FIN 461 Exam 3 Questions and Answers
Comparison of a company's financial results to other peer companies for the same time
period is called:
A) Technical Analysis
B) Time-Series Analysis
C) Cross-Sectional Analysis
D) None of the Above - -Cross-Sectional Analysis
-In order to assess a company's ability to fulfill its long-term obligations, an analyst would
most likely examine
A) Activity Ratios
B) Liquidity Ratios
C) Solvency Ratios - -Solvency Ratios
-Which ratio would a company most likely use to measure its ability to meet short-term
obligations?
A) Current Ratio
B) Payables turnover
C) Gross profit margin - -Current Ratio
-Which of the following ratios would be most useful in determining a company's ability to
cover its lease and interest payments?
A) ROA
B) Total Asset Turnover
C) Fixed charge coverage - -Fixed charge coverage
-Chapter 7, Number 5, 6, 7, 10-15, 17-19 - -ok
-An analyst observes a decrease in a company's inventory turnover. Which of the following
would most likely explain this trend?
, A) The company installed a new inventory management system, allowing more efficient
inventory management
B) Due to problems with obsolescent inventory last year, the company wrote off a large
amount of its inventory at the beginning of the period
C) The company installed a new inventory management system but experienced some
operational difficulties resulting in duplicate orders being placed with suppliers - -The
company installed a new inventory management system but experienced some operational
difficulties resulting in duplicate orders being placed with suppliers
-Which of the following would best explain an increase in receivables turnover?
A) The company adopted new credit policies last year and began offering credit to
customers with weak credit history
B) Due to problems with an error in its old credit scoring system, the company had
accumulated a substantial amount of collectible amounts and wrote off a large amount of
its receivables
C) To match the terms offered by its closest competitor, the company adopted new
payment terms now requiring net payment within 30 days rather than 15 days, which had
been its previous requirement - -Due to problems with an error in its old credit scoring
system, the company had accumulated a substantial amount of collectible amounts and
wrote off a large amount of its receivables
-Assuming no changes in other variables, which of the following would decrease ROA?
A) A decrease in the effective tax rate
B) A decrease in interest expense
C) An increase in average assets - -An increase in average assets
-What does the P/E ratio measure?
A) The "multiple" that the stock market places on a company's EPS
B) The relationship between dividends and market prices
C) The earnings for one common share of stock - -The "multiple" that the stock market
places on a company's EPS
-A creditor most likely would consider a decrease in which of the following ratios to be
positive news?
Comparison of a company's financial results to other peer companies for the same time
period is called:
A) Technical Analysis
B) Time-Series Analysis
C) Cross-Sectional Analysis
D) None of the Above - -Cross-Sectional Analysis
-In order to assess a company's ability to fulfill its long-term obligations, an analyst would
most likely examine
A) Activity Ratios
B) Liquidity Ratios
C) Solvency Ratios - -Solvency Ratios
-Which ratio would a company most likely use to measure its ability to meet short-term
obligations?
A) Current Ratio
B) Payables turnover
C) Gross profit margin - -Current Ratio
-Which of the following ratios would be most useful in determining a company's ability to
cover its lease and interest payments?
A) ROA
B) Total Asset Turnover
C) Fixed charge coverage - -Fixed charge coverage
-Chapter 7, Number 5, 6, 7, 10-15, 17-19 - -ok
-An analyst observes a decrease in a company's inventory turnover. Which of the following
would most likely explain this trend?
, A) The company installed a new inventory management system, allowing more efficient
inventory management
B) Due to problems with obsolescent inventory last year, the company wrote off a large
amount of its inventory at the beginning of the period
C) The company installed a new inventory management system but experienced some
operational difficulties resulting in duplicate orders being placed with suppliers - -The
company installed a new inventory management system but experienced some operational
difficulties resulting in duplicate orders being placed with suppliers
-Which of the following would best explain an increase in receivables turnover?
A) The company adopted new credit policies last year and began offering credit to
customers with weak credit history
B) Due to problems with an error in its old credit scoring system, the company had
accumulated a substantial amount of collectible amounts and wrote off a large amount of
its receivables
C) To match the terms offered by its closest competitor, the company adopted new
payment terms now requiring net payment within 30 days rather than 15 days, which had
been its previous requirement - -Due to problems with an error in its old credit scoring
system, the company had accumulated a substantial amount of collectible amounts and
wrote off a large amount of its receivables
-Assuming no changes in other variables, which of the following would decrease ROA?
A) A decrease in the effective tax rate
B) A decrease in interest expense
C) An increase in average assets - -An increase in average assets
-What does the P/E ratio measure?
A) The "multiple" that the stock market places on a company's EPS
B) The relationship between dividends and market prices
C) The earnings for one common share of stock - -The "multiple" that the stock market
places on a company's EPS
-A creditor most likely would consider a decrease in which of the following ratios to be
positive news?
