FIN 501 CH 7,8 2026 SPRING TEST QUESTIONS WITH ACCURATE SOLUTIONS- GRADED
A+
One of the basic premises of security analysis, and in particular fundamental analysis, is
that
A) a stock's price is based on its past cash flows rather than on anticipated future cash
flows.
B) market sectors do not move in concert with business cycles.
C) all securities have an intrinsic value that their market value will approach over time.
D) a security's risk has relatively little effect on the security's return.
C
Which stage of an industry's growth cycle offers the greatest opportunity for an investor
who is seeking capital gains?
A) initial development
B) mature growth
C) stability or decline
D) rapid expansion
D
Which of the following are considered in the ratio analysis of a firm?
I. profitability
II. market share
III. liquidity
IV. leverage
I, III and IV only
,Which of the following accounting practices are potentially misleading or even fraudulent?
I. writing off goodwill as an extraordinary loss
II. using accrual rather than cash basis reporting
III. off-balance sheet liabilities
IV. recognizing revenues prematurely
I, III and IV only
Which one of the following statements concerning accounting reports is correct?
A) The income statement reflects the position of a firm as of a single point in time.
B) The total equity of a firm is equal to the total assets plus the total liabilities.
C) The statement of cash flows identifies both the sources and the uses of cash.
D) The income statement reflects the amount of cash available for investment and
financing activities.
C
Cash flow from operations includes all of the following adjustments to net income EXCEPT
A) purchases of new equipment.
B) depreciation.
C) increase or decrease in current liabilities.
D) increase or decrease in current inventory.
A
,Which of the following would be typical of a Statement of Cash Flows for a healthy firm in a
sustainable business?
A) Cash flow from operations is negative, cash flows from investment activities and
financing activities are positive.
B) Cash flow from operations , investment activities and financing activities must all be
positive.
C) Cash flow from operations is positive, cash flows from investment activities and
financing activities are negative.
D) If the Statement shows a net increase in cash, the source is unimportant.
C
Which of the following measures excludes non-cash charges against income?
A) operating expenses
B) EBIT
C) net income before taxes
D) EBITDA
D
Which of the following would be found on a company's income statement?
I. cost of goods sold
II. interest expense
III. cash flow from operations
IV. earnings before taxes
I, II and IV only
, Which of the following are measures of liquidity?
I. net working capital
II. accounts receivable turnover
III. current ratio
IV. times interest earned
I and III only
Financial ratios
I. allow comparisons across firms without concern over firm size.
II. can compare a firm's operating and financial status to industry norms.
III. provide insights into a companies future.
IV. look at the liquidity, activity, leverage, profitability and market measures of a firm.
I, II, III and iV
To determine whether a company is using leverage effectively, an analyst should consider
A) the current ratio and net working capital.
B) inventory, accounts receivable and total asset turnover ratios.
C) the debt to equity and times interest earned ratios.
D) ROA and the net profit margin.
C
A+
One of the basic premises of security analysis, and in particular fundamental analysis, is
that
A) a stock's price is based on its past cash flows rather than on anticipated future cash
flows.
B) market sectors do not move in concert with business cycles.
C) all securities have an intrinsic value that their market value will approach over time.
D) a security's risk has relatively little effect on the security's return.
C
Which stage of an industry's growth cycle offers the greatest opportunity for an investor
who is seeking capital gains?
A) initial development
B) mature growth
C) stability or decline
D) rapid expansion
D
Which of the following are considered in the ratio analysis of a firm?
I. profitability
II. market share
III. liquidity
IV. leverage
I, III and IV only
,Which of the following accounting practices are potentially misleading or even fraudulent?
I. writing off goodwill as an extraordinary loss
II. using accrual rather than cash basis reporting
III. off-balance sheet liabilities
IV. recognizing revenues prematurely
I, III and IV only
Which one of the following statements concerning accounting reports is correct?
A) The income statement reflects the position of a firm as of a single point in time.
B) The total equity of a firm is equal to the total assets plus the total liabilities.
C) The statement of cash flows identifies both the sources and the uses of cash.
D) The income statement reflects the amount of cash available for investment and
financing activities.
C
Cash flow from operations includes all of the following adjustments to net income EXCEPT
A) purchases of new equipment.
B) depreciation.
C) increase or decrease in current liabilities.
D) increase or decrease in current inventory.
A
,Which of the following would be typical of a Statement of Cash Flows for a healthy firm in a
sustainable business?
A) Cash flow from operations is negative, cash flows from investment activities and
financing activities are positive.
B) Cash flow from operations , investment activities and financing activities must all be
positive.
C) Cash flow from operations is positive, cash flows from investment activities and
financing activities are negative.
D) If the Statement shows a net increase in cash, the source is unimportant.
C
Which of the following measures excludes non-cash charges against income?
A) operating expenses
B) EBIT
C) net income before taxes
D) EBITDA
D
Which of the following would be found on a company's income statement?
I. cost of goods sold
II. interest expense
III. cash flow from operations
IV. earnings before taxes
I, II and IV only
, Which of the following are measures of liquidity?
I. net working capital
II. accounts receivable turnover
III. current ratio
IV. times interest earned
I and III only
Financial ratios
I. allow comparisons across firms without concern over firm size.
II. can compare a firm's operating and financial status to industry norms.
III. provide insights into a companies future.
IV. look at the liquidity, activity, leverage, profitability and market measures of a firm.
I, II, III and iV
To determine whether a company is using leverage effectively, an analyst should consider
A) the current ratio and net working capital.
B) inventory, accounts receivable and total asset turnover ratios.
C) the debt to equity and times interest earned ratios.
D) ROA and the net profit margin.
C
