Question 1

Which of the following ratios is given the highest significance rating by controllers?
A) Current Ratio
B) Earning Per Share
C) Return on Equity - After Tax
D) Return on Assets - After Tax
E) Price/Earnings Ratio

Accepted Answer

B

Question 2

Most of the ratios given a high significance rating by commercial loan officers have a primary measure of liquidity or debt.

Accepted Answer

This is because the ability to meet short-term obligations and manage debt are critical factors in determining a business's financial stability and creditworthiness.

Question 3

Which of the following ratios appears most frequently in annual reports?
A) Earnings per Share
B) Return on Equity
C) Profit Margin
D) Effective Tax Rate
E) Debt/Equity

Accepted Answer

Earnings per share is the ratio that appears most frequently in annual reports as it is a key indicator of a company's profitability and financial performance. It is also commonly used by investors and analysts to evaluate the company's potential returns. The other ratios listed are also important, but not as commonly reported as earnings per share.

Question 4

Which of the following ratios is a primary measure of liquidity according to the corporate controller survey?
A) Earnings per Share
B) Debt/Equity Ratio
C) Return on Equity after Tax
D) Current Ratio
E) None of the answers are correct

Accepted Answer

The primary measure of liquidity is the ability of a company to pay its debts in the short-term. The current ratio measures a company's ability to do just that by comparing current assets to current liabilities. The other choices listed do not directly measure liquidity.

Question 5

Which of the following statements is not true?
A) A review of financial statements, including the notes, will indicate how conservative the statements are in regard to accounting policies.
B) Accounting policies that result in the slowest reporting of income are the most conservative.
C) When a firm has conservative accounting policies, it is said that its earnings are of high quality.
D) Under inflationary conditions, the least conservative inventory method is fifo.
E) Conservative accounting policies always result in the lowest reported income for any given period of time.

Accepted Answer

Conservative accounting policies aim to present a company's financial situation in a cautious manner, but they do not always result in the lowest reported income for any given period. The impact of these policies can vary based on the specific circumstances and choices made, such as the method of depreciation or inventory valuation used.

Question 6

Which of the following ratios is rated to be a primary measure of liquidity and the highest significance rating of the liquidity ratios according to commercial loan departments?
A) Debt/Equity
B) Current Ratio
C) Degree of Financial Leverage
D) Inventory Turnover in Days
E) Accounts Receivable Turnover in Days

Accepted Answer

The current ratio (current assets divided by current liabilities) is rated as the primary measure of liquidity and has the highest significance rating of the liquidity ratios according to commercial loan departments. This is because it measures a company's ability to meet short-term obligations with its current assets. The other ratios listed are not primarily focused on liquidity but instead measure factors such as debt levels, leverage, and inventory and accounts receivable management.

Question 7

Which of the following ratios is given the highest significance rating by commercial loan officers?
A) Inventory Turnover In Days
B) Degree of Financial Leverage
C) Times Interest Earned
D) Fixed Charge Coverage
E) Debt/Equity

Accepted Answer

The answer of Which of the following ratios is given...

Question 8

There are many definitions or descriptions given to financial failure.Which of the following does not appear to be a reasonable definition or description.
A) refinancing of bonds payable
B) liquidation
C) deferment of payments to short-term creditors
D) deferment of payments of interest on bonds
E) deferment of payments of principal on bonds

Accepted Answer

Refinancing of bonds payable may be a strategic move to manage debt, rather than a sign of financial failure. It involves obtaining new financing to pay off existing debt at more favorable terms.

Question 9

Which of the following statements is not true?
A) The depreciation method and the period of time selected to depreciate an asset can have a significant influence on income.
B) There are many depreciation methods.
C) The depreciation methods that recognize a large amount of depreciation in the later years of an asset's life are conservative.
D) The straight-line depreciation method recognizes depreciation in equal amounts over each year of the life of the asset.
E) There is sometimes a material difference in the lives used for depreciation between firms.

Accepted Answer

The statement "The depreciation methods that recognize a large amount of depreciation in the later years of an asset's life are conservative" is not true. Instead, depreciation methods that recognize a large amount of depreciation in the earlier years of an asset's life are considered conservative because they reflect the assumption that the asset will lose value quickly in its early years.

Question 10

Which of the following variables indicates a measure of cumulative profitability over time?
A) retained earnings (balance sheet)/total assets
B) earnings before interest and taxes/total assets
C) working capital/total assets
D) market value of equity/book value of total debt
E) sales/total assets

Accepted Answer

Retained earnings represent the accumulated net income of a company that has been retained, rather than distributed to shareholders as dividends, thus indicating cumulative profitability over time.

Question 11

Which of the following is not a reasonable matching?

Accepted Answer

The answer of Which of the following is not a...

Question 12

Edward I.Altman developed a multivariate model to predict bankruptcy.The model produces an overall discriminant score called a Z value.Which of the following statements is probably an unreasonable statement relating to the Z value?
A) The sales generating ability of the firm's assets is one of the important considerations in the Z value.
B) The lack of a market value for a company's stock will reduce the significance of the Z value approach.
C) Total assets is an important consideration in the Z value computation.
D) Cumulative profitability over time is considered in the Z value computation.
E) A Z score of 2.00 or below indicates a very healthy company.

Accepted Answer

A Z score of 2.00 or below actually indicates a high risk of bankruptcy, not a very healthy company.

Question 13

Which of the following is not a discounted cash flow model for valuation?
A) free cash flow
B) dividend discount model
C) discounted cash flow
D) discounted abnormal earnings
E) all of the answers are discounted cash flow models

Accepted Answer

Discounted abnormal earnings is not a traditional discounted cash flow model; it focuses on the residual income approach rather than cash flows.

Question 14

Which of the following ratios is given the highest significance rating by Certified Public Accountants?
A) Quick Ratio
B) Debt/Equity
C) Net Profit Margin
D) Current Ratio
E) Times Interest Earned

Accepted Answer

The answer of Which of the following ratios is given...

Question 15

Which financial ratio appears most frequently in loan agreements according to commercial loan officers?
A) Quick Ratio
B) Cash Flow/Total Debt
C) Debt/Equity
D) Times Interest Earned
E) Cash ratio

Accepted Answer

The answer of Which financial ratio appears most frequently in...

Question 16

Which of the following is not a multiple approach to valuation?
A) discounted cash flow
B) price-to-earnings (PE)
C) price-to-book
D) price-to-operating cash flow
E) price-to-sales

Accepted Answer

Discounted cash flow (DCF) is a valuation method that estimates the value of an investment based on its expected future cash flows, rather than using multiples like the other options.

Question 17

Tom Copeland, Tim Keller, and Jack Morrin, on their book Valuation, Measuring and Managing the Value of Companies, observed that acquirers paid too much for companies because of all but one of the following reasons:
A) market potential greater than estimated
B) overoptimistic appraisal of market potential
C) overestimation of synergies
D) poor due diligence
E) overbidding

Accepted Answer

The correct reason that does not fit the observation by Copeland, Keller, and Morrin is A) market potential greater than estimated. This is because paying too much for companies is typically associated with overestimations or errors in judgment (like overoptimism, overestimation of synergies, poor due diligence, or overbidding), rather than underestimating a company's market potential.

Question 18

In financial accounting, which of the following assets is not considered to be an intangible asset?
A) goodwill
B) patents
C) copyrights
D) trademarks
E) accounts receivable

Accepted Answer

Accounts receivable is considered a tangible asset because it represents money owed to a company that can be converted into cash, unlike intangible assets which do not have physical substance.

Question 19

Which of the following depreciation methods is considered to be the least conservative?
A) Sum-of-the-Years' Digits
B) Declining-Balance Method
C) Straight-Line
D) each method is equally conservative
E) Sum-of-the-Years' Digits and Declining-Balance Method are equally conservative

Accepted Answer

The straight-line method is considered the least conservative because it spreads the cost of the asset evenly over its useful life, resulting in a consistent depreciation expense each year, unlike accelerated methods which front-load depreciation expenses.

Question 20

The Beaver Study indicated the following ratio (ratios) to be the best for forecasting financial failure.
A) cash flow/total debt
B) net income/total assets
C) total debt/total assets
D) cash flow/total debt and net income/total assets
E) all of the answers are correct

Accepted Answer

The answer of The Beaver Study indicated the following ratio...

Quiz 11: Expanded Analysis

Which of the following ratios is given the highest significance rating by controllers?

Most of the ratios given a high significance rating by commercial loan officers have a primary measure of liquidity or debt.

Which of the following ratios appears most frequently in annual reports?

Which of the following ratios is a primary measure of liquidity according to the corporate controller survey?

Which of the following statements is not true?

Which of the following ratios is rated to be a primary measure of liquidity and the highest significance rating of the liquidity ratios according to commercial loan departments?

Which of the following ratios is given the highest significance rating by commercial loan officers?

There are many definitions or descriptions given to financial failure.Which of the following does not appear to be a reasonable definition or description.

Which of the following statements is not true?

Which of the following variables indicates a measure of cumulative profitability over time?

Which of the following is not a reasonable matching?

Edward I.Altman developed a multivariate model to predict bankruptcy.The model produces an overall discriminant score called a Z value.Which of the following statements is probably an unreasonable statement relating to the Z value?

Which of the following is not a discounted cash flow model for valuation?

Which of the following ratios is given the highest significance rating by Certified Public Accountants?

Which financial ratio appears most frequently in loan agreements according to commercial loan officers?

Which of the following is not a multiple approach to valuation?

Tom Copeland, Tim Keller, and Jack Morrin, on their book Valuation, Measuring and Managing the Value of Companies, observed that acquirers paid too much for companies because of all but one of the following reasons:

In financial accounting, which of the following assets is not considered to be an intangible asset?

Which of the following depreciation methods is considered to be the least conservative?

The Beaver Study indicated the following ratio (ratios) to be the best for forecasting financial failure.