Financial statement analysis Multiple Choice questions

1. Which is not true when preparing the Statement of Cash Flows section of the forecasted model? A Pruchases of investments and intangible assets will be reported as cash outflows from investing activities. B Issuance of stock and debt will be reported as cash inflows from financing activities. C Dividend payments will be reported as cash outflows for financing activities. D Share buybacks will be reported as cash outflows for investing activities. 2. Which of the following is not true? A. The Income Statement is best used to develop an understanding of the operating performance of the firm. B The Balance Sheet is best used to develop an understanding of the risk structure of the firm. C The Statement of Cash Flows is best used to develop an understanding of the earnings quality of the firm. D The Statement of Comprehensive Income is best used to develop an understanding of the total cash flows for the firm. 3. Which of the following is not true? A Articulation refers to the fact that the four financial statements are linked to each other and that changes in one statement affect the other three. B. Net income reported on the income statement is linked to the statement of retained earnings, which in turn is linked to the balance sheet. C. Understanding how the financial statements articulate, helps us to analyze transactions and events and to understand how events affect each financial statement separately and all four together. D. The Statement of Cash Flows needs to be completed first, in order for the other financials to be linked. 4. Which of the following statements is incorrect? A Common-size income statements have all items expressed as a percentage of net income. B Common-size balance sheets have all items expressed as a percentage of total assets. C Common-size financial statements allow analysts to identify changes within a company over time. D Common-size financial statements allow analysts to compare different sized companies. 5. While determining the most profitable company from the given number of companies, which of the following would be the best indicator of relative profitability? A B C D Highest current ratio Highest net income Highest retained earnings Highest operating profit margin 6. What information can be gained from sources such as RMA and Reuters? A The general economic condition. B Benchmarks which can be used to determine a company's relative position within its industry. C Elaborations of financial statement disclosures. D Forecast of earnings. 7. Which of the following is not true for Economic Moats? A Economic moats refer to the long-term competitive advantage that allows a company to earn oversized profits over time. B Economic moats include the following factors: political, economic, social/cultural, technology, environmental and legal impact. C. Economic moats are either "wide", "narrow" or "none". D Factors affecting economic moats include: Low-cost producers, high switching costs, network effect, or intangible assets. 8. Which of the following contains an unlikely relationship? A As sales increase, the analyst would expect to see cost of goods sold decrease, as well as, selling, general and administrative expenses. B Cash receipts from customers are related to sales revenues and changes in accounts receivable. C AS cost of goods sold increases, the analyst would expect to see changes in inventories and accounts payable. D The more CAPEX a company has made in the past, the more depreciation the company will see in the future. 9. An analyst is reviewing the 2015 and 2016 financial statements for Blackstone Industries. She wishes to calculate aDivide ratio the that2016 has an income statement item in theby numerator and a balance item insheet the item. income statement item amount the 2016 ending value ofsheet the balance A Divide the 2016 income statement item amount by the average of the balance sheet item for 2015 and B 2016. the average of the income statement item for 2015 and 2016 by the ending value of the balance Divide C sheet item. Divide the average of the income statement item for 2015 and 2015 by the average of the balance sheet D 2015difference and 2016.between Cost of Goods Sold (COGS) and Operating Expenses (OpEx) on a 10. What item is thefor MAIN company's Incomeboth Statement? A They're expenses, but OpEx is almost always significantly bigger than COGS. B COGS can reflect only cash expenses, whereas OpEx may include both expenses paid out in cash in the current period, as well as expenses owed and linked which will be paid out in cashorinservices the future. COGS corresponds to expenses thatthat canare be *directly* to individual products sold, C whereas with OpEx there is not a as direct relationship. COGS is almost always projected a percentage of revenue, but OpEx is rarely projected that way since D it can't be linked to individual units sold. 11. Tools, Inc. is a retailer of power tools. The firm's current assets are cash, accounts receivable, and inventory andAits current liabilities Current ratio are accounts payable and accrued wages. Which short-term liquidity ratio would have B C D Debt-to-total capital Quick ratio Cash ratio 12. If the Tripoli Company has a current ratio of 2:1, which of the following activities would increase the company's current ratio?payment reducing accounts payable. A Cash B C D Collecting accounts receivable and placing the funds in a checking account. Declaring a cash dividend payable next period. Paying long-term debt. 13. Which of the following is a correct statement? A All liabilities are debt. B Accounts payable and short-term notes payable are non-operating liabilities. C Accrued expenses are non-operating liabilities. D All debt are liabilities. 14. Which of the following best explains why a firm's debt-to-capital and its interest coverage ratio are lower than themore industry A Has debtaverage? and higher earnings than the industry average. B Is relatively more profitable (before interest and taxes) than industry average. C Pays higher interest on its debt than industry average. 15. If a company has projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A expenses of $2 billion, what is the company's operating (EBIT) margin? A 20% B 45% C 55% D 80% 16. To calculate interest expense in the future, you should do which of the following? Apply a weighted average interest rate times the beginning debt balance A Apply a weighted average interest rate times the average debt balances for B the year. Apply a current interest rate times the average debt balance over the course C of the year None of the above D 17. Let's say that we're creating projections for a company, and in its historical filings Depreciation & Amortization and Stock-Based Compensation NOT listedexpenses; as separate itsthem income They always show up exclusivelyare in operating youitems only on need for the A cash flow statement so you don't need to break them out separately in income They may show up in either operating expenses or COGS, or in both; it's better to B break them out as separate items byinmodifying the historical and They almost always show upline exclusively COGS; you should breakstatements them out as C D separate project them separately forward. If they're line not items listed and on the income statement, thegoing company does not have significant expenses in either category so we don't need to do anything