1. Which of the following statements is TRUE about the effect that the external environment within which the firm operates has on its profitability?

1. All industry sectors are affected the same way by the GDP growth rate

2. The negative effect that increases in interest rates have on profitability is felt equally across all industry sectors

3. Increases in oil prices tend to have a negative effect on the profitability of all industry sectors

4. The GDP growth rate is a key driver of profitability for all industry sectors in the economy

2. Which of the following factors is NOT a direct focus when analysing the way in which a company’s prospects are affected by the external environment within which it operates?

1. Projected inflation

2. Projected unemployment rates

3. Projected wage growth

4. Business culture

3. In reformulating the Balance Sheet, the key exercise is to separate operating items from financial items. Which of the following statements relating to undertaking this exercise is NOT true?

1. It is important to consider the nature of the item itself

2. Financial assets are essentially items used to invest excess cash

3. The nature of the company’s operations is not important

4. Operating assets are essentially items used in the company’s business