Deck 11: Industry Analysis

Question 1

The ____ of an industry is a function of retention rate and return on equity.

A) expected return
B) expected business risk
C) expected financial risk
D) expected growth rate
E) expected sales volatility

Answer 1

D

Question 2

At the initial stage of an economic recovery,

A) financial stocks rise on expectations of increases in loan demand, housing constructions and security offerings.
B) consumer durable stocks rise on expectations of rising consumer confidence and personal income.
C) capital goods stocks rise on expectation of increases in business capital spending.
D) basic materials stocks rise on expectation of rising profit margins.
E) consumer staple stocks rise on expectations that consumers will continue to spend on necessities.

Answer 2

B

Question 3

An increase in any of the following will cause the expected dividend growth rate to increase for an industry except

A) profit margin.
B) total asset turnover.
C) return on equity.
D) dividend payout ratio.
E) financial leverage.

Answer 3

D

Question 4

Which of the following statements regarding cyclical industries is true?

A) Cyclical industries are affected by changes in consumer sentiment.
B) Cyclical industries are not affected by the consumer's willingness to borrow and spend money.
C) Cyclical industries often outperform other sectors during a recession.
D) All of the above statements are true.
E) None of the above statements are true.

Question 5

Which of the following is not a stage in the industrial life cycle?

A) Early pioneering development
B) Rapid accelerating growth
C) Acquisition and consolidation
D) Mature growth
E) Stabilisation and market maturity

Question 6

When forecasting industry sales it can be useful to

A) utilise the industry life cycle.
B) use input-output analysis.
C) use the relationship between an industry and the aggregate economy.
D) all of the above.
E) none of the above.

Question 7

In analysing risk levels among industries, studies have found that

A) risk levels vary among different industries.
B) risk levels remained fairly constant across industries.
C) risk levels for the same industry varied over time.
D) risk levels for the same industry remain fairly constant over time.
E) choices a and d.

Question 8

The financial risk for the retail store industry is difficult to judge because of

A) convertible debt.
B) numerous building leases.
C) warrants.
D) variable operating profits.
E) extensive use of preferred stock.

Question 9

Which of the following statements about the business cycle is false?

A) Toward the end of a recession, financial stocks typically increase in value as investment and borrowing activities accelerate.
B) Once the economy hits a trough and begins to recover, consumer durable stocks become attractive investments.
C) Once the economy has recovered and current levels of consumption are sustainable, businesses may consider modernising or expanding, thus stocks of capital goods industries become attractive investments.
D) As the business cycle reaches a peak, inflation rates decrease.
E) None of the above (that is, all are true statements).

Question 10

Which of the following statements concerning the competitive environment is true?

A) High fixed costs encourage firms to produce at a low level of capacity, in order to minimise fixed cost per unit produced.
B) Low current prices relative to costs in an industry indicate low barriers to entry.
C) Substantial economies of scale do not give a current industry member an advantage over a new firm.
D) The ability to substitute another product limits the industry's profit potential.
E) Buyers and suppliers do not influence the profitability of an industry.

Question 11

If the economic outlook was such that you expected corporate earnings to decline, consumers have excessive levels of debt, and there to be significant overcapacity in the technology sector, then an appropriate asset allocation policy would be to:

A) overweight equity especially technology stocks and underweight bonds.
B) underweight equity especially technology stocks and overweight bonds.
C) overweight equity especially technology stocks and overweight bonds.
D) underweight equity especially technology stocks and underweight bonds.
E) none of the above.

Question 12

In which industrial life cycle stage do sales correlate highly with an economic series or the economy in general?

A) Pioneering development
B) Rapidly accelerating growth
C) Mature growth
D) Stabilisation and market maturity
E) Deceleration of growth and decline

Question 13

Which of the following is not characteristic of the 'growth' phase in the industry life cycle?

A) Consumer will accept uneven quality
B) Products have technical and performance differentiation
C) High advertising costs
D) Low profits
E) Many competitors

Question 14

Which of the following is not considered a structural influence on the economy and industry?

A) Demographics
B) Life-styles
C) International economics
D) Social values
E) Technology

Question 15

Analysts should identify and monitor

A) the current and emerging trends and patterns affecting an industry.
B) the indicators of trends and patterns in structural factors.
C) the momentum toward change in trends and patterns in structural factors.
D) choices a and b
E) all of the above