COMPXM TEST PAPER1

COMPXM TEST PAPER1 How do you increase your stock price? (3) - CORRECT ANSWERS-1. Increase EPS 2. Retire stock 3. Issue a dividend How do you find EPS? - CORRECT ANSWERS-Net Profit / # shares outstanding What is the prime rate? - CORRECT ANSWERS-The interest rate commercial banks charge their most credit worthy customers. How do you find the number of months of inventory you have left? (3) What should be your ideal inventory supply? - CORRECT ANSWERS-1. Inventory (balance sheet) / Avg. monthly sales 2. (Inventory / Sales) * 12 3. (Unit Inventory / Unit Sales) * 12 [Average monthly sales = sales / 12 ] Around 3 months What is included in SG&A expenses? (4) - CORRECT ANSWERS-1. R & D 2. Promotion budget 3. Sales budget 4. Administrative expenses Under which strategy do firm's spend more on SG&A expenses as a percentage of sales? - CORRECT ANSWERS-Differentiators How do you find the amount of units a firm missed selling for a particular product? (2 steps) - CORRECT ANSWERS-1. Potential market share for specific product - total actual market share from 2. Multiply the result by the total potential market share for all segments How do you find the amount a firm's EBIT would have increased if they would not have stocked out of a specific product? (3 steps) - CORRECT ANSWERS-1. Find the amount of units the product missed selling 2. Multiply the result by the product's price 3. Multiply the result of #2 by the product's CM An assembly line with higher automation usually has what? (4) - CORRECT ANSWERS-1. Fewer workers 2. Lower labor costs 3. Higher profits 4. Longer R&D revisions What does is mean to have an automation of 1? What about 7? What does each level represent? (2) - CORRECT ANSWERS-level of 1: - 1 machine and 10 workers level of 7: - 7 machines and 4 workers Each additional unit = 10% decrease in labor costs Each additional unit = ($4 * capacity) COST OF AUTOMATION What are the aspects considered under a product's "product" factor? (3) - CORRECT ANSWERS-1. Reliability 2. Position (performance and size) 3. Age What are the aspects considered under a product's "place" factor? - CORRECT ANSWERS-Promotion budget What are the aspects considered under a product's "promotion" factor? - CORRECT ANSWERS-Sales budget Customer awareness deals with what? What about customer accessibility? - CORRECT ANSWERS-Awareness: Promotion budget Accessibility: Sales budget For a product to be a worthy competitor it must have a survey score over what? - CORRECT ANSWERS-5 How can you tell how many different products are emerging next year? - CORRECT ANSWERS-No sales but have both capacity and automation How do you find ROS? - CORRECT ANSWERS-Profit / Sales What does ROS represent? (5) What kind of strategy usually has a high ROS? - CORRECT ANSWERS-1. Profit margin 2. % of every sales dollar that is profit 3. Indicator of competition within an industry 4. How hard we are working each dollar of sales 5. A pure income statement relationship Strategy: differentiation with premium pricing What makes up the DuPont Chain? (5) What should they typically be? - CORRECT ANSWERS-1. ROS 2. Asset turnover (above 1) 3. ROA 4. Leverage (1.8 - 2.8) 5. ROE What can cause a low ROS? (6) - CORRECT ANSWERS-1. Price too low or expenses too high 2. Too much inventory 3. Too high depreciation 4. Too much idle capacity (increasing depreciation) 5. Too much cash 6. Low CM What is a low CM caused by? How can you increase your CM? - CORRECT ANSWERS-CAUSED BY: 1. Price too low 2. Variable expenses too high (labor, material, inventory carry) INCREASE BY: 1. Increase price 2. Increase automation (lower labor costs) 3. Lower MTBF and position (lower material costs) 4. Forecast better (lower inventory carrying costs) How do you find the asset turnover rate? What does it represent? (2) - CORRECT ANSWERS-Sales / Total assets 1. An efficiency measure 2. How hard we are working our assets to produce sales What can cause a firm's low asset turnover? (4) - CORRECT ANSWERS-1. Too much cash 2. Too high A/R 3. Too high inventory 4. Too much (idle) capacity/automation How do you find a firm's A/R outstanding balance? - CORRECT ANSWERS-(AR / Sales) * 365 How do you find ROA? (2) What does it represent? (2) - CORRECT ANSWERS-1. Profit / Assets 2. ROS * asset turnover Represents: 1. How good the company is at producing wealth with their assets 2. Comparison of the profits produced by firm and the asset base What can case a low ROA? - CORRECT ANSWERS-Low ROS 1. Price too low or expenses too high 2. Too much inventory 3. Too high depreciation 4. Too much idle capacity (increasing depreciation) 5. Too much cash 6. Low CM What does leverage tell us? - CORRECT ANSWERS-1. How a firm funds their assets 2. Dollars of assets owned per dollar invested by equity holders. How do you find a firm's ROE? What does it represent? (3) - CORRECT ANSWERS-ROE = Profit / Equity Represents: 1. How efficiently a company uses the dollars invested by its stockholders 2. one of the most useful statistics 3. The rate of return the company is producing for its owners How do you find the CM? - CORRECT ANSWERS-Sales - Variable costs What is included in variable costs? (4) - CORRECT ANSWERS-1. labor 2. material 3. inventory carrying AKA cost of goods sold A firm that has the lowest variable costs as a percentage of sales will most likely have what? - CORRECT ANSWERS-The highest C