Question 1

__________ 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 
A) The balance sheet 
B) The income statement 
C) The statement of cash flows 
D) The auditor's statement of financial condition C

Question 2

A firm has a lower asset turnover ratio than the industry average, which implies

Accepted Answer

A) the firm has a lower P/E ratio than other firms in the industry. 
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
C) the firm is less profitable than other firms in the industry. 
D) the firm is utilizing assets less efficiently than other firms in the industry. 
A) the firm has a lower P/E ratio than other firms in the industry. 
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
C) the firm is less profitable than other firms in the industry. 
D) the firm is utilizing assets less efficiently than other firms in the industry. D

Question 3

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense.During periods of high inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income.

Accepted Answer

A) understate; overstate 
B) understate; understate 
C) overstate; understate 
D) overstate; overstate 
A) understate; overstate 
B) understate; understate 
C) overstate; understate 
D) overstate; overstate C

Question 4

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 market-to-book value for 2009 is

Accepted Answer

A) 0.7256. 
B) 1.5294. 
C) 2.9400. 
D) 3.6142. 
A) 0.7256. 
B) 1.5294. 
C) 2.9400. 
D) 3.6142.

Question 5

Common size income statements make it easier to compare firms

Accepted Answer

A) That use different inventory valuation methods ( FIFO vs.LIFO ). 
B) In different industries. 
C) With different degrees of leverage. 
D) Of different sizes. 
A) That use different inventory valuation methods ( FIFO vs.LIFO ). 
B) In different industries. 
C) With different degrees of leverage. 
D) Of different sizes.

Question 6

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 
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

Question 7

In periods of inflation, accounting depreciation is __________ relative to replacement cost, and real economic income is ________.

Accepted Answer

A) overstated; overstated 
B) overstated; understated 
C) understated; overstated 
D) understated; understated 
A) overstated; overstated 
B) overstated; understated 
C) understated; overstated 
D) understated; understated

Question 8

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 leverage ratio for 2009 is

Accepted Answer

A) 1.62. 
B) 1.56. 
C) 2.00. 
D) 2.42. 
A) 1.62. 
B) 1.56. 
C) 2.00. 
D) 2.42.

Question 9

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 times interest earned ratio for 2009 is

Accepted Answer

A) 2.897. 
B) 2.719. 
C) 3.375. 
D) 3.462. 
A) 2.897. 
B) 2.719. 
C) 3.375. 
D) 3.462.

Question 10

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 current ratio for 2009 is

Accepted Answer

A) 1.82. 
B) 1.03. 
C) 1.30. 
D) 1.65. 
A) 1.82. 
B) 1.03. 
C) 1.30. 
D) 1.65.

Question 11

Proceeds from a company's sale of stock to the public are included in

Accepted Answer

A) par value. 
B) additional paid-in capital. 
C) retained earnings. 
D) par value and additional paid-in capital. 
A) par value. 
B) additional paid-in capital. 
C) retained earnings. 
D) par value and additional paid-in capital.

Question 12

If the interest rate on debt is lower than ROA, then a firm will __________ by increasing the use of debt in the capital structure.

Accepted Answer

A) increase the ROE 
B) not change the ROE 
C) decrease the ROE 
D) change the ROE in an indeterminable manner If ROA is higher than the interest rate, then ROE will increase by an amount that depends on the debt to equity ratio. 
A) increase the ROE 
B) not change the ROE 
C) decrease the ROE 
D) change the ROE in an indeterminable manner If ROA is higher than the interest rate, then ROE will increase by an amount that depends on the debt to equity ratio.

Question 13

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 return on equity ratio for 2009 is

Accepted Answer

A) 0.1235. 
B) 0.0296. 
C) 0.2960. 
D) 2.2960. 
A) 0.1235. 
B) 0.0296. 
C) 0.2960. 
D) 2.2960.

Question 14

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

Accepted Answer

A) The balance sheet 
B) The income statement 
C) The statement of cash flows 
D) All of the options are correct. 
A) The balance sheet 
B) The income statement 
C) The statement of cash flows 
D) All of the options are correct.

Question 15

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 asset turnover ratio for 2009 is

Accepted Answer

A) 1.60. 
B) 3.16. 
C) 3.31. 
D) 4.64. 
A) 1.60. 
B) 3.16. 
C) 3.31. 
D) 4.64.

Question 16

Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average?

Accepted Answer

A) The firm's net profit margin is higher than the industry average. 
B) The firm's asset turnover is higher than the industry average. 
C) The firm's equity multiplier must be lower than the industry average. 
D) The firm's debt ratio is higher than the industry average. 
A) The firm's net profit margin is higher than the industry average. 
B) The firm's asset turnover is higher than the industry average. 
C) The firm's equity multiplier must be lower than the industry average. 
D) The firm's debt ratio is higher than the industry average.

Question 17

A firm has a higher asset turnover ratio than the industry average, which implies

Accepted Answer

A) the firm has a higher P/E ratio than other firms in the industry. 
B) the firm is more likely to avoid insolvency in the short run than other firms in the industry. 
C) the firm is more profitable than other firms in the industry. 
D) the firm is utilizing assets more efficiently than other firms in the industry. 
A) the firm has a higher P/E ratio than other firms in the industry. 
B) the firm is more likely to avoid insolvency in the short run than other firms in the industry. 
C) the firm is more profitable than other firms in the industry. 
D) the firm is utilizing assets more efficiently than other firms in the industry.

Question 18

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 fixed asset turnover ratio for 2009 is

Accepted Answer

A) 1.45. 
B) 1.63. 
C) 1.20. 
D) 1.58. 
A) 1.45. 
B) 1.63. 
C) 1.20. 
D) 1.58.

Question 19

A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%.The firm's ROE is

Accepted Answer

A) 11.18%. 
B) 8.97%. 
C) 11.54%. 
D) 12.62%. 
A) 11.18%. 
B) 8.97%. 
C) 11.54%. 
D) 12.62%.

Question 20

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes.

Accepted Answer

A) higher; increase 
B) higher; decrease 
C) lower; decrease 
D) lower; increase 
A) higher; increase 
B) higher; decrease 
C) lower; decrease 
D) lower; increase

Exam 19: Financial Statement Analysis

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

A firm has a lower asset turnover ratio than the industry average, which implies

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense.During periods of high inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income.

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 market-to-book value for 2009 is

Common size income statements make it easier to compare firms

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.

In periods of inflation, accounting depreciation is __________ relative to replacement cost, and real economic income is ________.

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 leverage ratio for 2009 is

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 times interest earned ratio for 2009 is

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 current ratio for 2009 is

Proceeds from a company's sale of stock to the public are included in

If the interest rate on debt is lower than ROA, then a firm will __________ by increasing the use of debt in the capital structure.

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 return on equity ratio for 2009 is

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

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 asset turnover ratio for 2009 is

Which of the following would best explain a situation where the ratio of net income/total equity of a firm is higher than the industry average, while the ratio of net income/total assets is lower than the industry average?

A firm has a higher asset turnover ratio than the industry average, which implies

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 fixed asset turnover ratio for 2009 is

A firm has an ROA of 14%, a debt/equity ratio of 0.8, a tax rate of 35%, and the interest rate on the debt is 10%.The firm's ROE is

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) ________current ratio than a firm using FIFO, and the difference will tend to __________ as time passes.

The Investment Environment

Financial Markets, 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

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural 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

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense.During periods of high inflation, the level of reported depreciation tends to income, and the level of interest expense reported tends to income.

In periods of inflation, accounting depreciation is __ relative to replacement cost, and real economic income is .

Assuming continued inflation, a firm that uses LIFO will tend to have a(n) current ratio than a firm using FIFO, and the difference will tend to __ as time passes.