Exam 7: Analyzing Common Stocks

Quick Cement has a return on assets of 8%.If it has $1.5 million in total assets and a total asset turnover of 2, it follows that the firm must have a net profit margin of

The security analysis process should help investors to I.purchase investments that are priced at or above their intrinsic value. II.sell investments that are priced above their intrinsic value. III.purchase investments that are priced below their intrinsic value. IV.identify investments appropriate for their goals.

High dividend payout ratios are more of a concern to analysts than low payout ratios.

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.

Developing a general economic outlook assists in the identification of industries and firms that might be good investment opportunities.

Worcester Corporation has a P/E ratio of 15.Natick Corporation is in the same industry as Worcester, but has a P/E ratio of 20.Possible interpretations of this discrepancy include

Advocates of the efficient market hypothesis would argue that it is virtually impossible for any investor to consistently outperform the market.

To predict the demand for an industrial sector, it is essential to understand the economic forces that affect the industry.

The PEG ratio

To determine whether a pharmaceutical company's profitability ratios indicate strength or weakness, we should I.compare them to others in the same industry. II.compare them to companies in unrelated industries such as energy or banking. III.compare them to previous years. IV.compare them to absolute standards established by the CFA Institute.

The following information is available for the Oil Creek Corporation. (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?

A company has annual sales of $160 million, a net profit margin of 4%, and total assets of $90 million.It carries $10 million in accounts receivable, $25 million in inventory, has $55 million in total debt, and 5 million shares of common stock outstanding.Based on this information, the company's return on equity (ROE)is

Return on assets is a very important analytical tool because it measures how effectively management is using a firm's assets to generate profits.

On March 31, Adolpha, Inc.reported the following information on its financial statements. What is the available net working capital for Adolpha, Inc.?

The debt to equity ratio should be approximately the same across all industrial sectors.

Historical comparisons will reveal whether a company's performance is improving or deteriorating.

Which of the following tend to increase security market prices? I.An increase in industrial production II.An increase in corporate profits III.An increase in the federal deficit when the economy is strong IV.An increase in interest rates

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

ROE = (net profit margin)(total asset turnover)(equity multiplier).What is the advantage of using this expanded version of the ROE formula versus using the simplified version which is net income divided by total equity?

Which of the following accounting practices are potentially misleading or even fraudulent? I.capitalization of operating expenses II.accrual rather than cash basis reporting III.off-balance sheet liabilities IV.recognizing revenues prematurely