Deck 2: Introduction to Financial Statement Analysis

Question 1

A 30 year mortgage loan is a

A) Long-term Liability.
B) Current Liability.
C) Current Asset.
D) Long-term Asset.

Answer 1

Long-term Liability.

Question 2

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's market debt to equity ratio is closest to:

A) 0.24
B) 0.50
C) 0.75
D) 0.89

Answer 2

0.24

Question 3

Which of the following is not a financial statement that every public company is required to produce?

A) Income Statement
B) Statement of Sources and Uses of Cash
C) Balance Sheet
D) Statement of Stockholders' Equity

Answer 3

Statement of Sources and Uses of Cash

Question 4

Which of the following balance sheet equations is incorrect?

A) Assets - Liabilities = Shareholders' Equity
B) Assets = Liabilities + Shareholders' Equity
C) Assets - Current Liabilities = Long Term Liabilities
D) Assets - Current Liabilities = Long Term Liabilities + Shareholders' Equity

Question 5

Cash is a

A) Long-term Asset.
B) Current Asset.
C) Current Liability.
D) Long-term Liability.

Question 6

What are the four financial statements that all public companies must produce?

Question 7

What is the role of an auditor in financial statement analysis?

Question 8

Which of the following is an example of an intangible asset?

A) Brand names and trademarks
B) Patents
C) Customer relationships
D) All of the above are intangible assets.

Question 9

U.S.public companies are required to file their annual financial statements with the U.S.Securities and Exchange Commission on which form?

A) 10-A
B) 10-K
C) 10-Q
D) 10-SEC

Question 10

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's enterprise value is closest to:

A) $952.16 million
B) $3,580.14 million
C) $4,168.06 million
D) $4,425.15 million

Question 11

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's book value of equity is closest to:

A) $952.16 million
B) $3,580.14 million
C) $4,168.06 million
D) $4,425.15 million

Question 12

The third party who checks annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the

A) NYSE Enforcement Board.
B) Accounting Standards Board.
C) Securities and Exchange Commission (SEC).
D) auditor.

Question 13

On the balance sheet,short-term debt appears

A) in the Stockholders' Equity section.
B) in the Operating Expenses section.
C) in the Current Assets section.
D) in the Current Liabilities section.

Question 14

Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago.This reduction in value results in

A) an impairment charge.
B) depreciation expense.
C) an operating expense.
D) goodwill.

Question 15

Accounts payable is a

A) Long-term Liability.
B) Current Asset.
C) Long-term Asset.
D) Current Liability.

Question 16

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's market capitalization is closest to:

A) $952.16 million
B) $3,580.14 million
C) $4,168.06 million
D) $4,425.15 million

Question 17

The statement of financial position is also known as the

A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of stockholder's equity.

Question 18

On the balance sheet,current maturities of long-term debt debt appears

A) in the Stockholders' Equity section.
B) in the Operating Expenses section.
C) in the Current Assets section.
D) in the Current Liabilities section.

Question 19

Which of the following statements regarding the balance sheet is incorrect?

A) The balance sheet provides a snapshots of the firm's financial position at a given point in time.
B) The balance sheet lists the firm's assets and liabilities.
C) The balance sheet reports stockholders' equity on the right-hand side.
D) The balance sheet reports liabilities on the left-hand side.

Question 20

The firm's assets and liabilities at a given point in time are reported on the firm's

A) income statement or statement of financial performance.
B) income statement or statement of financial position.
C) balance sheet or statement of financial performance.
D) balance sheet or statement of financial position.

Question 21

Use the table for the question(s) below.
Consider the following balance sheet:

If in 2009 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then using the market value of equity,the debt to equity ratio for Luther in 2009 is closest to:

A) 1.47
B) 1.78
C) 2.31
D) 4.07

Question 22

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's debt to equity ratio is closest to:

A) 0.24
B) 0.50
C) 0.75
D) 0.89

Question 23

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's price-earnings ratio (P/E)is closest to:

A) 15.96
B) 21.85
C) 29.77
D) 35.64

Question 24

Use the table for the question(s) below.
Consider the following balance sheet:

If on December 31,2008 Luther has 8 million shares outstanding trading at $15 per share.,then what is Luther's market-to-book ratio?

Question 25

Which of the following statements regarding the income statement is incorrect?

A) The income statement shows the earnings and expenses at a given point in time.
B) The income statement shows the flow of earnings and expenses generated by the firm between two dates.
C) The last or "bottom" line of the income statement shows the firm's net income.
D) The first line of an income statement lists the revenues from the sales of products or services.

Question 26

Use the table for the question(s) below.
Consider the following balance sheet:

If in 2009 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then Luther's Market-to-book ratio would be closest to:

A) 0.39
B) 0.76
C) 1.29
D) 2.57

Question 27

Use the table for the question(s) below.
Consider the following income statement and other information:

Assuming that Luther has no convertible bonds outstanding,then for the year ending December 31,2009 Luther's diluted earnings per share are closest to:

A) $1.01
B) $1.04
C) $1.28
D) $1.33

Question 28

Use the table for the question(s) below.
Consider the following balance sheet:

Luther's current ratio for 2009 is closest to:

A) 0.84
B) 0.92
C) 1.09
D) 1.19

Question 29

The statement of financial performance is also known as the

A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of stockholder's equity.

Question 30

Use the table for the question(s) below.
Consider the following income statement and other information:

For the year ending December 31,2009 Luther's earnings per share are closest to:

A) $0.96
B) $1.04
C) $1.28
D) $1.33

Question 31

Use the table for the question(s) below.
Consider the following balance sheet:

Luther's quick ratio for 2008 is closest to:

A) 0.77
B) 0.87
C) 1.15
D) 1.30

Question 32

Use the table for the question(s) below.
Consider the following balance sheet:

If on December 31,2008 Luther has 8 million shares outstanding trading at $15 per share.,then what is Luther's enterprise value?

Question 33

Use the table for the question(s) below.
Consider the following balance sheet:

The change in Luther's quick ratio from 2008 to 2009 is closest to:

A) a decrease of .10
B) an increase of .10
C) a decrease of .15
D) an increase of .15

Question 34

Use the table for the question(s) below.
Consider the following balance sheet:

If in 2009 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share,then what is Luther's Enterprise Value?

A) -$63.3 million
B) $353.1 million
C) $389.7 million
D) $516.9 million

Question 35

Gross profit is calculated as:

A) Total sales - cost of sales - selling, general and administrative expenses - depreciation and amortization
B) Total sales - cost of sales - selling, general and administrative expenses
C) Total sales - cost of sales
D) None of the above

Question 36

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's earnings per share (EPS)is closest to:

A) $0.19
B) $1.79
C) $2.81
D) $3.76

Question 37

Use the table for the question(s) below.
Consider the following balance sheet:

What is Luther's net working capital in 2008?

A) $12 million
B) $27 million
C) $39 million
D) $63.6 million

Question 38

Which of the following is not an operating expense?

A) Interest expense
B) Depreciation and amortization
C) Selling, general and administrative expenses
D) Research and development

Question 39

The firm's revenues and expenses over a period of time are reported on the firm's

A) income statement or statement of financial performance.
B) income statement or statement of financial position.
C) balance sheet or statement of financial performance.
D) balance sheet or statement of financial position.

Question 40

Use the table for the question(s) below.
Consider the following balance sheet:

When using the book value of equity,the debt to equity ratio for Luther in 2009 is closest to:

A) 0.43
B) 2.29
C) 2.98
D) 3.57

Question 41

Use the table for the question(s) below.
Consider the following income statement and other information:

Wyatt Oil has a net profit margin of 4.0%,a total asset turnover of 2.2,total assets of $525 million,and a book value of equity of $220 million.Wyatt Oil's current return-on-assets (ROA)is closest to:

A) 8.8%
B) 9.5%
C) 21.0%
D) 22.8%

Question 42

Use the table for the question(s) below.
Consider the following income statement and other information:

Calculate Luther's return of equity (ROE),return of assets (ROA),and price-to-earnings ratio (P/E)for the year ending December 31,2008.

Question 43

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's EBIT coverage ratio for the year ending December 31,2008 is closest to:

A) 1.64
B) 1.78
C) 1.98
D) 2.19

Question 44

Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
Luther's Operating Margin for the year ending December 31,2008 is closest to:

A) 0.5%
B) 0.7%
C) 5.4%
D) 6.8%

Question 45

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's EBIT coverage ratio for the year ending December 31,2009 is closest to:

A) 1.64
B) 1.78
C) 1.98
D) 2.19

Question 46

Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
If ECE reported $15 million in net income,then ECE's Return on Assets (ROA)is:

A) 5.0%
B) 7.5%
C) 10.0%
D) 15.0%

Question 47

The firm's asset turnover measures

A) the value of assets held per dollar of shareholder equity.
B) the return the firm has earned on its past investments.
C) the firm's ability to sell a product for more than the cost of producing it.
D) how efficiently the firm is utilizing its assets to generate sales.

Question 48

Use the table for the question(s) below.
Consider the following income statement and other information:

If Luther's accounts receivable were $55.5 million in 2009,then calculate Luther's accounts receivable days for 2009.

Question 49

Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
If ECE's return on assets (ROA)is 12% ,then ECE's return on equity (ROE)is:

A) 10%
B) 12%
C) 18%
D) 24%

Question 50

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's earnings before interest,taxes,depreciation,and amortization (EBITDA)for the year ending December 31,2009 is closest to:

A) 19.7 million
B) 37.6 million
C) 41.2 million
D) 44.8 million

Question 51

Use the information for the question(s) below.
In November 2009, Perrigo Co. (PRGO) had a share price of $39.20. They had 91.33 million shares outstanding, a market-to-book ratio of 3.76. In addition, PRGO had $845.01 million in outstanding debt, $163.82 million in net income, and cash of $257.09 million.
Perrigo's return on equity (ROE)is closest to:

A) 4.6%
B) 9.1%
C) 17.2%
D) 27%

Question 52

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's return on assets (ROA)for the year ending December 31,2009 is closest to:

A) 1.6%
B) 2.0%
C) 2.3%
D) 2.6%

Question 53

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's Net Profit Margin for the year ending December 31,2008 is closest to:

A) 1.8%
B) 2.7%
C) 5.4%
D) 16.7%

Question 54

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's EBITDA coverage ratio for the year ending December 31,2009 is closest to:

A) 1.64
B) 1.78
C) 1.98
D) 2.19

Question 55

Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
If ECE reported $15 million in net income,then ECE's Return on Equity (ROE)is:

A) 5.0%
B) 7.5%
C) 10.0%
D) 15.0%

Question 56

Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
If ECE's net profit margin is 8% ,then ECE's return on equity (ROE)is:

A) 10%
B) 12%
C) 24%
D) 30%

Question 57

Use the table for the question(s) below.
Consider the following income statement and other information:

Wyatt Oil has a net profit margin of 4.0%,a total asset turnover of 2.2,total assets of $525 million,and a book value of equity of $220 million.Wyatt Oil's current return-on-equity (ROE)is closest to:

A) 8.8%
B) 9.5%
C) 21.0%
D) 22.8%

Question 58

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's price - earnings ration (P/E)for the year ending December 31,2009 is closest to:

A) 7.9
B) 10.1
C) 15.4
D) 16.0

Question 59

Use the following information for ECE incorporated:
Assets $200 million
Shareholder Equity $100 million
Sales $300 million
If ECE's return on assets (ROA)is 12% ,then ECE's net income is:

A) $6 million
B) $12 million
C) $24 million
D) $36 million

Question 60

Use the table for the question(s) below.
Consider the following income statement and other information:

Luther's return on equity (ROE)for the year ending December 31,2009 is closest to:

A) 2.0%
B) 6.5%
C) 8.4%
D) 12.7%

Question 61

The inventory days ratio measures

A) the average length of time it takes a company to sell its inventory.
B) the average length of time it takes the company's suppliers to deliver its inventory.
C) the level of sales required to keep a company's average inventory on the books.
D) the percentage change in inventory over the past year.

Question 62

Use the tables for the question(s) below.
Consider the following financial information:

For the year ending December 31,2009 Luther's cash flow from financing activities is?

Question 63

Which of the following statements regarding net income transferred to retained earnings is correct?

A) Net income = net income transferred to retained earnings - dividends
B) Net income transferred to retain earnings = net income + dividends
C) Net income = net income transferred to retain earnings + dividends
D) Net income transferred to retain earnings - net income = dividends

Question 64

The Sarbanes-Oxley Act (SOX)stiffened penalties for providing false information by

A) requiring the CEO and CFO to return bonuses or profits from the sale of stock that are later shown to be due to misstated financial reports.
B) imposing large compliance costs on small companies.
C) requiring auditing firms to have long-standing relationships with their clients and receive lucrative auditing and consulting fees from them.
D) putting strict limits on the amount of non-audit fees (consulting or otherwise) that an accounting firm can earn from a firm that it audits.

Question 65

Suppose Novak Company experienced a reduction in its ROE over the last year.This fall could be attributed to

A) an increase in Net Profit Margin.
B) a decrease in Asset Turnover.
C) an increase in Leverage.
D) a decrease in Equity.

Question 66

Which of the following adjustments to net income is not correct if you are trying to calculate cash flow from operating activities?

A) Add increases in accounts payable
B) Add back depreciation
C) Add increases in accounts receivable
D) Deduct increases in inventory

Question 67

Off-balance sheet transactions are required to be disclosed

A) in the management discussion and analysis.
B) in the auditor's report.
C) in the Securities and Exchange Commission's commentary.
D) in the statement of stockholders' equity.

Question 68

Use the tables for the question(s) below.
Consider the following financial information:

For the year ending December 31,2009 Luther's cash flow from operating activities is ?

Question 69

In addition to the balance sheet,income statement,and the statement of cash flows,a firm's complete financial statements will include all of the following except:

A) Management discussion and Analysis
B) Notes to the financial statements
C) Securities and Exchange Commission's (SEC) commentary
D) Statement of stockholders' equity

Question 70

If Alex Corporation takes out a bank loan to purchase a machine used in production and everything else stays the same,its equity multiplier will ________,and its ROE will ________.

A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase

Question 71

Details of acquisitions,spin-offs,leases,taxes,and risk management activities are given

A) in the management discussion and analysis.
B) in the Securities and Exchange Commission's commentary.
C) in the auditor's report.
D) in the notes to the financial statements.

Question 72

If Firm A and Firm B are in the same industry and use the same production method,and Firm A's asset turnover is higher than that of Firm B,then all else equal we can conclude

A) Firm A is more efficient than Firm B.
B) Firm A has a lower dollar amount of assets than Firm B.
C) Firm A has higher sales than Firm B.
D) Firm A has a lower ROE than Firm B.

Question 73

The firm's equity multiplier measures

A) the value of assets held per dollar of shareholder equity.
B) the return the firm has earned on its past investments.
C) the firm's ability to sell a product for more than the cost of producing it.
D) how efficiently the firm is utilizing its assets to generate sales.

Question 74

Which of the following adjustments is not correct if you are trying to calculate cash flow from financing activities?

A) Add dividends paid
B) Add any increase in long term borrowing
C) Add any increase in short-term borrowing
D) Add proceeds from the sale of stock

Question 75

The Sarbanes-Oxley Act (SOX)was passed by Congress in 2002,in response to

A) financial scandals, including WorldCom and Enron.
B) financial scandals, including Bernie Madoff and AIG.
C) financial scandals, including General Motors and Chrysler.
D) the Troubled Asset Relief Program (TARP).

Question 76

If Moon Corporation has an increase in sales,which of the following would result in no change in its EBIT margin?

A) A proportional increase in its net income
B) A proportional decrease in its EBIT
C) A proportional increase in its EBIT
D) An increase in its operating expenses

Question 77

If Moon Corporation's gross margin declined,which of the following is true?

A) Its cost of goods sold increased.
B) Its cost of goods sold as a percent of sales increased.
C) Its sales increased.
D) Its net profit margin was unaffected by the decline.

Question 78

Which of the following is not a section on the cash flow statement?

A) Income generating activities
B) Investing activities
C) Operating activities
D) Financing activities

Question 79

The DuPont Identity expresses the firm's ROE in terms of

A) profitability, asset efficiency, and leverage.
B) valuation, leverage, and interest coverage.
C) profitability, margins, and valuation.
D) equity, assets, and liabilities.

Question 80

Which of the following is not a reason why cash flow may not equal net income?

A) Amortization is added in when calculating net income.
B) Changes in inventory will change cash flows but not income.
C) Capital expenditures are not recorded on the income statement.
D) Depreciation is deducted when calculating net income.