Question 1

Fundamental analysis uses

Accepted Answer

A)  earnings and dividends prospects. 
B)  relative strength. 
C)  price momentum. 
D)  earnings, dividend prospects, and relative strength. 
E)  earnings, dividend prospects, and price momentum. 
A)  earnings and dividends prospects. 
B)  relative strength. 
C)  price momentum. 
D)  earnings, dividend prospects, and relative strength. 
E)  earnings, dividend prospects, and price momentum. A

Question 2

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 times interest earned ratio for 2009 is

Accepted Answer

A)  2.26. 
B)  3.16. 
C)  3.84. 
D)  3.31. 
E)  None of the options are correct. 
A)  2.26. 
B)  3.16. 
C)  3.84. 
D)  3.31. 
E)  None of the options are correct. D

Question 3

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 market-to-book value for 2009 is

Accepted Answer

A)  1.13. 
B)  1.62. 
C)  1.00. 
D)  1.26. 
A)  1.13. 
B)  1.62. 
C)  1.00. 
D)  1.26. D

Question 4

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years?

Accepted Answer

A)  Sales/total assets 
B)  Debt/total assets 
C)  Debt/equity 
D)  Retained earnings/total assets 
A)  Sales/total assets 
B)  Debt/total assets 
C)  Debt/equity 
D)  Retained earnings/total assets

Question 5

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 
E)  correctly stated; correctly stated 
A)  overstated; overstated 
B)  overstated; understated 
C)  understated; overstated 
D)  understated; understated 
E)  correctly stated; correctly stated

Question 6

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 return on sales ratio for 2009 is

Accepted Answer

A)  15.5%. 
B)  14.6%. 
C)  14.0%. 
D)  15.0%. 
E)  16.5%. 
A)  15.5%. 
B)  14.6%. 
C)  14.0%. 
D)  15.0%. 
E)  16.5%.

Question 7

Over a period of 30 years or so, in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately

Accepted Answer

A)  5%. 
B)  10%. 
C)  15%. 
D)  20%. 
E)  None of the options are correct. 
A)  5%. 
B)  10%. 
C)  15%. 
D)  20%. 
E)  None of the options are correct.

Question 8

A firm has a lower quick (or acid test) 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 may be more profitable than other firms in the industry. 
D)  the firm has a lower P/E ratio than other firms in the industry, and the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
E)  the firm is less likely to avoid insolvency in the short run than other firms in the industry, and the firm may be more profitable 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 may be more profitable than other firms in the industry. 
D)  the firm has a lower P/E ratio than other firms in the industry, and the firm is less likely to avoid insolvency in the short run than other firms in the industry. 
E)  the firm is less likely to avoid insolvency in the short run than other firms in the industry, and the firm may be more profitable than other firms in the industry.

Question 9

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 10

__________ is a summary of the profitability of the firm over a period of time, such as a year.

Accepted Answer

A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  The audit report 
E)  None of the options are correct. 
A)  The balance sheet 
B)  The income statement 
C)  The statement of cash flows 
D)  The audit report 
E)  None of the options are correct.

Question 11

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 quick ratio for 2009 is

Accepted Answer

A)  1.68. 
B)  1.12. 
C)  0.72. 
D)  1.92. 
E)  None of the options are correct. 
A)  1.68. 
B)  1.12. 
C)  0.72. 
D)  1.92. 
E)  None of the options are correct.

Question 12

A firm has a P/E ratio of 12, an ROE of 13%, and a market-to-book value of

Accepted Answer

A)  0.64. 
B)  0.92. 
C)  1.08. 
D)  1.56. 
A)  0.64. 
B)  0.92. 
C)  1.08. 
D)  1.56.

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 market-to-book value for 2009 is

Accepted Answer

A)  0.7256. 
B)  1.5294. 
C)  2.9412. 
D)  3.6142. 
A)  0.7256. 
B)  1.5294. 
C)  2.9412. 
D)  3.6142.

Question 14

If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be

Accepted Answer

A)  greater than the ROE. 
B)  equal to the ROE. 
C)  less than the ROE. 
D)  greater than zero, but it is impossible to determine how ROA will compare to ROE. 
E)  negative in all cases. 
A)  greater than the ROE. 
B)  equal to the ROE. 
C)  less than the ROE. 
D)  greater than zero, but it is impossible to determine how ROA will compare to ROE. 
E)  negative in all cases.

Question 15

Common size financial statements make it easier to compare firms

Accepted Answer

A)  of different sizes. 
B)  in different industries. 
C)  with different degrees of leverage. 
D)  that use different inventory valuation methods (FIFO vs. LIFO). 
A)  of different sizes. 
B)  in different industries. 
C)  with different degrees of leverage. 
D)  that use different inventory valuation methods (FIFO vs. LIFO).

Question 16

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE is

Accepted Answer

A)  4.2%. 
B)  5.2%. 
C)  6.2%. 
D)  7.2%. 
E)  None of the options are correct. 
A)  4.2%. 
B)  5.2%. 
C)  6.2%. 
D)  7.2%. 
E)  None of the options are correct.

Question 17

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. 
E)  None of the options are correct. 
A)  1.82. 
B)  1.03. 
C)  1.30. 
D)  1.65. 
E)  None of the options are correct.

Question 18

A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm

Accepted Answer

A)  has relatively more total current assets and even more inventory than other firms in the industry. 
B)  is very efficient at managing inventories. 
C)  has liquidity that is superior to the average firm in the industry. 
D)  is near technical insolvency. 
A)  has relatively more total current assets and even more inventory than other firms in the industry. 
B)  is very efficient at managing inventories. 
C)  has liquidity that is superior to the average firm in the industry. 
D)  is near technical insolvency.

Question 19

__________ is a false statement.

Accepted Answer

A)  During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B)  During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C)  During periods of inflation, LIFO overstates earnings relative to FIFO 
D)  During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used, and LIFO overstates earnings relative to FIFO 
E)  None of the options are correct. 
A)  During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used 
B)  During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used 
C)  During periods of inflation, LIFO overstates earnings relative to FIFO 
D)  During periods of inflation, FIFO makes the balance sheet less representative of actual inventory values than if LIFO were used, and LIFO overstates earnings relative to FIFO 
E)  None of the options are correct.

Question 20

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.

Exam 19: Financial Statement Analysis

Fundamental analysis uses

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 times interest earned 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 market-to-book value for 2009 is

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years?

In periods of inflation, accounting depreciation is __________ relative to replacement cost, and real economic income 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 return on sales ratio for 2009 is

Over a period of 30 years or so, in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately

A firm has a lower quick (or acid test) ratio than the industry average, which implies

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

__________ is a summary of the profitability of the firm over a period of time, such as a year.

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 quick ratio for 2009 is

A firm has a P/E ratio of 12, an ROE of 13%, and a market-to-book value of

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

If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same as ROA, then ROA will be

Common size financial statements make it easier to compare firms

A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/EBIT) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE 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

A firm's current ratio is above the industry average. However, the firm's quick ratio is below the industry average. These ratios suggest that the firm

__________ is a false statement.

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 Investment Environment

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

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral 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

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