on assets to decline when net profit margin is increasing?

Interim reports are usually audited.

In profitability analysis, absolute numbers are more meaningful than relative numbers because the analyst needs to know if one firm earned more dollars than the other.

Which of the following would most likely cause a rise in net profit margin?

Interim reporting recognizes that timeliness of data offsets lack of detail and requires only minimum data.

Which of the following is not a base against which profits are measured?

Gross profit margin is an important ratio of merchandising firms because:

Which of the following is not a type of operating asset?

Operating assets equals:

Interim reports are useful in analyzing the impact of seasonality.

The SEC requires interim financial data on Form 10-Q.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters