Financial Statement Analysis Exam questions |\ |\ |\ |\ |\
with answers |\
An industry having a high degree of competition and low profit
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
margins would be characterized by:
|\ |\ |\ |\ |\
A. Many rivals, high legal barriers to entry, low product
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
differentiation |\
B. Few barriers to entry, high first mover advantage, high product
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
differentiation
|\
|\ C. Few rivals, low distribution access, high switching costs
|\ |\ |\ |\ |\ |\ |\ |\ |\
D. Many rivals, few barriers to entry, low switching costs
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
E. Supply < demand, low supplier switching costs, steep industry
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
learning curves - CORRECT ANSWERS ✔✔Answer D
|\ |\ |\ |\ |\ |\
Acquirer Company buys Target Company. Target's pre-acquisition
|\ |\ |\ |\ |\ |\ |\
balance sheet at historical cost showed Total Assets at $900,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
and Total Liabilities at $300,000. Upon acquisition, Acquirer
|\ |\ |\ |\ |\ |\ |\ |\
revalued Target's identifiable assets at $1,600,000 and liabilities
|\ |\ |\ |\ |\ |\ |\ |\
at $360,000. Acquirer paid $2,000,000 in cash for Target.
|\ |\ |\ |\ |\ |\ |\ |\ |\
Determine the amount of Goodwill Acquirer must recognize in the
|\ |\ |\ |\ |\ |\ |\ |\ |\
purchase of Target.
|\ |\ |\
A. $1,460,000 B. $1,400,000 C. $760,000 D. $780,000 E.
|\ |\ |\ |\ |\ |\ |\ |\ |\
$820,000 - CORRECT ANSWERS ✔✔C. $760,000 |\ |\ |\ |\ |\
1600000-360000= 1240000 |\
,2000000-1240000= 760000 |\
3. The last possible line item reported on the income statement
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
is:
A. Net Revenue B. Operating Income C. Gross Profit D. Income
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
from Continuing Operations E. Net Income - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔Answer E Net Income |\ |\ |\
The ability of diamond miners to dictate price and quantity to
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
jewelry makers and sellers is an example of:
|\ |\ |\ |\ |\ |\ |\
A. Customer bargaining power B. Supplier bargaining power C.
|\ |\ |\ |\ |\ |\ |\ |\ |\
Product differentiation D. Barriers to entry E. Fixed-variable cost
|\ |\ |\ |\ |\ |\ |\ |\ |\
ratios - CORRECT ANSWERS ✔✔B. supplier bargaining power
|\ |\ |\ |\ |\ |\ |\
The figure below is a simple income statement. Use the figure to
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
answer questions 5 and 6: |\ |\ |\ |\
PERIOD ENDING 31-Dec-14 31-Dec-15 Total Revenue
|\ |\ |\ |\ |\ |\ |\
129,184,000 161,480,000 Cost of Revenue 90,428,800 |\ |\ |\ |\ |\ |\
96,888,000 Gross Profit 38,755,200 64,592,000 Operating |\ |\ |\ |\ |\ |\
Expenses Research & Development 498,000 610,000 Selling
|\ |\ |\ |\ |\ |\ |\
General and Administrative 5,948,000 7,538,000 Total Operating
|\ |\ |\ |\ |\ |\ |\
Expenses 6,446,000 8,148,000 Operating Income or Loss
|\ |\ |\ |\ |\ |\ |\
32,309,200 56,444,000 5. What was the cost of goods sold for |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
the year ending December 31, 2015. - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔Cost of revenue |\ |\
Assuming investors only care about intrinsic value, managers
|\ |\ |\ |\ |\ |\ |\ |\
should attempt to maximize shareholder wealth by increasing the
|\ |\ |\ |\ |\ |\ |\ |\
stock price.
|\ |\
,True or False - CORRECT ANSWERS ✔✔False
|\ |\ |\ |\ |\ |\
An entrepreneur is attempting to sell you a 20% stake in his
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
company in exchange for $1 million dollars. They plan to invest
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
all of their retained earnings and your $1 million back into the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
company to help it grow. The company is only one year old and
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
their revenue last year was $4 million dollars. Because it is a new
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
company, fixed costs are practically zero; so, the only cost is the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
cost of goods sold. Their cost of goods sold is $2,000 and their
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
current gross profit margin is 50%. You estimate that only 1,200
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
people will want the product (including those that already
|\ |\ |\ |\ |\ |\ |\ |\ |\
purchased it). Should you invest? - CORRECT ANSWERS ✔✔No
|\ |\ |\ |\ |\ |\ |\ |\
Which of the following is true regarding accrual accounting?
|\ |\ |\ |\ |\ |\ |\ |\
A. Accrual accounting is the basis for inputs into most financial
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
models.
B. Accrual accounting attempts to measure the period in which
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
cash flows occur.|\ |\
C. Accrual accounting attempts to measure economic activities
|\ |\ |\ |\ |\ |\ |\ |\ |\
in the period transactions take place, regardless of when cash
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
flows transpire. |\ |\
D. Accrual accounting forces land acquisitions to be recorded at
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
historical cost. E. Accrual accounting mostly affects the
|\ |\ |\ |\ |\ |\ |\ |\
statement of cash flows. - CORRECT ANSWERS ✔✔Answer C
|\ |\ |\ |\ |\ |\ |\ |\
Which of the following shows a proper sequence on an income
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
statement: |\
A. Net Revenue, Gross Profit, Depreciation Expense, Net Income,
|\ |\ |\ |\ |\ |\ |\ |\ |\
Operating Income |\ |\
, B. Sales, Operating Income, Gross Profit, Depreciation Expense,
|\ |\ |\ |\ |\ |\ |\ |\
Net Income |\
C. Net Revenue, Gross Profit, Depreciation Expense, Operating
|\ |\ |\ |\ |\ |\ |\ |\ |\
Income, Net Income |\ |\
D. Sales, Operating Income, Depreciation Expense, Net Income,
|\ |\ |\ |\ |\ |\ |\ |\ |\
Gross Profit |\ |\
E. Net Revenue, Depreciation Expense, Gross Profit, Operating
|\ |\ |\ |\ |\ |\ |\ |\
Income, Net Income - CORRECT ANSWERS ✔✔C. Net Revenue,
|\ |\ |\ |\ |\ |\ |\ |\ |\
Gross Profit, Depreciation Expense, Operating Income, Net
|\ |\ |\ |\ |\ |\ |\
Income
Which of the following, if absolutely true in the real world, would
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
make financial statement analysis useless?
|\ |\ |\ |\
|\ A. Technical analysis and momentum trading B. the Capital Asset
|\ |\ |\ |\ |\ |\ |\ |\ |\
|\ Pricing Model (CAPM) |\ |\
|\ C. Strong Form Efficiency Market Hypothesis
|\ |\ |\ |\ |\ |\
D. Modigliani and Miller Theorem
|\ |\ |\ |\ |\
E. Stagflation or negative interest rates - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔C. Strong Form Efficiency Market Hypothesis
|\ |\ |\ |\ |\
Which of the following investment strategies is most consistent
|\ |\ |\ |\ |\ |\ |\ |\ |\
with financial statement analysis?
|\ |\ |\
A. Fundamental analysis
|\ |\ |\
B. Technical analysis
|\ |\ |\
C. Passive investing
|\ |\ |\
D. All of the above
|\ |\ |\ |\ |\
with answers |\
An industry having a high degree of competition and low profit
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
margins would be characterized by:
|\ |\ |\ |\ |\
A. Many rivals, high legal barriers to entry, low product
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
differentiation |\
B. Few barriers to entry, high first mover advantage, high product
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
differentiation
|\
|\ C. Few rivals, low distribution access, high switching costs
|\ |\ |\ |\ |\ |\ |\ |\ |\
D. Many rivals, few barriers to entry, low switching costs
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
E. Supply < demand, low supplier switching costs, steep industry
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
learning curves - CORRECT ANSWERS ✔✔Answer D
|\ |\ |\ |\ |\ |\
Acquirer Company buys Target Company. Target's pre-acquisition
|\ |\ |\ |\ |\ |\ |\
balance sheet at historical cost showed Total Assets at $900,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
and Total Liabilities at $300,000. Upon acquisition, Acquirer
|\ |\ |\ |\ |\ |\ |\ |\
revalued Target's identifiable assets at $1,600,000 and liabilities
|\ |\ |\ |\ |\ |\ |\ |\
at $360,000. Acquirer paid $2,000,000 in cash for Target.
|\ |\ |\ |\ |\ |\ |\ |\ |\
Determine the amount of Goodwill Acquirer must recognize in the
|\ |\ |\ |\ |\ |\ |\ |\ |\
purchase of Target.
|\ |\ |\
A. $1,460,000 B. $1,400,000 C. $760,000 D. $780,000 E.
|\ |\ |\ |\ |\ |\ |\ |\ |\
$820,000 - CORRECT ANSWERS ✔✔C. $760,000 |\ |\ |\ |\ |\
1600000-360000= 1240000 |\
,2000000-1240000= 760000 |\
3. The last possible line item reported on the income statement
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
is:
A. Net Revenue B. Operating Income C. Gross Profit D. Income
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
from Continuing Operations E. Net Income - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔Answer E Net Income |\ |\ |\
The ability of diamond miners to dictate price and quantity to
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
jewelry makers and sellers is an example of:
|\ |\ |\ |\ |\ |\ |\
A. Customer bargaining power B. Supplier bargaining power C.
|\ |\ |\ |\ |\ |\ |\ |\ |\
Product differentiation D. Barriers to entry E. Fixed-variable cost
|\ |\ |\ |\ |\ |\ |\ |\ |\
ratios - CORRECT ANSWERS ✔✔B. supplier bargaining power
|\ |\ |\ |\ |\ |\ |\
The figure below is a simple income statement. Use the figure to
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
answer questions 5 and 6: |\ |\ |\ |\
PERIOD ENDING 31-Dec-14 31-Dec-15 Total Revenue
|\ |\ |\ |\ |\ |\ |\
129,184,000 161,480,000 Cost of Revenue 90,428,800 |\ |\ |\ |\ |\ |\
96,888,000 Gross Profit 38,755,200 64,592,000 Operating |\ |\ |\ |\ |\ |\
Expenses Research & Development 498,000 610,000 Selling
|\ |\ |\ |\ |\ |\ |\
General and Administrative 5,948,000 7,538,000 Total Operating
|\ |\ |\ |\ |\ |\ |\
Expenses 6,446,000 8,148,000 Operating Income or Loss
|\ |\ |\ |\ |\ |\ |\
32,309,200 56,444,000 5. What was the cost of goods sold for |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
the year ending December 31, 2015. - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔Cost of revenue |\ |\
Assuming investors only care about intrinsic value, managers
|\ |\ |\ |\ |\ |\ |\ |\
should attempt to maximize shareholder wealth by increasing the
|\ |\ |\ |\ |\ |\ |\ |\
stock price.
|\ |\
,True or False - CORRECT ANSWERS ✔✔False
|\ |\ |\ |\ |\ |\
An entrepreneur is attempting to sell you a 20% stake in his
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
company in exchange for $1 million dollars. They plan to invest
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
all of their retained earnings and your $1 million back into the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
company to help it grow. The company is only one year old and
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
their revenue last year was $4 million dollars. Because it is a new
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
company, fixed costs are practically zero; so, the only cost is the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
cost of goods sold. Their cost of goods sold is $2,000 and their
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
current gross profit margin is 50%. You estimate that only 1,200
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
people will want the product (including those that already
|\ |\ |\ |\ |\ |\ |\ |\ |\
purchased it). Should you invest? - CORRECT ANSWERS ✔✔No
|\ |\ |\ |\ |\ |\ |\ |\
Which of the following is true regarding accrual accounting?
|\ |\ |\ |\ |\ |\ |\ |\
A. Accrual accounting is the basis for inputs into most financial
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
models.
B. Accrual accounting attempts to measure the period in which
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
cash flows occur.|\ |\
C. Accrual accounting attempts to measure economic activities
|\ |\ |\ |\ |\ |\ |\ |\ |\
in the period transactions take place, regardless of when cash
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
flows transpire. |\ |\
D. Accrual accounting forces land acquisitions to be recorded at
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
historical cost. E. Accrual accounting mostly affects the
|\ |\ |\ |\ |\ |\ |\ |\
statement of cash flows. - CORRECT ANSWERS ✔✔Answer C
|\ |\ |\ |\ |\ |\ |\ |\
Which of the following shows a proper sequence on an income
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
statement: |\
A. Net Revenue, Gross Profit, Depreciation Expense, Net Income,
|\ |\ |\ |\ |\ |\ |\ |\ |\
Operating Income |\ |\
, B. Sales, Operating Income, Gross Profit, Depreciation Expense,
|\ |\ |\ |\ |\ |\ |\ |\
Net Income |\
C. Net Revenue, Gross Profit, Depreciation Expense, Operating
|\ |\ |\ |\ |\ |\ |\ |\ |\
Income, Net Income |\ |\
D. Sales, Operating Income, Depreciation Expense, Net Income,
|\ |\ |\ |\ |\ |\ |\ |\ |\
Gross Profit |\ |\
E. Net Revenue, Depreciation Expense, Gross Profit, Operating
|\ |\ |\ |\ |\ |\ |\ |\
Income, Net Income - CORRECT ANSWERS ✔✔C. Net Revenue,
|\ |\ |\ |\ |\ |\ |\ |\ |\
Gross Profit, Depreciation Expense, Operating Income, Net
|\ |\ |\ |\ |\ |\ |\
Income
Which of the following, if absolutely true in the real world, would
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
make financial statement analysis useless?
|\ |\ |\ |\
|\ A. Technical analysis and momentum trading B. the Capital Asset
|\ |\ |\ |\ |\ |\ |\ |\ |\
|\ Pricing Model (CAPM) |\ |\
|\ C. Strong Form Efficiency Market Hypothesis
|\ |\ |\ |\ |\ |\
D. Modigliani and Miller Theorem
|\ |\ |\ |\ |\
E. Stagflation or negative interest rates - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔C. Strong Form Efficiency Market Hypothesis
|\ |\ |\ |\ |\
Which of the following investment strategies is most consistent
|\ |\ |\ |\ |\ |\ |\ |\ |\
with financial statement analysis?
|\ |\ |\
A. Fundamental analysis
|\ |\ |\
B. Technical analysis
|\ |\ |\
C. Passive investing
|\ |\ |\
D. All of the above
|\ |\ |\ |\ |\
