Deck 13: Suggestions for Case Analysis

Question 1

A Z-value below 10 indicates significant credit problems.

Answer 1

False

Question 2

SEC 10-K forms include detailed information not usually available in an annual report.

Answer 2

True

Question 3

Unless instructed otherwise,you should not restrict yourself only to the information and timing of when the case was written and undertake outside research about the environmental setting.

Answer 3

True

Question 4

According to the text,what percentage of security analysts use annual reports when making decisions?

A) 20%
B) 35%
C) 50%
D) 75%
E) 100%

Question 5

In case analysis,you might be asked to critically analyze a situation in which a manager had to make a decision of long-term corporate importance.

Question 6

According to the Yankelovich Partners survey firm,eight out of ten portfolio managers and 75 percent of security analysts use annual reports when making decisions.

Question 7

What has been the most popular method of teaching strategy and policy for years?

A) lecture
B) case analysis
C) team teaching
D) group presentations
E) student teaching

Question 8

According to the text,what information can be obtained by accessing the SEC website?

A) corporate annual reports and 10-K forms
B) press releases
C) product specifications
D) research and development trends
E) information about graduate school

Question 9

Cases present actual business situations and enable you to examine only successful corporations.

Question 10

The case method provides the opportunity to move from a broader,less precise analysis of the overall corporation to a narrow,specialized view that emphasizes functional techniques.

Question 11

Case analysis is the most popular method of teaching strategy.

Question 12

Among the most useful and important documents that can be used to understand why actions were taken are

A) news releases.
B) product specification reports.
C) its corporate history.
D) annual reports.
E) 10-K forms.

Question 13

A company's annual report from the year of the case can be helpful,but the SEC 10-K form is not beneficial for those conducting a case analysis.

Question 14

According to the text,what percentage of portfolio managers uses annual reports when making decisions?

A) 20%
B) 35%
C) 50%
D) 60%
E) 80%

Question 15

Ratio analysis is a valuable part of SWOT analysis,helping to assess the company's overall situation and pinpoint some problem areas.

Question 16

The case analysis approach provides students with what it is like to make and implement strategic decisions.

Question 17

All of the following are true of annual reports EXCEPT

A) 80% of portfolio managers use annual reports when making decisions.
B) annual reports contain income statements and balance sheets.
C) annual reports contain cash flow statements.
D) annual reports contain all the information found in the 10-K form.
E) annual reports contain notes to the financial statements indicating why certain actions were taken.

Question 18

When preparing a case analysis,you should always undertake outside research and go beyond the decision date of the case.

Question 19

The case method offers the opportunity to move from a narrow,specialized view that emphasizes functional techniques to a broader,less precise analysis of the overall corporation.

Question 20

What is the main purpose of conducting outside research into the environmental setting of the case?

A) It allows students to identify how the company addressed the problem.
B) It provides a learning experience on library usage, which is helpful in all courses.
C) It gives a realistic background of the industry during a specified period.
D) It gives you clues as to what the organization should be doing in the future.
E) It furnishes large amounts of data-both pertinent and extraneous.

Question 21

Net profit margin is what type of financial ratio?

A) liquidity ratio
B) profitability ratio
C) activity ratio
D) leverage ratio
E) revenue ratio

Question 22

Which financial ratio measures the rate of return on the book value of shareholders' total investment in the company?

A) return on investment
B) return on equity
C) gross profit margin
D) net profit margin
E) earnings per share

Question 23

Which financial ratio measures the extent to which the company's capital is in cash or cash equivalents?

A) quick ratio
B) current ratio
C) cash ratio
D) strategic ratio
E) inventory ratio

Question 24

The quick ratio is also known as the

A) key profitability ratio.
B) EPS.
C) acid test.
D) asset turnover.
E) key activity ratio.

Question 25

"Days of inventory" is an example of a(n)

A) leverage ratio.
B) liquidity ratio
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 26

Which financial ratio shows the after-tax earnings generated for each share of common stock?

A) return on investment
B) return on equity
C) gross profit margin
D) earnings per share
E) net profit margin

Question 27

Which financial ratio measures the number of times that average inventory of finished goods was turned over or sold during a period of time?

A) days of inventory
B) asset turnover
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 28

Which of the following is not one of the categories of important financial ratios that are mentioned in the text to help assess an organization's overall financial situation?

A) leverage ratios
B) liquidity ratios
C) asset management ratios
D) activity ratios
E) profitability ratios

Question 29

All of the following represent liquidity ratios EXCEPT

A) cash ratio.
B) inventory to net working capital.
C) quick ratio.
D) gross profit margin.
E) current ratio.

Question 30

Return on equity

A) is an activity ratio.
B) shows how much after-tax profits are generated by each dollar of sales.
C) is referred to by the acronym ROI.
D) measures the rate of return on the book value of shareholders' total investment in the company.
E) is a leverage ratio.

Question 31

"Earnings per share" is an example of a(n)

A) leverage ratio.
B) liquidity ratio
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 32

All of the following ratios represent activity ratios EXCEPT

A) accounts payable period.
B) days of inventory.
C) net working capital turnover.
D) earnings per share.
E) days of cash.

Question 33

Which of the following financial ratios is not a profitability ratio?

A) net profit margin
B) gross profit margin
C) asset turnover
D) ROE
E) ROI

Question 34

"Inventory to net working capital" is an example of a(n)

A) leverage ratio.
B) liquidity ratio.
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 35

Which financial ratio shows the return on all of the assets under management's control regardless of source of financing?

A) return on investment
B) return on equity
C) earnings per share
D) gross profit margin
E) net profit margin

Question 36

The calculation of ratios from financial data is referred to as

A) SWOT analysis.
B) ratio analysis.
C) receivables analysis.
D) integration analysis.
E) diversification analysis.

Question 37

Which financial indicator measures the number of one day's worth of inventory that a company has on hand at any given time?

A) days of cash
B) days of inventory
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 38

Which financial ratio indicates how much after-tax profit is generated by each dollar of sales?

A) return on investment
B) return on equity
C) gross profit margin
D) net profit margin
E) inventory to net working capital

Question 39

Which financial ratio measures the company's ability to pay off its short-term obligations from current assets,excluding inventories?

A) quick ratio
B) current ratio
C) cash ratio
D) strategic ratio
E) inventory ratio

Question 40

What financial ratio serves as a short-term indicator of the company's ability to pay its short-term liabilities from its short-term assets?

A) quick ratio
B) current ratio
C) cash ratio
D) strategic ratio
E) inventory ratio

Question 41

Which financial indicator is calculated by the ratio of market price per share to earnings per share?

A) return on investment
B) price/earnings ratio
C) return on equity
D) dividend yield on common stock
E) dividend payout ratio

Question 42

Which financial indicator is calculated by the ratio of annual dividends per share to current market price per share?

A) return on equity
B) dividend payout ratio
C) dividend yield on common stock
D) price/earnings ratio
E) debt to equity ratio

Question 43

Which financial ratio measures the extent to which borrowed funds have been used to finance the company's assets?

A) debt to asset ratio
B) debt to equity ratio
C) long-term debt to capital structure
D) times interest earned
E) current liabilities to equity

Question 44

Which two basic statements provide most of the financial data needed for analysis?

A) statement of retained earnings and income statement
B) sources and uses of working capital and the balance sheet
C) non-operating gains and losses and statement of financial position
D) historical income statement and balance sheet
E) statement of financial position and statement of owner's equity

Question 45

"Times interest earned" is an example of a(n)

A) leverage ratio.
B) liquidity ratio.
C) activity ratio.
D) asset management ratio.
E) profitability ratio.

Question 46

Fixed asset turnover is what type of financial ratio?

A) liquidity ratio
B) profitability ratio
C) leverage ratio
D) activity ratio
E) revenue ratio

Question 47

Which financial ratio indicates the percentage of profit that is paid out as dividends?

A) return on equity
B) dividend payout ratio
C) dividend yield on common stock
D) price/earnings ratio
E) debt to asset ratio

Question 48

Which financial indicator is calculated by the ratio of annual dividends per share to annual earnings per share?

A) dividend payout ratio
B) dividend yield on common stock
C) price/earnings ratio
D) return on investment
E) return on equity

Question 49

Which financial ratio is a measure of the ability of the company to meet all of its fixed-charge obligations?

A) debt to asset ratio
B) debt to equity ratio
C) times interest earned
D) long-term debt to capital structure
E) coverage of fixed charges

Question 50

Which financial ratio measures the utilization of all of the company's assets?

A) days of inventory
B) asset turnover
C) inventory turnover
D) fixed asset turnover
E) average collection period

Question 51

Which financial ratio measures the utilization of plant and equipment?

A) days of inventory
B) asset turnover
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 52

Which financial indicator shows the current market's evaluation of a stock,based on its earnings?

A) debt to asset ratio
B) price/earnings ratio
C) coverage of fixed charges
D) debt to equity ratio
E) times interest earned

Question 53

Inventory turnover and asset turnover are both examples of which type of financial ratio?

A) liquidity ratio
B) profitability ratio
C) activity ratio
D) leverage ratio
E) revenue ratio

Question 54

Between 1997 and 1999,what percent of the mergers used the pooling approach to account for the value of the companies' stocks?

A) 95%
B) 80%
C) 55%
D) 40%
E) 20%

Question 55

Which financial ratio indicates the number of days of cash on hand,at present sales levels?

A) days of inventory
B) fixed asset turnover
C) days of cash
D) average collection period
E) inventory turnover

Question 56

Which financial indicator is calculated as the ratio of annual credit sales to accounts receivable?

A) days of cash
B) average collection period
C) accounts receivable turnover
D) inventory turnover
E) net working capital turnover

Question 57

All of the following ratios reflect leverage ratios EXCEPT

A) debt to asset ratio.
B) times interest earned.
C) coverage of fixed charges.
D) price/earnings ratio.
E) debt to equity ratio.

Question 58

Which financial ratio indicates the ability of the company to meet its annual interest costs?

A) debt to asset ratio
B) debt to equity ratio
C) times interest earned
D) long-term debt to capital structure
E) coverage of fixed charges

Question 59

Which financial indicator measures the ratio of sales to fixed assets?

A) days of inventory
B) asset turnover
C) average collection period
D) fixed asset turnover
E) inventory turnover

Question 60

Which financial ratio indicates the dividend rate of return to common shareholders at the current market price?

A) return on equity
B) dividend yield on common stock
C) price/earnings ratio
D) dividend payout ratio
E) earnings per share

Question 61

All of the following ratios are used in the calculation of a company's Z-value EXCEPT

A) working capital/total assets.
B) retained earnings/total assets.
C) current assets/current liabilities.
D) market value of equity/total liabilities.
E) sales/total assets.

Question 62

The formula that predicts the likelihood of a corporation going bankrupt is called

A) the return on investment.
B) the CAPM.
C) the index of sustainable growth.
D) operating cash flow.
E) the Z-value.

Question 63

To get a proper picture of the position of the organization,common-size statements and ratios should be compared to

A) the organization's future historical performance.
B) the leading competitor in the industry.
C) the financial performance of the overall U.S. gross domestic product (GDP).
D) the direct competitor least like the organization.
E) industry-wide average trends.

Question 64

Dollars adjusted for inflation to make them comparable over various years are known as

A) consumer dollars.
B) constant dollars.
C) consumer inflation.
D) constant inflation.
E) earning dollars.

Question 65

Ratios are only useful for large firms where their ratios may be compared with industry averages.

Question 66

At what Z-value level is a firm considered in serious trouble?

A) below 1.81
B) above 1.81
C) greater than 5.0
D) between 2.2 and 3.1
E) between 3.2 and 4.1

Question 67

Which of the following is not true of case analysis?

A) Case discussion focuses on critical analysis.
B) A solution is satisfactory if it resolves important problems and if it is likely to be implemented successfully.
C) Case analysis helps build analytic and decision-making skills.
D) A solution is satisfactory if it reflects what the company actually did.
E) Case discussion focuses on logical development of thought.

Question 68

The Z-value uses ________ ratios and weights them according to their importance to a corporation's financial strength.

A) 2
B) 3
C) 4
D) 5
E) 6

Question 69

To adjust for general inflation in the United States,what index does the text suggest?

A) Dow-Jones Industrial Average
B) New York Stock Exchange Index
C) Wilshire 5000 Equity Index
D) Consumer Price Index
E) NASDAQ Series

Question 70

What benefit does converting sales and profits to constant dollars in times of inflation offer when analyzing a case?

A) It is helpful in predicting the future potential of the organization.
B) It contributes to determining the risk factors when computing the Z-value.
C) It shows the true performance of the corporation adjusted for inflation to make them comparable over years.
D) It is easier for the financial analyst to judge the effectiveness of management's decision-making.
E) It provides a method that is familiar and easy to understand.

Question 71

Converting categories on financial statements from dollar terms to percentages results in

A) inflation-adjusted statements.
B) diverse rates of returns.
C) common-size statements.
D) constant dollar denominations.
E) equivalency comparison.

Question 72

The formula that indicates if a company embarking on a growth strategy will need to take on debt to fund this growth is called

A) the return on investment.
B) the CAPM.
C) the index of sustainable growth.
D) operating cash flow.
E) the Z-value.

Question 73

One of the most important categories of financial ratios is the group of liquidity ratios.

Question 74

________ is used worldwide and measures the total output of goods and services within a country's borders.

A) CPI
B) Prime interest rate
C) GDP
D) Z-Value
E) The Index of sustainable growth

Question 75

Ratio analysis is helpful in assessing the company's overall situation and pinpointing some problem areas.

Question 76

Key liquidity ratios include the current ratio,quick ratio,and cash ratio.

Question 77

The debt to asset ratio measures the extent to which borrowed funds have been used to finance the company's assets.

Question 78

An important liquidity ratio is Earnings per Share (EPS).

Question 79

In case analysis,it is best to make an exhibit that includes all the financial ratios.

Question 80

At what Z-value level is a firm considered healthy?

A) below 1.81
B) above 3.0
C) above 5.0
D) between 6.0 and 10.0
E) above 100