FIN 420 EXAM 2 VALUATION TECHNIQUES
BONDS STOCKS AND DISCOUNTED CASH
FLOW PRACTICE EXAM SET
●● Benchmarking
Answer: Studying competing options or standards to improve the
performance of one firm
●● Financial statements importance 1
Answer: Provide a common basis for evaluation
●● Financial statements importance 2
Answer: Highlight areas that require further investigation and analysis
●● Financial statements importance 3
Answer: Work with qualitative info and good judgment
●● Time trend analysis
Answer: Measures how a firm's performance changes over time also
called longitudinal or vertical analysis
●● Peer group analysis
,Answer: Compares firms to similar companies at the same time also
called cross sectional or horizontal analysis
●● Short term liquidity ratios
Answer: Measure a firm's ability to meet short term cash demands
●● Long term solvency ratios
Answer: Measure a firm's ability to meet long term debt obligations
●● Asset management ratios
Answer: Measure how efficiently a firm uses assets to generate income
●● Profitability ratios
Answer: Measure how efficiently a firm generates profits from assets
●● Market value ratios
Answer: Measure shareholders overall perception of a firm
●● Quick ratio
Answer: Measures ability to meet short term obligations with most
liquid assets
●● Quick ratio higher meaning
, Answer: Higher ratio indicates more liquidity
●● Quick ratio pro 1
Answer: Conservative measure
●● Quick ratio pro 2
Answer: Straightforward to calculate
●● Quick ratio pro 3
Answer: Useful for comparisons across firms or time
●● Quick ratio con 1
Answer: Does not address cash flow capabilities
●● Quick ratio con 2
Answer: Does not address long term liabilities
●● Quick ratio con 3
Answer: May overestimate ability to collect accounts receivable
●● Quick ratio con 4
Answer: May overestimate ability to liquidate securities in downturns
BONDS STOCKS AND DISCOUNTED CASH
FLOW PRACTICE EXAM SET
●● Benchmarking
Answer: Studying competing options or standards to improve the
performance of one firm
●● Financial statements importance 1
Answer: Provide a common basis for evaluation
●● Financial statements importance 2
Answer: Highlight areas that require further investigation and analysis
●● Financial statements importance 3
Answer: Work with qualitative info and good judgment
●● Time trend analysis
Answer: Measures how a firm's performance changes over time also
called longitudinal or vertical analysis
●● Peer group analysis
,Answer: Compares firms to similar companies at the same time also
called cross sectional or horizontal analysis
●● Short term liquidity ratios
Answer: Measure a firm's ability to meet short term cash demands
●● Long term solvency ratios
Answer: Measure a firm's ability to meet long term debt obligations
●● Asset management ratios
Answer: Measure how efficiently a firm uses assets to generate income
●● Profitability ratios
Answer: Measure how efficiently a firm generates profits from assets
●● Market value ratios
Answer: Measure shareholders overall perception of a firm
●● Quick ratio
Answer: Measures ability to meet short term obligations with most
liquid assets
●● Quick ratio higher meaning
, Answer: Higher ratio indicates more liquidity
●● Quick ratio pro 1
Answer: Conservative measure
●● Quick ratio pro 2
Answer: Straightforward to calculate
●● Quick ratio pro 3
Answer: Useful for comparisons across firms or time
●● Quick ratio con 1
Answer: Does not address cash flow capabilities
●● Quick ratio con 2
Answer: Does not address long term liabilities
●● Quick ratio con 3
Answer: May overestimate ability to collect accounts receivable
●● Quick ratio con 4
Answer: May overestimate ability to liquidate securities in downturns
