Deck 14: Financial Analysis of Common Stocks

Question 1

The neglected firm effect refers to an empirical observation that firms followed by relatively few ______ have had abnormally high returns.

A) contrarians
B) security analysts
C) chartists
D) hedgers and speculators

Answer 1

B

Question 2

A fundamental analyst would recommend to buy a stock if its intrinsic value were

A) less than its market value.
B) equal to its market value.
C) greater than its market value.
D) a positive value.

Answer 2

C

Question 3

The certification that relates to a professional financial analyst is the:

A) CFA.
B) CLU.
C) CHA.
D) CPA.

Answer 3

A

Question 4

A passive investment system

A) consists of buying and holding a diversified portfolio.
B) requires constant financial analysis.
C) recommends selling when bond yields are greater than dividend yields.
D) recommends selling whenever an intrinsic value falls.

Question 5

_____ analysis attempts to predict short-term price movements and makes recommendations concerning the timing of purchases and sales of stocks.

A) Fundamental
B) Technical
C) Bottom-up
D) Top-down

Question 6

CFA's

A) must live and work in the U.S.A.
B) can achieve this designation in one calendar year.
C) must pass three six-hour exams.
D) must take 60 hours of seminars per year to maintain their license.

Question 7

___ analysis forecasts future levels of gross domestic product, sales and earnings of industries, and future returns of specific stocks.

A) Technical
B) Probabilistic
C) Microeconomic
D) Fundamental

Question 8

The basic strategy of the contrary opinion is to determine the consensus opinion and then do the

A) opposite
B) technical rule most appropriate
C) bottom-up forecasting
D) top-down forecasting

Question 9

A technical analyst who relies primarily on stock price and volume graphs when evaluating securities is called a(n)

A) empiricist
B) bidder
C) chartist
D) grapher

Question 10

Concerning insider trading, the narrow definition of an insider would include all of the following EXCEPT the __ access to unavailable information

A) person who does not have
B) corporate stockholder with
C) corporate director with
D) chief executive officer with

Question 11

___ model is a statistical model that provides a means of forecasting the levels of certain variables, known as ___ variables.

A) econometric, exogenous
B) econometric, endogenous
C) regression, log-linear
D) regression, quadratic

Question 12

Returns from momentum, contrarian, and trading range breakout strategies all involve

A) technical trading rules
B) fundamental analysis
C) geometric averages
D) winner portfolios

Question 13

In 1962 the Institute of Chartered Financial Analysts was formed to award the professional designation of

A) certified public accountant
B) registered financial advisor
C) chartered financial advisor
D) chartered financial analyst

Question 14

Financial analysis attempts to identify certain characteristics of securities as well as

A) economic fundamentals of the market
B) forecast of securities values
C) mispriced securities
D) underpriced securities

Question 15

The most frequent approach used by financial analysts is

A) random walk.
B) technical analysis.
C) . fundamental analysis.
D) chartist approach.

Question 16

The Dow Jones Industrial Average is calculated using

A) value weighting.
B) price relative method.
C) price weighting.
D) equal weighting.

Question 17

The index using the most number of stocks is

A) Value Line.
B) Standard and Poor's 500.
C) Wilshire 5000.
D) Dow Jones Industrial Average.

Question 18

The approach that first creates forecasts for the economy, then for industries, and finally for companies is known as the _____ approach

A) technical rule
B) bottom-up
C) top-down
D) macroeconomic

Question 19

Standard and Poor's _______ are a major source for the financial history of individual companies.

A) Investment Surveys
B) Treasury Bulletins
C) Dividend Records
D) Corporation Records

Question 20

The measure of market performance most used by professional money managers is

A) Standard and Poor's 500.
B) Value Line Composite Average.
C) Dow Jones Composite Average.
D) Dow Jones Industrial Average. (e) NASDAQ Index.

Question 21

The top down approach to forecasting begins with a forecast for

A) the economy.
B) individual industries.
C) corporate profits.
D) a specific company.

Question 22

A good stock forecasting model must

A) have spurious but statistically significant relationships.
B) be tested and found accurate on out of sample data.
C) include money supply data.
D) have many economic variables.

Question 23

Accounting principles are governed by

A) FIFO.
B) CFA.
C) IRS.
D) FASB.

Question 24

Which of the following activities would NOT be included on the statement of cash flows for an international firm?

A) investing
B) hedging
C) financing
D) operating

Question 25

If a firm has net sales of $30,000, cash expenses including taaxes of $14,000 and depreciation of $5,000, what are the cash flows from operations if accounts receivable increase by $4,000 over the latest period?

A) $10,000
B) $11,000
C) $12,000
D) $12,500

Question 26

Return on equity equals

A) net income /sales
B) sales/stockholders' equity
C) net income/total assets
D) net income/sales times sales/stockholders' equity

Question 27

Dow Theory

A) is used by fundamental analysts.
B) uses market volume of advances and declines.
C) looks for head and shoulders formations.
D) uses the Dow Jones Transportation Average as confirmation.

Question 28

Contrarian investors

A) have no evidence that they do better than the public.
B) buy a stock when its price rises.
C) follow the general advice of financial analysts.
D) believe that investors overreact to news.

Question 29

For a point and figure chart, a price increase is indicated by entering

A) P.
B) F.
C) Y.
D) X.

Question 30

You own 100 shares of A, 200 shares of B, 300 shares of C. Their closing prices are: A at $22, B at $15, C at $60. If the average is price weighted, the average is

A) 46.12.
B) 32.33.
C) 26.67.
D) 31.50.

Question 31

An econometric model would be used to forecast

A) exogenous variables.
B) a company's production efficiency.
C) dividends.
D) inflation rates.

Question 32

A technical analyst

A) forecasts future dividends.
B) looks at individual stocks, not the market.
C) assumes an efficient market.
D) looks backward.

Question 33

Other than net income and sales, liquidity ratios use ___ items.

A) cash flow
B) balance sheet
C) tax return
D) inventory

Question 34

A publication that provides values for leading, lagging, and coincidental indicators is

A) Barron.
B) Federal Reserve Bulletin.
C) Moody's Handbook.
D) Business Conditions Digest.

Question 35

A weekly publication that provides investment statistical data is

A) Financial Analyst's Handbook.
B) Standard and Poor's Stock Guide.
C) Barron's.
D) Wall Street Journal.

Question 36

Return on assets equals

A) operating income/total assets
B) operating income/sales
C) operating income/total assets
D) sales/total assets

Question 37

A firm's financial statements are

A) all developed using the same methods.
B) an output model of the firm.
C) based on economic valuation.
D) based on market value of assets.

Question 38

Operating leverage ____ as the volatility of operating earnings ____.

A) increases, increases
B) decreases, increases
C) increases, decreases
D) remains the same, increases

Question 39

If a firm's total book value of assets is $200 million and total liabilities are $120 million, what is the market-to-book ratio if the firm issues 5 million shares of common stock?

A) 1.0
B) 1.5
C) 2.0
D) 2.5

Question 40

If a price weighted average experiences a stock split, its divisor will

A) increase.
B) there is no divisor for this method.
C) be unaffected.
D) decrease.

Question 41

The reaction to a negative review of a stock in the "Heard on the Street" column in the Wall Street Journal is

A) the stock price rises but not related to the market.
B) there is no effect on the stock's price.
C) the stock price falls.
D) the stock price falls less than the market.

Question 42

The XYZ Corporation wants to end the period with What is the appropriate action to insure such an outcome?

A) pay accounts payable from cash
B) lag the next payroll
C) pay down an impaired asset
D) sell current marketable securities for cash at their book value

Question 43

A price weighted average consists of three stocks. On day one their prices are: A at $25, B at $18, C at $30. On day two the prices are: A at $27, B at $16, C at $11, but C had a 3 for 1 split. The averages for the two days are

A) 26.67, 15.56.
B) 24.33, 25.33.
C) 26.67, 25.33
D) 24.33, 18.

Question 44

A value weighted index has three stocks with 200 shares of A, 800 shares of B, and 500 shares of C. On day one their prices are A at $25, B at $28, C at $48. On day two the index is

A) 106.3.
B) 99.6.
C) 104.2.
D) 101.8.

Question 45

Which of the following would NOT be utilized by fundamental analysis?

A) top-down forecasting
B) historical returns
C) earnings forecasts
D) bottom-up forecasting

Question 46

According to empirical studies, ______ strategy seems to have merit for both very short and very long time periods.

A) momentum
B) trading range breakout
C) contrarian
D) moving average

Question 47

The methodology of technical analysis assumes that

A) forecasting the economy is a critical ingredient to financial analysis
B) forecasting the firm's earnings is most critical to financial analysis
C) it is useless to attempt to "beat the market"
D) history tends to repeat itself in the stock markets

Question 48

Which of the following ratios does NOT comprise a firm's ROE?

A) net income/sales
B) sales/total assets
C) total assets/stockholders' equity
D) dividends declared/operating income

Question 49

With respect to ratio analysis which of the following statements is true:

A) only relative financial ratios are relevant
B) standing alone financial ratios are still meaningful
C) a series of ratio projections usually produce consistent financial statements
D) it is least problematic to compare the financial ratio of one company with its competitors