Question 1

Which of the following might an analyst not want to eliminate from past earnings when using past earnings to forecast future earnings?

Accepted Answer

A)  Nonrecurring gains from the sale of assets 
B)  Unusual asset impairment charges 
C)  Nonrecurring restructuring charges 
D)  Revenue from the sale of inventory 
A)  Nonrecurring gains from the sale of assets 
B)  Unusual asset impairment charges 
C)  Nonrecurring restructuring charges 
D)  Revenue from the sale of inventory

Question 2

Refer to the information for Orca Industries . Orca's basic earnings per share is:

Accepted Answer

A)  .22 
B)  .13 
C)  .25 
D)  .30 
A)  .22 
B)  .13 
C)  .25 
D)  .30

Question 3

Firms that have either convertible securities or stock options or warrants outstanding have __________________________________________________.

Accepted Answer

complex ca

Question 4

Explain the difference between a simple and complex capital structure as the terms are used in the calculation of EPS.

Accepted Answer

A simple capital structure consists only

Question 5

Return on assets can be a misleading ratio when analyzing technology firms because two important assets, ______________________________ and ______________________________ do not appear on their balance sheets

Accepted Answer

their empl

Question 6

To calculate diluted EPS, the accountant does all of the following except :

Accepted Answer

A)  adds back to net income any compensation expense recognized on the employee stock options 
B)  adds back any interest expense (net of taxes) on convertible bonds 
C)  adds back any dividends on convertible preferred stock the firm subtracted in computing net income to common shareholders. 
D)  enters only the net incremental shares issued (shares issued under options minus assumed shares repurchased) in the computation of diluted EPS. 
A)  adds back to net income any compensation expense recognized on the employee stock options 
B)  adds back any interest expense (net of taxes) on convertible bonds 
C)  adds back any dividends on convertible preferred stock the firm subtracted in computing net income to common shareholders. 
D)  enters only the net incremental shares issued (shares issued under options minus assumed shares repurchased) in the computation of diluted EPS.

Question 7

Refer to the information for Orca Industries . The profit margin for computing ROA for Orca Industries is:

Accepted Answer

A)  9.4% 
B)  13.5% 
C)  4.8% 
D)  12.3% 
A)  9.4% 
B)  13.5% 
C)  4.8% 
D)  12.3%

Question 8

Orca Industries
Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.

Accepted Answer

A)  6.8% 
B)  13.5% 
C)  10% 
D)  12.3% 
A)  6.8% 
B)  13.5% 
C)  10% 
D)  12.3%

Question 9

Net Devices Inc.
The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%.

Accepted Answer

A)  11.64% 
B)  14.50% 
C)  12.60% 
D)  13.88% 
A)  11.64% 
B)  14.50% 
C)  12.60% 
D)  13.88%

Question 10

Critics of EPS as a measure of profitability point out that it does not consider:

Accepted Answer

A)  simple capital structures. 
B)  the amount of assets or capital required to generate a particular level of earnings. 
C)  the deduction of preferred stock dividends from net income. 
D)  adjustments for dilutive securities and the adjustment to weighted average number of shares outstanding for complex capital structures. 
A)  simple capital structures. 
B)  the amount of assets or capital required to generate a particular level of earnings. 
C)  the deduction of preferred stock dividends from net income. 
D)  adjustments for dilutive securities and the adjustment to weighted average number of shares outstanding for complex capital structures.

Question 11

Refer to the information for Net Devices Inc. What is Net Devices' capital structure leverage ratio for 2011?

Accepted Answer

A)  3.89 
B)  1.68 
C)  3.71 
D)  10.32 
A)  3.89 
B)  1.68 
C)  3.71 
D)  10.32

Question 12

Refer to the information for Net Devices Inc. What is the inventory turnover for Net Devices for 2011?

Accepted Answer

A)  10.32 
B)  8.90 
C)  2.51 
D)  6.23 
A)  10.32 
B)  8.90 
C)  2.51 
D)  6.23

Question 13

Refer to the information for Extreme Sports Company and All Sports Corporation.
What is the return on assets for All Sports?

Accepted Answer

A)  11.9% 
B)  10.8% 
C)  9.2% 
D)  8.6% 
A)  11.9% 
B)  10.8% 
C)  9.2% 
D)  8.6%

Question 14

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except :

Accepted Answer

A)  changes in expenses in the numerator independent of changes in sales 
B)  changes in sales independent of changes in expenses 
C)  interaction effects between the numerator and denominator 
D)  All of these are possible explanations. 
A)  changes in expenses in the numerator independent of changes in sales 
B)  changes in sales independent of changes in expenses 
C)  interaction effects between the numerator and denominator 
D)  All of these are possible explanations.

Question 15

Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores.
Selected Data for All Sports and Extreme Sports
(amounts in millions)
   
Calculate the following ratios for All Sports and Extreme Sports:  
Return on assets
Profit margin for ROA
Assets turnover
Accounts receivable turnover
Inventory turnover
Fixed asset turnover

Accepted Answer

The answer of Below is financial information for two sporting...

Question 16

Hall and Porter argue that firms have two generic alternative strategies for any particular product. These strategies are:

Accepted Answer

A)  low risk focus, low risk focus 
B)  retail customer focus, wholesale customer focus 
C)  product differentiation, low-cost leadership 
D)  low operating leverage, high operating leverage 
A)  low risk focus, low risk focus 
B)  retail customer focus, wholesale customer focus 
C)  product differentiation, low-cost leadership 
D)  low operating leverage, high operating leverage

Question 17

Return on assets can be disaggregated into three components. Which of the following is not one of the components?

Accepted Answer

A)  Assets Turnover ratio 
B)  Profit Margin ratio 
C)  Debt to Equity ratio 
D)  Capital Structure Leverage ratio 
A)  Assets Turnover ratio 
B)  Profit Margin ratio 
C)  Debt to Equity ratio 
D)  Capital Structure Leverage ratio

Question 18

Refer to the information for Net Devices Inc. What is the profit margin for ROA for Net Devices for 2010?

Accepted Answer

A)  7.26% 
B)  4.22% 
C)  5.00% 
D)  3.97% 
A)  7.26% 
B)  4.22% 
C)  5.00% 
D)  3.97%

Question 19

Refer to the information for Orca Industries. The return on common shareholders' equity for Orca Industries is:

Accepted Answer

A)  15.2% 
B)  13.5% 
C)  10% 
D)  11.9% 
A)  15.2% 
B)  13.5% 
C)  10% 
D)  11.9%

Question 20

Refer to the information for Net Devices Inc. What is Net Devices' return on common shareholders' equity for 2011?

Accepted Answer

A)  26.54% 
B)  30.89% 
C)  35.81% 
D)  42.16% 
A)  26.54% 
B)  30.89% 
C)  35.81% 
D)  42.16%

Which of the following might an analyst not want to eliminate from past earnings when using past earnings to forecast future earnings?

Refer to the information for Orca Industries . Orca's basic earnings per share is:

Firms that have either convertible securities or stock options or warrants outstanding have __________________________________________________.

Explain the difference between a simple and complex capital structure as the terms are used in the calculation of EPS.

Return on assets can be a misleading ratio when analyzing technology firms because two important assets, and do not appear on their balance sheets

To calculate diluted EPS, the accountant does all of the following except :

Refer to the information for Orca Industries . The profit margin for computing ROA for Orca Industries is:

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.

Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%.

Critics of EPS as a measure of profitability point out that it does not consider:

Refer to the information for Net Devices Inc. What is Net Devices' capital structure leverage ratio for 2011?

Refer to the information for Net Devices Inc. What is the inventory turnover for Net Devices for 2011?

Refer to the information for Extreme Sports Company and All Sports Corporation. What is the return on assets for All Sports?

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except :

Hall and Porter argue that firms have two generic alternative strategies for any particular product. These strategies are:

Return on assets can be disaggregated into three components. Which of the following is not one of the components?

Refer to the information for Net Devices Inc. What is the profit margin for ROA for Net Devices for 2010?

Refer to the information for Orca Industries. The return on common shareholders' equity for Orca Industries is:

Refer to the information for Net Devices Inc. What is Net Devices' return on common shareholders' equity for 2011?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 4: Profitability Analysis

Which of the following might an analyst not want to eliminate from past earnings when using past earnings to forecast future earnings?

Refer to the information for Orca Industries . Orca's basic earnings per share is:

Firms that have either convertible securities or stock options or warrants outstanding have __________________________________________________.

Explain the difference between a simple and complex capital structure as the terms are used in the calculation of EPS.

Return on assets can be a misleading ratio when analyzing technology firms because two important assets, ______________________________ and ______________________________ do not appear on their balance sheets

To calculate diluted EPS, the accountant does all of the following except :

Refer to the information for Orca Industries . The profit margin for computing ROA for Orca Industries is:

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%.

Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%.

Critics of EPS as a measure of profitability point out that it does not consider:

Refer to the information for Net Devices Inc. What is Net Devices' capital structure leverage ratio for 2011?

Refer to the information for Net Devices Inc. What is the inventory turnover for Net Devices for 2011?

Refer to the information for Extreme Sports Company and All Sports Corporation. What is the return on assets for All Sports?

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except :

Hall and Porter argue that firms have two generic alternative strategies for any particular product. These strategies are:

Return on assets can be disaggregated into three components. Which of the following is not one of the components?

Refer to the information for Net Devices Inc. What is the profit margin for ROA for Net Devices for 2010?

Refer to the information for Orca Industries. The return on common shareholders' equity for Orca Industries is:

Refer to the information for Net Devices Inc. What is Net Devices' return on common shareholders' equity for 2011?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Return on assets can be a misleading ratio when analyzing technology firms because two important assets, and do not appear on their balance sheets