Financial Statement Analysis Part 4

Quiz Questions

• 1.
  Q.1  If all other variables remain constant, an increase in a company's asset turnover will result in an increase in its return on equity.

  • A.
    A) will increase.
  • B.
    B) will decrease.
  • C.
    C) may increase, decrease, or remain the same.
• 2.
  Q2.When determining whether a company has the ability to meet its long-term debt obligations, which of the following classifications of ratios is most likely to be used?

  • A.
    A. Liquidity ratios
  • B.
    B. Solvency ratios
  • C.
    C. Activity ratios
• 3.
  Q3.Which of the following is the most likely source of information for an analyst seeking to learn more about a company's operating activities?

  • A.
    A. Dividends declared
  • B.
    B. Accounts receivable
  • C.
    C. Goodwill
• 4.
  Q4.Identify which of the following statements about a company that has convertible preferred stock on its books is the most accurate.

  • A.
    A) If the diluted and basic earnings per share are equal, the company is required to report both the basic and diluted earnings per share in its financial statements.
  • B.
    B) The numerator of diluted earnings per share is calculated by subtracting net income from preferred dividends.
  • C.
    C) When diluted earnings per share (EPS) is less than basic earnings per share (EPS), the convertible preferred is said to be antidilutive.
• 5.
  Q5.When a company requires short-term financing, which of the following factors is most likely to be present?

  • A.
    A) The return of principal from investments that have reached maturity.
  • B.
    B) Compared to the industry average, cash conversion cycle is shorter.
  • C.
    C) Seasonal fluctuations in operating cash inflows are expected.
• 6.
  Q6. The objective of an audit is to

  • A.
    A. Declare that the financial statements are accurate.
  • B.
    B. Give absolute assurance about the financial statements' accuracy or precision.
  • C.
    C. Allow an auditor to express an opinion on the financial statements' fairness and reliability.
• 7.
  Q7. A company that capitalizes an expense reports the following information

  • A.
    A. Higher net income over the asset's useful life when compared to a company that depreciates and amortizes the cost.
  • B.
    B. When compared to a company that expenses the cost, a company that retains its shareholders' equity over the life of the asset.
  • C.
    C. When compared to a company that expenses the cost, the cash flow from operations is higher.
• 8.
  Q8.The following are the most likely financial statements to be evaluated by an analyst who wishes to investigate a company's financing transactions during the most recent period

  • A.
    A) comprehensive income
  • B.
    B) cash flows
  • C.
    C) financial position
• 9.
  Q9.Identify which of the following businesses has the lowest level of creditworthiness.

  • A.
    A. A company with a high current ratio
  • B.
    B. A company with a high number of days of receivables
  • C.
    C. A company with a high inventory turnover
• 10.
  Q10. When considering the impact of warrants on earnings per share, which method is used to calculate the number of shares added to the denominator when calculating the number of shares added to the denominator?

  • A.
    A. Cost recovery method.
  • B.
    B. Weighted average method.
  • C.
    C. Treasury Stock method.
• 11.
  Q11. Revenues are recognized under accrual accounting in the same period in which the associated expenses are paid.

  • A.
    A. Expenses are incurred.
  • B.
    B. Cash is collected.
  • C.
    C. Invoices are billed.
• 12.
  Q12.Which of the following ratios is most likely to improve if a company decides to write down inventory?

  • A.
    A) Debt-to-equity ratio.
  • B.
    B) Operating profit margin.
  • C.
    C) Total asset turnover.
• 13.
  Q13.Which of the following statements is correct when calculating cash flow from operations (CFO) using the indirect method of calculation?

  • A.
    A) Whenever a gain on the sale of fixed assets is recognized, the amount recognized is deducted from operating cash flows.
  • B.
    B) An additional schedule is required for the indirect method in order to reconcile net income to cash flow.
  • C.
    C) If you choose to use the indirect method, each line item on the income statement is converted to its cash equivalent before being recorded.
• 14.
  Q14.Working capital is the excess of a company’s

  • A.
    A. Assets over its liabilities.
  • B.
    B. Noncurrent liabilities over its noncurrent assets.
  • C.
    C. Current assets over its current liabilities.
• 15.
  Q15.The presence of an increase in which of the following ratios most likely indicates an improvement in a company's solvency situation?

  • A.
    A. Financial leverage ratio
  • B.
    B. Debt-to-equity ratio
  • C.
    C. Fixed charge coverage ratio

Quiz Outcomes

• 1.
  Result 1

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