CFA Study Guide Exam Questions with
Complete Solutions
Equity equals: - Answer-Assets - Liabilities = Equity
(4)Shareholders' equity reported on the balance sheet is most likely to differ from the
market value of shareholders' equity because: - Answer-B)Some factors that affect the
generation of future cash flows are excluded.
(8)All of the following are current assets except: - Answer-B)goodwill.
(9)The most likely costs included in both the cost of inventory and property, plant, and
equipment are: - Answer-C) delivery costs.
(10)Debt due within one year is considered: - Answer-A)current.
(13)The carrying value of inventories reflects: - Answer-C) the lower of historical cost or
net realizable value.
(15)Accrued expenses (accrued liabilities) are: - Answer-C) expenses that have been
reported on the income statement but not yet paid.
(17)Defining total asset turnover as revenue divided by average total assets, all else
equal, impairment write-downs of long-lived assets owned by a company will most
likelyresult in an increase for that company in: - Answer-C)both the debt-to-equity ratio
and the total asset turnover.
(23)The item "retained earnings" is a component of: - Answer-C)shareholders' equity.
(24)When a company buys shares of its own stock to be held in treasury, it records a
reduction in: - Answer-B)both assets and shareholders' equity.
(25)Which of the following would an analyst most likely be able to determine from a
common-size analysis of a company's balance sheet over several periods? - Answer-
B)An increase or decrease in financial leverage.
(26)An investor concerned whether a company can meet its near-term obligations is
most likely to calculate the: - Answer-A)current ratio.
(27)The most stringent test of a company's liquidity is its: - Answer-A)cash ratio.
(28)An investor worried about a company's long-term solvency would most likely
examine its: - Answer-C) debt-to-equity ratio.
, (31)Based on Exhibit 1, which statement is most likely correct? - Answer-C)Company A
has made one or more acquisitions.
(33)Based on Exhibit 1, the financial leverage ratio for Company B is closest to: -
Answer-C)2.22.
(34)Based on Exhibit 1, which ratio indicates lower liquidity risk for Company A
compared with Company B? - Answer-A)Cash ratio
1. The three factor DuPont Analysis is comprised of - Answer-a. Asset turnover, profit
margin, financial leverage
1. Within the Dupont Analysis - Answer-a. An increase in financial leverage is met with
an increase in the use of debt.
1. In DuPont Analysis where the financial leverage has consistently increased over the
past several years - Answer-a. The ROE will be higher than the ROA.
1. The current ROA of a firm is 13% and it has an Equity Multiplier of 3.0. The resulting
ROE will be approximately - Answer-a. 39%
1. The ACME Company has current sales of $2,340,000 and Total Assets of $990,000.
It also has earnings of $250,000, and Total Equity of $750,000. The current inventory is
$124,000 and accounts payable is $98,000. - Answer-a. The asset turnover and profit
margin are 2.36 and 10.68%
1. The price-earnings (P/E) ratio is considered to be a price multiple. Which of the
following is a true statement? - Answer-a. An increasing P/E implies that the price of the
stock is becoming more expensive.
1. If a stock has a beta of 2.0, which of the following is true? - Answer-a. The stock is
considered to be more volatile than the market.
In order to assess a company's ability to fulfill its long-term obligations, an analyst would
most likely examine: - Answer-solvency ratios.
Which ratio would a company most likely use to measure its ability to meet short-term
obligations? - Answer-Current ratio.
Which of the following ratios would be most useful in determining a company's ability to
cover its lease and interest payments? - Answer-Fixed charge coverage.
Based on this data, what is the analyst least likely to conclude? - Answer-Management
of receivables has contributed to improved liquidity.
Complete Solutions
Equity equals: - Answer-Assets - Liabilities = Equity
(4)Shareholders' equity reported on the balance sheet is most likely to differ from the
market value of shareholders' equity because: - Answer-B)Some factors that affect the
generation of future cash flows are excluded.
(8)All of the following are current assets except: - Answer-B)goodwill.
(9)The most likely costs included in both the cost of inventory and property, plant, and
equipment are: - Answer-C) delivery costs.
(10)Debt due within one year is considered: - Answer-A)current.
(13)The carrying value of inventories reflects: - Answer-C) the lower of historical cost or
net realizable value.
(15)Accrued expenses (accrued liabilities) are: - Answer-C) expenses that have been
reported on the income statement but not yet paid.
(17)Defining total asset turnover as revenue divided by average total assets, all else
equal, impairment write-downs of long-lived assets owned by a company will most
likelyresult in an increase for that company in: - Answer-C)both the debt-to-equity ratio
and the total asset turnover.
(23)The item "retained earnings" is a component of: - Answer-C)shareholders' equity.
(24)When a company buys shares of its own stock to be held in treasury, it records a
reduction in: - Answer-B)both assets and shareholders' equity.
(25)Which of the following would an analyst most likely be able to determine from a
common-size analysis of a company's balance sheet over several periods? - Answer-
B)An increase or decrease in financial leverage.
(26)An investor concerned whether a company can meet its near-term obligations is
most likely to calculate the: - Answer-A)current ratio.
(27)The most stringent test of a company's liquidity is its: - Answer-A)cash ratio.
(28)An investor worried about a company's long-term solvency would most likely
examine its: - Answer-C) debt-to-equity ratio.
, (31)Based on Exhibit 1, which statement is most likely correct? - Answer-C)Company A
has made one or more acquisitions.
(33)Based on Exhibit 1, the financial leverage ratio for Company B is closest to: -
Answer-C)2.22.
(34)Based on Exhibit 1, which ratio indicates lower liquidity risk for Company A
compared with Company B? - Answer-A)Cash ratio
1. The three factor DuPont Analysis is comprised of - Answer-a. Asset turnover, profit
margin, financial leverage
1. Within the Dupont Analysis - Answer-a. An increase in financial leverage is met with
an increase in the use of debt.
1. In DuPont Analysis where the financial leverage has consistently increased over the
past several years - Answer-a. The ROE will be higher than the ROA.
1. The current ROA of a firm is 13% and it has an Equity Multiplier of 3.0. The resulting
ROE will be approximately - Answer-a. 39%
1. The ACME Company has current sales of $2,340,000 and Total Assets of $990,000.
It also has earnings of $250,000, and Total Equity of $750,000. The current inventory is
$124,000 and accounts payable is $98,000. - Answer-a. The asset turnover and profit
margin are 2.36 and 10.68%
1. The price-earnings (P/E) ratio is considered to be a price multiple. Which of the
following is a true statement? - Answer-a. An increasing P/E implies that the price of the
stock is becoming more expensive.
1. If a stock has a beta of 2.0, which of the following is true? - Answer-a. The stock is
considered to be more volatile than the market.
In order to assess a company's ability to fulfill its long-term obligations, an analyst would
most likely examine: - Answer-solvency ratios.
Which ratio would a company most likely use to measure its ability to meet short-term
obligations? - Answer-Current ratio.
Which of the following ratios would be most useful in determining a company's ability to
cover its lease and interest payments? - Answer-Fixed charge coverage.
Based on this data, what is the analyst least likely to conclude? - Answer-Management
of receivables has contributed to improved liquidity.
