Chapter 1—Overview of Financial Reporting, Financial Statement Analysis, and Valuation
MULTIPLE CHOICE
1. The tools for studying industry economics does not include
a. Value chain analysis
b. Classification using Porter’s five forces
c. Classification of cash flows
d. Economic attributes framework
ANS: C PTS: 1
2. Which of the following is a question an analyst would ask when assessing the quality of a
firm’s financial statements?
a. Are the company’s products designed to meet a specific market segment?
b. Has the firm integrated forward into retailing to final consumers?
c. Is the firm diversified across several geographical markets?
d. Do earnings include nonrecurring gains or losses?
ANS: D PTS: 1
3. Which of the following economic characteristics is consistent with a grocery store chain?
a. Minimal competition
b. Extensive competition
c. High net income to sales
d. Differentiated product
, ANS: B PTS: 1
4. On a common size basis, which of the following assets is normally largest for an electric
utility?
a. Accounts receivable
b. Inventory
c. Property, Plant and Equipment
d. Cash and Marketable Securities
ANS: C PTS: 1
5. On a common size basis, which of the following assets is normally largest for a commercial
bank?
a. Accounts and Notes Receivable
b. Inventory
c. Property, Plant and Equipment
d. Cash and Marketable Securities
ANS: A PTS: 1
6. Which of the following is not one of Porter’s five forces?
a. Buyer Power
b. Supplier Power
c. Threat of Regulation
d. Threat of Substitutes
ANS: C PTS: 1
,7. When assessing buyer power using Porter’s five forces, which of the following is not
consistent with low buyer power?
a. Brand loyalty
b. Control of distribution channel
c. Large number of suppliers
d. Low price
ANS: C PTS: 1
8. The second step in financial statement analysis is to identify the company strategy. Which of
the following is a question an analyst should ask when performing a strategy analysis?
a. Are industry sales growing rapidly or slowly?
b. Do earnings include revenues that appear mismatched with the business model
employed by the firm?
c. Does the industry include a large number of firms selling similar products?
d. What is the company’s degree of geographical diversification?
ANS: D PTS: 1
9. The third step in financial statement analysis is to assess the quality of the firm’s financial
statements. Which of the following is a question an analyst should ask when performing this
step?
a. Are industry sales growing rapidly or slowly?
b. Do earnings include revenues that appear mismatched with the business model
employed by the firm?
c. Does the industry include a large number of firms selling similar products?
d. What is the company’s degree of geographical diversification?
, ANS: B PTS: 1
10. An example of an intangible asset is
a. A patent
b. Land
c. Investment in another company
d. Raw material inventory
ANS: A PTS: 1
11. Which of the following would not appear as a liability on the balance sheet?
a. A labor contract
b. A note due to a bank
c. Salary due employees at year-end
d. Accounts payable
ANS: A PTS: 1
12. Which of the following assets would appear on the balance sheet at an amount greatly
below its fair market value?
a. Inventory
b. Marketable securities
c. Equipment
d. Brand name
ANS: D PTS: 1
MULTIPLE CHOICE
1. The tools for studying industry economics does not include
a. Value chain analysis
b. Classification using Porter’s five forces
c. Classification of cash flows
d. Economic attributes framework
ANS: C PTS: 1
2. Which of the following is a question an analyst would ask when assessing the quality of a
firm’s financial statements?
a. Are the company’s products designed to meet a specific market segment?
b. Has the firm integrated forward into retailing to final consumers?
c. Is the firm diversified across several geographical markets?
d. Do earnings include nonrecurring gains or losses?
ANS: D PTS: 1
3. Which of the following economic characteristics is consistent with a grocery store chain?
a. Minimal competition
b. Extensive competition
c. High net income to sales
d. Differentiated product
, ANS: B PTS: 1
4. On a common size basis, which of the following assets is normally largest for an electric
utility?
a. Accounts receivable
b. Inventory
c. Property, Plant and Equipment
d. Cash and Marketable Securities
ANS: C PTS: 1
5. On a common size basis, which of the following assets is normally largest for a commercial
bank?
a. Accounts and Notes Receivable
b. Inventory
c. Property, Plant and Equipment
d. Cash and Marketable Securities
ANS: A PTS: 1
6. Which of the following is not one of Porter’s five forces?
a. Buyer Power
b. Supplier Power
c. Threat of Regulation
d. Threat of Substitutes
ANS: C PTS: 1
,7. When assessing buyer power using Porter’s five forces, which of the following is not
consistent with low buyer power?
a. Brand loyalty
b. Control of distribution channel
c. Large number of suppliers
d. Low price
ANS: C PTS: 1
8. The second step in financial statement analysis is to identify the company strategy. Which of
the following is a question an analyst should ask when performing a strategy analysis?
a. Are industry sales growing rapidly or slowly?
b. Do earnings include revenues that appear mismatched with the business model
employed by the firm?
c. Does the industry include a large number of firms selling similar products?
d. What is the company’s degree of geographical diversification?
ANS: D PTS: 1
9. The third step in financial statement analysis is to assess the quality of the firm’s financial
statements. Which of the following is a question an analyst should ask when performing this
step?
a. Are industry sales growing rapidly or slowly?
b. Do earnings include revenues that appear mismatched with the business model
employed by the firm?
c. Does the industry include a large number of firms selling similar products?
d. What is the company’s degree of geographical diversification?
, ANS: B PTS: 1
10. An example of an intangible asset is
a. A patent
b. Land
c. Investment in another company
d. Raw material inventory
ANS: A PTS: 1
11. Which of the following would not appear as a liability on the balance sheet?
a. A labor contract
b. A note due to a bank
c. Salary due employees at year-end
d. Accounts payable
ANS: A PTS: 1
12. Which of the following assets would appear on the balance sheet at an amount greatly
below its fair market value?
a. Inventory
b. Marketable securities
c. Equipment
d. Brand name
ANS: D PTS: 1
