Question 1

The business cycle reflects economic changes only in the industrial sectors of the economy.

Accepted Answer

A) True 
 B)False

Question 2

A high PEG ratio implies a high growth rate in earnings relative to the stock's price.

Accepted Answer

A) True 
 B)False

Question 3

Top-down security analysis

Accepted Answer

A)  starts with the fundamental analysis of a firm. 
B)  includes economic, industry, and fundamental analysis. 
C)  concentrates on the competency of the senior management of a firm. 
D)  centers on the past performance of a firm. 
A)  starts with the fundamental analysis of a firm. 
B)  includes economic, industry, and fundamental analysis. 
C)  concentrates on the competency of the senior management of a firm. 
D)  centers on the past performance of a firm.

Question 4

Return on equity can be expressed mathematically as (return on assets) x (total assets/stockholders' equity).

Accepted Answer

A) True 
 B)False

Question 5

Interest rates and stock prices tend to move in opposite directions.

Accepted Answer

A) True 
 B)False

Question 6

A company's ratios are more meaningful when compared to other companies in the same industry.

Accepted Answer

A) True 
 B)False

Question 7

Advocates of the efficient market hypothesis would argue that it is very unlikely that any in individual can consistently outperform the market.

Accepted Answer

A) True 
 B)False

Question 8

Fundamental analysis can only be profitable if some securities are at least temporarily mispriced.

Accepted Answer

A) True 
 B)False

Question 9

Investors who conduct industry analyses typically favor companies with strong market positions over companies with less secure market positions because firms with strong market positions tend to
I. be price leaders.
II. benefit more from economies of scale.
III. have better R&D programs.
IV. have lower production costs.

Accepted Answer

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

Question 10

List and explain the various stages of the growth cycle of an industry. Also discuss the merit of investing in the industry during each of the various stages.

Accepted Answer

The 4 stages of the growth cycle are
1.

Question 11

Which stage of an industry's growth cycle offers the greatest opportunity for an investor who is seeking capital gains?

Accepted Answer

A)  initial development 
B)  mature growth 
C)  stability or decline 
D)  rapid expansion 
A)  initial development 
B)  mature growth 
C)  stability or decline 
D)  rapid expansion

Question 12

Fundamental analysis is based on the presumption that the value of a stock is influenced by the financial performance of the issuing company.

Accepted Answer

A) True 
 B)False

Question 13

One of the basic premises of security analysis, and in particular fundamental analysis, is that

Accepted Answer

A)  a stock's price is based on its past cash flows rather than on anticipated future cash flows. 
B)  market sectors do not move in concert with business cycles. 
C)  all securities have an intrinsic value that their market value will approach over time. 
D)  a security's risk has relatively little effect on the security's return. 
A)  a stock's price is based on its past cash flows rather than on anticipated future cash flows. 
B)  market sectors do not move in concert with business cycles. 
C)  all securities have an intrinsic value that their market value will approach over time. 
D)  a security's risk has relatively little effect on the security's return.

Question 14

Economic factors such as a weak dollar will have a negative impact on all industrial sectors.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following factors are considered when analyzing an industry?
I. the nature and conditions of governmental regulations
II. the involvement and relations, if any, with labor unions
III. the development of new technologies relevant to the industry
IV. the extent of competition within the industry

Accepted Answer

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

Question 16

The measure that indicates how efficiently assets are being used to support sales is called the

Accepted Answer

A)  total asset turnover. 
B)  current ratio. 
C)  book value. 
D)  net profit margin. 
A)  total asset turnover. 
B)  current ratio. 
C)  book value. 
D)  net profit margin.

Question 17

Which of the following may be signs of future problems for a company?
I. Inventories growing faster than sales.
II. Rapidly increasing debt to equity ratio.
III. Cash flow from operations is higher than net income.
IV. Current liabilities increasing faster than current assets.

Accepted Answer

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

Question 18

On March 31, Adolpha, Inc. reported the following information on its financial statements. $$\begin{array} { l r } 
\text { Total current assets } & \$ 421,374 \
\text { Total long-ter m assets } & \$ 2,126,864 \
\text { Total cur rent liabilities } & \$ 675,218 \
\text { Total long-ter m debt } & \$ 2,005,286 \
\hline
\end{array}$$ What is the available net working capital for Adolpha, Inc.?

Accepted Answer

A)  -$253,844 
B)  -$132,366 
C)  $121,578 
D)  $1,873,020 
A)  -$253,844 
B)  -$132,366 
C)  $121,578 
D)  $1,873,020

Question 19

The following information is available for the Oil Creek Corporation.
 $$\begin{array} { l l } 
\text { Accounts Receivable } & \$ 19,000 \
\text { Sales } & \$ 195,000 \
\text { Current assets } & \$ 36,000 \
\text { Total assets } & \$ 147,000 \
\text { Long term debt } & \$ 48,000 \
\text { Current liabilities } & \$ 41,000 \
\text { Profit margin } & 6 \% \
\text { Number of shares outstanding } & 15,000 \
\text { Current stock price per share } & \$ 14,43 \
\hline
\end{array}$$ (a) What is the current ratio?
(b) What is the net working capital?
(c) What is the net income?
(d) What is the return on equity?
(e) What is the total asset turnover?
(f) What is the debt-equity ratio?
(g) What is the accounts receivable turnover?
(h) What is the earnings per share (EPS)?
(i) What is the price to earnings (P/E) ratio?

Accepted Answer

(a) 0.88
(b) -$5,000

Question 20

On June 30, the Simpson Company reported the following information on its balance sheet. $$\begin{array} { l r } 
\hline\text { Total current assets } & \$ 550,000 \
\text { Total long-ter } \mathrm { m } \text { assets } & \$ 1,120,000 \
\text { Total cur rent liabilities } & \$ 484,000 \
\text { Total long-ter } \mathrm { m } \text { debt } & \$ 705,000 \
\hline
\end{array}$$ What is the amount of the stockholder's equity in the Simpson Company?

Accepted Answer

A)  $481,000 
B)  $636,000 
C)  $965,000 
D)  There is not enough information to calculate stockholders' equity. 
A)  $481,000 
B)  $636,000 
C)  $965,000 
D)  There is not enough information to calculate stockholders' equity.

The business cycle reflects economic changes only in the industrial sectors of the economy.

A high PEG ratio implies a high growth rate in earnings relative to the stock's price.

Top-down security analysis

Return on equity can be expressed mathematically as (return on assets) x (total assets/stockholders' equity).

Interest rates and stock prices tend to move in opposite directions.

A company's ratios are more meaningful when compared to other companies in the same industry.

Advocates of the efficient market hypothesis would argue that it is very unlikely that any in individual can consistently outperform the market.

Fundamental analysis can only be profitable if some securities are at least temporarily mispriced.

List and explain the various stages of the growth cycle of an industry. Also discuss the merit of investing in the industry during each of the various stages.

Which stage of an industry's growth cycle offers the greatest opportunity for an investor who is seeking capital gains?

Fundamental analysis is based on the presumption that the value of a stock is influenced by the financial performance of the issuing company.

One of the basic premises of security analysis, and in particular fundamental analysis, is that

Economic factors such as a weak dollar will have a negative impact on all industrial sectors.

The measure that indicates how efficiently assets are being used to support sales is called the

Which of the following may be signs of future problems for a company? I. Inventories growing faster than sales. II. Rapidly increasing debt to equity ratio. III. Cash flow from operations is higher than net income. IV. Current liabilities increasing faster than current assets.

On March 31, Adolpha, Inc. reported the following information on its financial statements. Total current assets \ 421,374 Total long-ter m assets \ 2,126,864 Total cur rent liabilities \ 675,218 Total long-ter m debt \ 2,005,286 What is the available net working capital for Adolpha, Inc.?

On June 30, the Simpson Company reported the following information on its balance sheet. Total current assets \ 550,000 Total long-ter assets \ 1,120,000 Total cur rent liabilities \ 484,000 Total long-ter debt \ 705,000 What is the amount of the stockholder's equity in the Simpson Company?

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 7: Analyzing Common Stocks

The business cycle reflects economic changes only in the industrial sectors of the economy.

A high PEG ratio implies a high growth rate in earnings relative to the stock's price.

Top-down security analysis

Return on equity can be expressed mathematically as (return on assets) x (total assets/stockholders' equity).

Interest rates and stock prices tend to move in opposite directions.

A company's ratios are more meaningful when compared to other companies in the same industry.

Advocates of the efficient market hypothesis would argue that it is very unlikely that any in individual can consistently outperform the market.

Fundamental analysis can only be profitable if some securities are at least temporarily mispriced.

List and explain the various stages of the growth cycle of an industry. Also discuss the merit of investing in the industry during each of the various stages.

Which stage of an industry's growth cycle offers the greatest opportunity for an investor who is seeking capital gains?

Fundamental analysis is based on the presumption that the value of a stock is influenced by the financial performance of the issuing company.

One of the basic premises of security analysis, and in particular fundamental analysis, is that

Economic factors such as a weak dollar will have a negative impact on all industrial sectors.

The measure that indicates how efficiently assets are being used to support sales is called the

Which of the following may be signs of future problems for a company? I. Inventories growing faster than sales. II. Rapidly increasing debt to equity ratio. III. Cash flow from operations is higher than net income. IV. Current liabilities increasing faster than current assets.

On March 31, Adolpha, Inc. reported the following information on its financial statements. Total current assets \ 421,374 Total long-ter m assets \ 2,126,864 Total cur rent liabilities \ 675,218 Total long-ter m debt \ 2,005,286 What is the available net working capital for Adolpha, Inc.?

On June 30, the Simpson Company reported the following information on its balance sheet. Total current assets \ 550,000 Total long-ter assets \ 1,120,000 Total cur rent liabilities \ 484,000 Total long-ter debt \ 705,000 What is the amount of the stockholder's equity in the Simpson Company?

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Modern Portfolio Concepts

Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters