Management 126: Financial Statement Analysis
Sample Midterm Exam
Instructor: Casey Borman
1) Check all the permissible ways a CFO can shift income from one period to another:
● Ship products to consistent / reliable customers in anticipation of easily predicted future order
● Adjust estimate of estimate of Sales Returns company expects to get from customers.
● Write off Accounts Receivable when customer files for bankruptcy
● Inflate cost estimates for a board-approved restructuring plan.
● Extend estimated useful life of equipment subject to straight line depreciation
2, 4, 5 should be checked
2) Why might a company repurchase its own stock?
A) It believes that the market undervalues its shares
B) To offset dilutive effects of employee stock options granted
C) To return cash to shareholders
D) To improve earnings per share by reducing the denominator
E) All of the above
3) SEC adopted Regulation FD, to curb public companies’ practice of:
A) Routinely filing extensions for annual reports (Form 10-K).
B) Selectively disclosing information to favored investors.
C) Reporting pro forma (non-GAAP) numbers.
D) Hiring auditors for non-audit services such as consulting engagements
E) None of the above.
4) For solvency analysis, what are the advantages of Debt to Market Capitalization ratio versus the
traditional Total Liabilities to Equity Ratio? Which measures financial leverage?
The debt to market capitalization ratio measures the market value of equity, which is a more accurate
reflection of the company’s financial standing. The total liabilities to equity ratio measures financial
leverage.
Debt to Market Cap measures financial leverage, which is the amount of borrowed money in
comparison to the fair value of equity capital used in the business. It provides a more accurate
assessment of solvency that Total Liabilities, including self-liquidating obligations and operating
leverage, versus the book value of Equity, which is typically understated
5) True or False: Repurchasing shares near year-end will increase a firm’s return on equity
(ROE).
6) An asset is clearly impaired when the asset’s carrying value on the balance sheet is:
A) Greater than the sum of discounted expected cash flows.
B) Less than the sum of discounted expected cash flows.
C) Less than the sum of undiscounted expected cash flows.
Sample Midterm Exam
Instructor: Casey Borman
1) Check all the permissible ways a CFO can shift income from one period to another:
● Ship products to consistent / reliable customers in anticipation of easily predicted future order
● Adjust estimate of estimate of Sales Returns company expects to get from customers.
● Write off Accounts Receivable when customer files for bankruptcy
● Inflate cost estimates for a board-approved restructuring plan.
● Extend estimated useful life of equipment subject to straight line depreciation
2, 4, 5 should be checked
2) Why might a company repurchase its own stock?
A) It believes that the market undervalues its shares
B) To offset dilutive effects of employee stock options granted
C) To return cash to shareholders
D) To improve earnings per share by reducing the denominator
E) All of the above
3) SEC adopted Regulation FD, to curb public companies’ practice of:
A) Routinely filing extensions for annual reports (Form 10-K).
B) Selectively disclosing information to favored investors.
C) Reporting pro forma (non-GAAP) numbers.
D) Hiring auditors for non-audit services such as consulting engagements
E) None of the above.
4) For solvency analysis, what are the advantages of Debt to Market Capitalization ratio versus the
traditional Total Liabilities to Equity Ratio? Which measures financial leverage?
The debt to market capitalization ratio measures the market value of equity, which is a more accurate
reflection of the company’s financial standing. The total liabilities to equity ratio measures financial
leverage.
Debt to Market Cap measures financial leverage, which is the amount of borrowed money in
comparison to the fair value of equity capital used in the business. It provides a more accurate
assessment of solvency that Total Liabilities, including self-liquidating obligations and operating
leverage, versus the book value of Equity, which is typically understated
5) True or False: Repurchasing shares near year-end will increase a firm’s return on equity
(ROE).
6) An asset is clearly impaired when the asset’s carrying value on the balance sheet is:
A) Greater than the sum of discounted expected cash flows.
B) Less than the sum of discounted expected cash flows.
C) Less than the sum of undiscounted expected cash flows.
