Question 1

The statement of cash flows is separated into four parts: operating, investing, financing, and planning.

Accepted Answer

A) True 
 B)False

Question 2

The income statement is the only one of the four basic financial statements that does not contain balances at a specific point in time.

Accepted Answer

A) True 
 B)False

Question 3

A friend tells you that you should buy Leclerc Company stock as it is a "great deal." It is January 1, 2006 and the stock is trading at $25 per share. You obtain the financial statements for Leclerc and determine the following:

1. Book value is $12 per share as of December 31, 2005.
2. Earnings for 2005 were $4.0 per share.
3. Earnings are expected to grow at 20% for the next four years.
4. Dividend payout is 40%.
5. Residual income is expected to be zero from 2007 onwards.
6. Cost of equity capital is 15%.

Determine, using the residual income method, whether you should buy Leclerc stock as of January 1, 2006.

Accepted Answer

You should not buy Leclerc stock as the

Question 4

A creditor's risk is said to be asymmetric because the downside is limited to the required interest payments.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is incorrect?

Accepted Answer

A) Net income in 2006 increased by 29.29% compared to 2004. 
B) XYZ's net income to sales (return on sales) is higher in 2006 as compared to 2004. 
C) XYZ's net income to sales (return on sales) is lower in 2005 as compared to 2004. 
D) Assets have increased over time. 
A) Net income in 2006 increased by 29.29% compared to 2004. 
B) XYZ's net income to sales (return on sales) is higher in 2006 as compared to 2004. 
C) XYZ's net income to sales (return on sales) is lower in 2005 as compared to 2004. 
D) Assets have increased over time.

Question 6

Debt-to-equity ratio is a commonly used measure of liquidity.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity?

Accepted Answer

A) Acid-test ratio 
B) Current ratio 
C) Days' to collect receivables 
D) Total asset turnover 
A) Acid-test ratio 
B) Current ratio 
C) Days' to collect receivables 
D) Total asset turnover

Question 8

A company issues 12%, 10-year $1,000 bonds paying interest semiannually. Required return for bonds of this risk is 15%. At what price will the bond be sold (pick closest answer)?

Accepted Answer

A) $663 
B) $849 
C) $847 
D) $894 
A) $663 
B) $849 
C) $847 
D) $894

Question 9

Following is some financial information of Dell Inc. $$\begin{array} { l r r } 
& 2006 &  { 2005 } \
\text { Revenues } & \$ 49,205 & \$ 41,444 \
\text { Net income } & 3,043 & 2,645 \
\text { Total assets } & 23,215 & 19,311 \
\text { Shareholder's equity } & 6,485 & 6,280 \
\text { Cash flow from operations } & 5,310 & 3,670 \
\text { Basic earnings per share } & 1.21 & 1.03 \
\text { Book value per share } & 2.61 & 2.46 \
\text { Closing stock price } & 33.44 & 23.86
\end{array}$$
-What is Dell's asset turnover for 2006?

Accepted Answer

A) 2.12 
B) 3.58 
C) 3.65 
D) 2.31 
A) 2.12 
B) 3.58 
C) 3.65 
D) 2.31

Question 10

Which of the following ratios does not relate to market price of a company under analysis?

Accepted Answer

A) Price-to-earnings 
B) Earnings yield 
C) Price-to-book 
D) Return on common equity 
A) Price-to-earnings 
B) Earnings yield 
C) Price-to-book 
D) Return on common equity

Question 11

If a company has no liabilities, its return on equity will equal its return on assets.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would not be considered a source of financing?

Accepted Answer

A) Notes receivable 
B) Common stockholders' equity 
C) Retained earnings 
D) Debentures 
A) Notes receivable 
B) Common stockholders' equity 
C) Retained earnings 
D) Debentures

Question 13

As of December 31, 2005, two otherwise identical companies in the same industry, East Company and West Company, have dividend payouts of 20% and 40%, respectively. Looking forward one year, which outcomes are least likely?

I. East Company requires debt financing.
II. West Company increases its dividend payout.
III. West Company's share price is twice that of East Company.
IV. East Company repurchases outstanding shares.

Accepted Answer

A)  I and II 
B)  II and IV 
C)  I, II, and III 
D)  II, III, and IV 
A)  I and II 
B)  II and IV 
C)  I, II, and III 
D)  II, III, and IV

Question 14

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy?

Accepted Answer

A) Auditor's letter 
B) Management discussion and analysis 
C) Proxy statement 
D) Footnotes 
A) Auditor's letter 
B) Management discussion and analysis 
C) Proxy statement 
D) Footnotes

Question 15

You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect?

Accepted Answer

A) If the companies operate in different industries, this will hinder comparability. 
B) The use of different accounting methods will hinder comparability. 
C) If the companies are of significantly different sizes, this will hinder comparability. 
D) If companies have different auditors, this will hinder comparability. 
A) If the companies operate in different industries, this will hinder comparability. 
B) The use of different accounting methods will hinder comparability. 
C) If the companies are of significantly different sizes, this will hinder comparability. 
D) If companies have different auditors, this will hinder comparability.

Question 16

In a common-size income statement, net income is expressed as 100 percent.

Accepted Answer

A) True 
 B)False

The statement of cash flows is separated into four parts: operating, investing, financing, and planning.

The income statement is the only one of the four basic financial statements that does not contain balances at a specific point in time.

A creditor's risk is said to be asymmetric because the downside is limited to the required interest payments.

Which of the following statements is incorrect?

Debt-to-equity ratio is a commonly used measure of liquidity.

Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity?

A company issues 12%, 10-year $1,000 bonds paying interest semiannually. Required return for bonds of this risk is 15%. At what price will the bond be sold (pick closest answer)?

Which of the following ratios does not relate to market price of a company under analysis?

If a company has no liabilities, its return on equity will equal its return on assets.

Which of the following would not be considered a source of financing?

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy?

You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect?

In a common-size income statement, net income is expressed as 100 percent.

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

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Exam 1: Overview of Financial Statement Analysis

The statement of cash flows is separated into four parts: operating, investing, financing, and planning.

The income statement is the only one of the four basic financial statements that does not contain balances at a specific point in time.

A creditor's risk is said to be asymmetric because the downside is limited to the required interest payments.

Which of the following statements is incorrect?

Debt-to-equity ratio is a commonly used measure of liquidity.

Which of the following ratios is not generally considered to be helpful in assessing short-term liquidity?

A company issues 12%, 10-year $1,000 bonds paying interest semiannually. Required return for bonds of this risk is 15%. At what price will the bond be sold (pick closest answer)?

Which of the following ratios does not relate to market price of a company under analysis?

If a company has no liabilities, its return on equity will equal its return on assets.

Which of the following would not be considered a source of financing?

Which of the following is likely to be the most informative source if you were interested in a company's business plan or strategy?

You wish to compare the performance of two companies. Which of the following statements is most likely to be incorrect?

In a common-size income statement, net income is expressed as 100 percent.

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters