Question 1

A study by Speidell and Bavishi (1992) found that when accounting statements of foreign firms were restated on a common accounting basis,

Accepted Answer

A) the original and restated P/E ratios were quite similar. 
B) the original and restated P/E ratios varied considerably. 
C) most variation was explained by tax differences. 
D) most firms were consistent in their treatment of goodwill. 
A) the original and restated P/E ratios were quite similar. 
B) the original and restated P/E ratios varied considerably. 
C) most variation was explained by tax differences. 
D) most firms were consistent in their treatment of goodwill.

Question 2

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%.The firm's asset turnover is

Accepted Answer

A) 0.3. 
B) 1.3. 
C) 2.3. 
D) 3.3. 17.82% = 0.625 *0.9 * 8% * asset turnover * 1.2; asset turnover = 3.3. 
A) 0.3. 
B) 1.3. 
C) 2.3. 
D) 3.3. 17.82% = 0.625 *0.9 * 8% * asset turnover * 1.2; asset turnover = 3.3.

Question 3

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 quick ratio for 2009 is

Accepted Answer

A) 1.71. 
B) 0.78. 
C) 0.85. 
D) 1.56. 
A) 1.71. 
B) 0.78. 
C) 0.85. 
D) 1.56.

Question 4

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 5

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 inventory turnover ratio for 2009 is

Accepted Answer

A) 2.86. 
B) 1.23. 
C) 5.96. 
D) 4.42. 
A) 2.86. 
B) 1.23. 
C) 5.96. 
D) 4.42.

Question 6

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 market-to-book value for 2009 is

Accepted Answer

A) 0.24. 
B) 0.95. 
C) 0.71. 
D) 1.12. 
A) 0.24. 
B) 0.95. 
C) 0.71. 
D) 1.12.

Question 7

Fair value accounting is also known as

Accepted Answer

A) fundamental analysis. 
B) technical analysis. 
C) GAAP accounting. 
D) mark-to-market accounting. 
A) fundamental analysis. 
B) technical analysis. 
C) GAAP accounting. 
D) mark-to-market accounting.

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 average collection period for 2009 is

Accepted Answer

A) 69.35. 
B) 69.73. 
C) 68.53. 
D) 67.77. 
A) 69.35. 
B) 69.73. 
C) 68.53. 
D) 67.77.

Question 9

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. 
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.

Question 10

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. 
A) sales divided by working capital. 
B) return on total assets. 
C) return on equity capital. 
D) operating profit divided by sales.

Question 11

Critics of fair value accounting argue that:

Accepted Answer

A) It ignores GAAP principles. 
B) It relies too much on ratio analysis. 
C) It ignores mark-to-market accounting. 
D) It relies too heavily on estimates. 
A) It ignores GAAP principles. 
B) It relies too much on ratio analysis. 
C) It ignores mark-to-market accounting. 
D) It relies too heavily on estimates.

Question 12

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

Question 13

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 average collection period for 2009 is

Accepted Answer

A) 59.31. 
B) 55.05. 
C) 61.31. 
D) 49.05. 
A) 59.31. 
B) 55.05. 
C) 61.31. 
D) 49.05.

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 sales ratio for 2009 is

Accepted Answer

A) 20.2%. 
B) 21.6%. 
C) 22.4%. 
D) 18.0%. 
A) 20.2%. 
B) 21.6%. 
C) 22.4%. 
D) 18.0%.

Question 15

A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%.The firm's ROA is

Accepted Answer

A) 2%. 
B) 4%. 
C) 6%. 
D) 8%. 
A) 2%. 
B) 4%. 
C) 6%. 
D) 8%.

Question 16

Comparability problems arise because

Accepted Answer

A) firms may use different generally accepted accounting principles. 
B) inflation may affect firms differently due to accounting conventions used. 
C) financial analysts do not know how to compare financial statements. 
D) firms may use different generally accepted accounting principles, and inflation may affect firms differently due to accounting conventions used. 
A) firms may use different generally accepted accounting principles. 
B) inflation may affect firms differently due to accounting conventions used. 
C) financial analysts do not know how to compare financial statements. 
D) firms may use different generally accepted accounting principles, and inflation may affect firms differently due to accounting conventions used.

Question 17

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. 
A) 1.79. 
B) 1.63. 
C) 1.34. 
D) 2.58.

Question 18

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

Accepted Answer

A) The firm pays lower interest on long-term debt than the average firm. 
B) The firm has more short-term debt than average. 
C) The firm has a high ratio of current assets/current liabilities. 
D) The firm has a high ratio of total cash flow/long term debt. 
A) The firm pays lower interest on long-term debt than the average firm. 
B) The firm has more short-term debt than average. 
C) The firm has a high ratio of current assets/current liabilities. 
D) The firm has a high ratio of total cash flow/long term debt.

Question 19

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 
A) Balance sheet 
B) Income statement 
C) Statement of cash flows 
D) Balance sheet and income statement

Question 20

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less 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 its 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 its assets more efficiently than other firms in the industry.

Exam 19: Financial Statement Analysis

A study by Speidell and Bavishi (1992) found that when accounting statements of foreign firms were restated on a common accounting basis,

A firm has a net profit/pretax profit ratio of 0.625, a leverage ratio of 1.2, a pretax profit/EBIT of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%.The firm's asset turnover 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 quick 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 asset turnover 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 inventory turnover 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 market-to-book value for 2009 is

Fair value accounting is also known as

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 average collection period for 2009 is

Return on total assets is the product of

A measure of asset utilization is

Critics of fair value accounting argue that:

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

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 average collection period 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 return on sales ratio for 2009 is

A firm has an ROE of -2%, a debt/equity ratio of 1.0, a tax rate of 0%, and an interest rate on debt of 10%.The firm's ROA is

Comparability problems arise because

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

What best explains why a firm's ratio of long-term debt/total capital is lower than the industry average, while the ratio of income before interest and taxes/debt interest charges is higher than the industry average?

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

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies

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