1. Cost of goods sold refers to ___________. A. direct costs attributable to pro

Question

1. Cost of goods sold refers to ___________. A. direct costs attributable to producing the product sold by the firm B. salaries, advertising and selling expenses C. payments to the firm's creditors D. payments to federal and local governments 2. If the interest rate on debt is higher than the ROA, then a firm's ROE will _________. A. decrease B. increase C. not change D. change but in an indeterminable manner 3. Which of the following is not one of the three key financial statements available to investors in publicly traded firms? A. Income statement B. Balance sheet C. Statement of operating earnings D. Statement of cash flows 4. Common size balance sheets are prepared by dividing all quantities by ____________. A. total assets B. total liabilities C. shareholder's equity D. fixed assets 5. Operating ROA is calculated as __________ while ROE is calculated as _________. A. EBIT/Total Assets; Net Profit/Total Assets B. Net Profit/Total Assets; EBIT/Total Assets C. EBIT/Total Assets; Net Profit/Equity D. Net Profit/EBIT; Sales/Total Assets 6. Which one of the following ratios is used to calculate the times interest earned ratio? A. Net profit/Interest expense B. Pretax profit/EBIT C. EBIT/Sales D. EBIT/Interest expense 7. Which of the following is not a ratio used in the DuPont analysis? A. Interest burden B. Profit margin C. Asset turnover D. Earnings yield ratio 8. By 2008, over 100 countries have adopted financial reporting standards which are in conformance with ________. A. GAAP B. IFRS C. FASB D. GASB 9. Economic Value Added (EVA) is: A. The difference between the return on assets and the opportunity cost of capital times the capital base B. ROA x ROE C. A measure of the firm's abnormal return D. Largest for high growth firms 10. A high price to book ratio may indicate which one of the following? A. The firm expanded its plant and equipment in the past few years. B. The firm is doing a better job controlling its inventory expense than other related firms. C. Investors may believe that this firm has opportunities of earnings a rate of return excess of the market capitalization rate. D. The firm's P/E ratio is too high. 11. Which of the following would result in a cash inflow under the heading cash flow from investing in the statement of cash flows? A. Purchase of capital equipment B. Payments to suppliers for inventory C. Collections on receivables D. Sale of production machinery 12. When assessing sustainability of a firm's cash flows, analysts will prefer to see cash growth generated from which of the following sources? A. Cash flow from investment activities B. Cash flow from operating activities C. Cash flow from financing D. Cash flow from extraordinary events 13. Which of the following transactions will result in a decrease in cash flow from operations? A. Increase in accounts receivable B. Decrease in inventories C. Decrease in taxes payable D. Decrease in bonds outstanding 14. Which of the following transactions will result in a decrease in cash flow from investments? A. Acquisition of another business B. Capital gain from sale of a subsidiary C. Decrease in net investments D. Sale of equipment 15. Which of the following results in an increase in cash to the firm? A. Dividends paid B. A delay in collecting on accounts receivable C. Net new investments D. Increase in accounts payable

Explanation / Answer

A. direct costs attributable to producing the product sold by the firm C. not change B. Balance sheet A. total assets C. EBIT/Total Assets; Net Profit/Equity C. EBIT/SalesA. Interest burden B. IFRS A. The difference between the return on assets and the opportunity cost of capital times the capital base C. Investors may believe that this firm has opportunities of earnings a rate of return excess of the market capitalization rate. A. Purchase of capital equipment C. Cash flow from financing C. Decrease in taxes payable A. Acquisition of another business A. Dividends paid

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