Question 1
Strategies to gain a competitive advantage include product differentiation and:
A. low-cost leadership.
B. building brand loyalty.
C. developing superior products.
D. improving product quality and reliability.

Question 2
An analytical tool that measures a company's performance against a predetermined standard is a/an:
A. benchmark comparison analysis.
B. profitability analysis.
C. time-series analysis.
D. common size statement.

Question 3
Post Corporation purchases from suppliers on net 30 day terms, has an Accounts Receivable Turnover of 8 times, and an Inventory Turnover of 12 times. Cash inflows and outflows are:
A. evenly matched.
B. negatively mismatched by 60 days.
C. positively mismatched by 30 days.
D. negatively mismatched by 45 days.
Days = Purchases - A/R - Inventory = 30 - 45 - 30 = - 45 days

Question 4
In a trend income statement for 2014, where 2012 is the base year, sales are expressed as:
A. 87.2%.
B. 100.0%.
C. 114.7%.
D. 148.7%.

Question 5
The percentage of assets financed by long-term debt is best described by the:
A. debt to equity ratio.
B. interest coverage ratio.
C. long-term debt to asset ratio.
D. long-term debt to tangible assets ratio.

Question 6
Financial ratio, percentage, and trend comparisons can be distorted by all of the following EXCEPT:
A. the presence of nonrecurring items among the firms being analyzed.
B. aggressive revenue recognition practices.
C. the timing of asset purchases.
D. accounting for similar economic fundamentals in similar fashion.

Question 7
All of the following are used as financial analysis tools EXCEPT:
A. managements' discussion and analysis.
B. common size statements.
C. trend statements.
D. financial ratios.

Question 8
Companies that consistently earn rates of return above the competitive floor in the industry are considered to possess a:
A. dominant market share.
B. niche market.
C. competitive advantage.
D. monopolistic advantage.

Question 9
In a common size balance sheet, all items are expressed as a percentage of total:
A. assets.
B. liabilities.
C. equity.
D. sales.

Question 10
Return on Assets (ROA) measures a firm's:
A. cost effectiveness of its operating activities.
B. profitable use of its assets.
C. profitability of sales.
D. return on shareholders' investment.

Question 11
Which one of the following successful strategies will increase the Return on Assets (ROA)?
A. Increase the investment in assets used in the business
B. Increase the profit margin
C. Decrease sales volume
D. Increase the annual depreciation amounts of long-lived assets

Question 12
Earnings Before Interest (EBI) adjusts net income for which one of the following groups of items?
A. Nonrecurring items, interest, and distortions related to accounting quality concerns
B. Nonoperating items, after-tax interest, and distortions related to accounting quality concerns
C. Nonoperating items, nonrecurring items, and after-tax interest
D. Nonrecurring items, after-tax interest, and distortions related to accounting quality concerns

Question 13
Although a company's earnings are important in financial statement analysis, with respect to credit evaluations and lending decisions an analysis of its cash flows is:
A. optional.
B. central.
C. only important if the company has a high debt/equity ratio.
D. required by banking regulations.

Question 14
Trend statements are better than common size statements at indicating which of the following?
A. Stability
B. Monetary changes
C. Profitability
D. Growth and decline

Question 15
The financial statement reporting "filter" is:
A. SEC reporting regulations that vary from GAAP for publicly traded companies.
B. SEC required reporting regulations for all entities.
C. management's manipulation of accounting data.
D. management's discretion to choose alternative accounting procedures within GAAP.

Question 16
The inventory turnover for 2014 is (rounded) __________ times.
A. 2.61
B. 3.12
C. 3.45
D. 3.80

Question 17
The total assets turnover ratio for 2014 is (rounded) __________ times.
A. 1.7
B. 2.0
C. 2.2
D. 2.4

Question 18
Which one of the following helps the analyst remove the effects of an information filter?
A. Financial statements
B. SEC Form 10K
C. Note disclosures in financial statements
D. Trend analysis

Question 19
In a common size cash flow statement, all items are expressed as a percentage of:
A. sales.
B. total assets.
C. net income.
D. total equity.

Question 20
Financial ratios used to determine credit risk include an assessment of:
A. liquidity and asset utilization.
B. asset utilization and profitability.
C. solvency and liquidity.
D. profitability and solvency.

Question 21
The interest rate on a revolving loan will usually:
A. be below prime interest.
B. be equal to prime interest.
C. remain fixed.
D. float.

Question 22
The reciprocal of the risk-adjusted equity cost of capital used is the:
A. return on assets.
B. return on common equity.
C. price earnings ratio.
D. profit margin on sales.

Question 23
Preparing comprehensive financial statement forecasts involves six steps. Among these steps are all of the following EXCEPT:
A. project sales revenue for each period in the forecast horizon.
B. forecast depreciation expense and tax expense for each period.
C. forecast the company's financial structure and dividend policy for each period.
D. All of the above are steps typically taken when preparing financial statement forecasts.

Question 24
A qualitative assessment of the business, its customers and suppliers, and management's character and capability is known as: ?
A. covenant waivers.
B. due diligence.
C. indenture evaluation.
D. a debenture.

Question 25
Income from continuing operations, excluding special or nonrecurring items, is generally regarded as:
A. permanent earnings.
B. transitory earnings.
C. value-irrelevant earnings.
D. quiet.

Question 26
The interest rate charged on bank loans must be sufficient to cover all of the following EXCEPT:
A. a risk premium when loans are personally guaranteed by the borrower.
B. the lender's cost of borrowing funds.
C. the costs of administering, monitoring, and servicing the loan.
D. a premium for exposure to default risk.

Question 27
The implied total earnings multiple of Firm A is:
A. 1.00.
B. 4.10.
C. 5.00.
D. 10.00

Question 28
Recent research indicates that stock returns correlate better with:
A. accrual earnings than realized operating cash flows.
B. cash basis earnings than realized operating cash flows.
C. realized operating cash flows than accrual earnings.
D. future operating cash flows than accrual earnings.

Question 29
As per GAAP, fair value-for accounting purposes-is:
A. an entry price.
B. an exit price.
C. the market price in a forced sale.
D. always easily determinable.

Question 30
The implied share price of Firm C's stock is:
A. $18.00.
B. $63.00.
C. $72.00.
D. $90.00.

Question 31
The fundamental valuation approach to business valuation uses basic accounting measures to assess the amount, timing, and __________ cash flows or earnings.
A. certainty of a company's past operating
B. certainty of a company's future non-operating
C. uncertainty of a company's future operating
D. uncertainty of a company's future non-operating

Question 32
In general, the growth rate in earnings will depend on the portion of earnings reinvested each period and the:
A. earnings retention rate.
B. rate of return earned on new investment.
C. company's cost of equity capital.
D. company's weighted average cost of capital.

Question 33
To obtain a better current price, the net present value of future growth opportunities (NPVGO) can be calculated and __________ the price per share calculated from the P/E ratio.
A. added to
B. subtracted from
C. multiplied by
D. divided into

Question 34
An adjustment to income due to an extraordinary item is regarded as:
A. permanent earnings.
B. transitory earnings.
C. value-irrelevant earnings.
D. quiet.

Question 35
The degree to which cash needs can be satisfied during periods of fiscal stress is known as:
A. credit availability.
B. credit worthiness.
C. working capital.
D. financial flexibility.

Question 36
Assume that Firm A can increase earnings by $4,000 by cutting costs. Abnormal earnings would be:
A. $(1,000).
B. $0.
C. $1,000.
D. $1,500.

Question 37
A component that is valuation-relevant, but is NOT expected to persist into the future is a __________ component.
A. permanent earnings
B. transitory earnings
C. noise
D. quiet

Question 38
Assume that Firm B can divest itself of $20,000 of unproductive capital with earnings falling by only $3,000. Abnormal earnings are:
A. $200.
B. $400.
C. $600.
D. $800.

Question 39
Through the use of accruals and deferrals, accrual accounting:
A. produces a cash flow number that smoothes out the unevenness in year-to-year earnings.
B. produces information about current cash receipts and payments.
C. enables management to estimate future free cash flows.
D. produces an earnings number that smoothes out the unevenness in year-to-year cash flows.

Question 40
When determining the fair value of an asset using an exit price approach:
A. fair value is determined by how the company uses the asset.
B. management may choose to reduce the fair value of the asset by the approximate amount of expected transaction costs (i.e., costs to dispose of the asset) if such costs are deemed to be material.
C. transaction costs do not reduce the asset's fair value.
D. transaction costs reduce the asset's fair value.