Financial Statement Analysis Exam 1 with verified || || || || || || ||
detailed answers ||
An industry having a high degree of competition and low profit margins would be characterized
|| || || || || || || || || || || || || || ||
by: ||
A. Many rivals, high legal barriers to entry, low product differentiation
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B. Few barriers to entry, high first mover advantage, high product differentiation
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|| C. Few rivals, low distribution access, high switching costs
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D. Many rivals, few barriers to entry, low switching costs
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E. Supply < demand, low supplier switching costs, steep industry learning curves - ✔✔Answer D
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Acquirer Company buys Target Company. Target's pre-acquisition balance sheet at historical cost
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showed Total Assets at $900,000 and Total Liabilities at $300,000. Upon acquisition, Acquirer
|| || || || || || || || || || || || ||
revalued Target's identifiable assets at $1,600,000 and liabilities at $360,000. Acquirer paid
|| || || || || || || || || || || ||
$2,000,000 in cash for Target. Determine the amount of Goodwill Acquirer must recognize in the
|| || || || || || || || || || || || || || ||
purchase of Target. || ||
A. $1,460,000 B. $1,400,000 C. $760,000 D. $780,000 E. $820,000 - ✔✔C. $760,000
|| || || || || || || || || || || ||
1600000-360000= 1240000 ||
2000000-1240000= 760000 ||
3. The last possible line item reported on the income statement is:
|| || || || || || || || || || ||
A. Net Revenue B. Operating Income C. Gross Profit D. Income from Continuing Operations E.
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Net Income - ✔✔Answer E Net Income
|| || || || || ||
The ability of diamond miners to dictate price and quantity to jewelry makers and sellers is an
|| || || || || || || || || || || || || || || || ||
example of: ||
,A. Customer bargaining power B. Supplier bargaining power C. Product differentiation D.
|| || || || || || || || || || || ||
Barriers to entry E. Fixed-variable cost ratios - ✔✔B. supplier bargaining power
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The figure below is a simple income statement. Use the figure to answer questions 5 and 6:
|| || || || || || || || || || || || || || || ||
PERIOD ENDING 31-Dec-14 31-Dec-15 Total Revenue 129,184,000 161,480,000 Cost of
|| || || || || || || || || || ||
Revenue 90,428,800 96,888,000 Gross Profit 38,755,200 64,592,000 Operating Expenses
|| || || || || || || || ||
Research & Development 498,000 610,000 Selling General and Administrative 5,948,000
|| || || || || || || || || ||
7,538,000 Total Operating Expenses 6,446,000 8,148,000 Operating Income or Loss 32,309,200
|| || || || || || || || || || ||
56,444,000 5. What was the cost of goods sold for the year ending December 31, 2015. - ✔✔Cost || || || || || || || || || || || || || || || || || ||
of revenue
||
Assuming investors only care about intrinsic value, managers should attempt to maximize
|| || || || || || || || || || || ||
shareholder wealth by increasing the stock price. || || || || || ||
True or False - ✔✔False || || || ||
An entrepreneur is attempting to sell you a 20% stake in his company in exchange for $1 million
|| || || || || || || || || || || || || || || || || ||
dollars. They plan to invest all of their retained earnings and your $1 million back into the
|| || || || || || || || || || || || || || || || ||
company to help it grow. The company is only one year old and their revenue last year was $4
|| || || || || || || || || || || || || || || || || || ||
million dollars. Because it is a new company, fixed costs are practically zero; so, the only cost is
|| || || || || || || || || || || || || || || || || ||
the cost of goods sold. Their cost of goods sold is $2,000 and their current gross profit margin is
|| || || || || || || || || || || || || || || || || || ||
50%. You estimate that only 1,200 people will want the product (including those that already
|| || || || || || || || || || || || || || ||
purchased it). Should you invest? - ✔✔No || || || || || ||
Which of the following is true regarding accrual accounting?
|| || || || || || || ||
|| A. Accrual accounting is the basis for inputs into most financial models.
|| || || || || || || || || || ||
|| B. Accrual accounting attempts to measure the period in which cash flows occur.
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C. Accrual accounting attempts to measure economic activities in the period transactions take
|| || || || || || || || || || || || || ||
place, regardless of when cash flows transpire.
|| || || || || || ||
D. Accrual accounting forces land acquisitions to be recorded at historical cost. E. Accrual
|| || || || || || || || || || || || || ||
accounting mostly affects the statement of cash flows. - ✔✔Answer C || || || || || || || || || ||
Which of the following shows a proper sequence on an income statement:
|| || || || || || || || || || || ||
, A. Net Revenue, Gross Profit, Depreciation Expense, Net Income, Operating Income
|| || || || || || || || || || ||
B. Sales, Operating Income, Gross Profit, Depreciation Expense, Net Income
|| || || || || || || || ||
|| C. Net Revenue, Gross Profit, Depreciation Expense, Operating Income, Net Income
|| || || || || || || || || ||
|| D. Sales, Operating Income, Depreciation Expense, Net Income, Gross Profit
|| || || || || || || || || ||
E. Net Revenue, Depreciation Expense, Gross Profit, Operating Income, Net Income - ✔✔C. Net
|| || || || || || || || || || || || || ||
Revenue, Gross Profit, Depreciation Expense, Operating Income, Net Income
|| || || || || || || ||
Which of the following, if absolutely true in the real world, would make financial statement
|| || || || || || || || || || || || || || ||
analysis useless? ||
|| A. Technical analysis and momentum trading B. the Capital Asset Pricing Model (CAPM)
|| || || || || || || || || || || ||
|| C. Strong Form Efficiency Market Hypothesis
|| || || || || ||
D. Modigliani and Miller Theorem
|| || || || ||
E. Stagflation or negative interest rates - ✔✔C. Strong Form Efficiency Market Hypothesis
|| || || || || || || || || || || ||
Which of the following investment strategies is most consistent with financial statement analysis?
|| || || || || || || || || || || ||
A. Fundamental analysis
|| || ||
B. Technical analysis
|| || ||
C. Passive investing
|| || ||
D. All of the above
|| || || || ||
E. None of the above - ✔✔A Fundamental Analysis
|| || || || || || || ||
Where should you go to find a company's financial statements?
|| || || || || || || || || ||
A. EDGAR || ||
B. FRED|| ||
C. Company's retail webpage
|| || ||
D. Google || ||
E. None of the above - ✔✔A EDGAR
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detailed answers ||
An industry having a high degree of competition and low profit margins would be characterized
|| || || || || || || || || || || || || || ||
by: ||
A. Many rivals, high legal barriers to entry, low product differentiation
|| || || || || || || || || || ||
B. Few barriers to entry, high first mover advantage, high product differentiation
|| || || || || || || || || || ||
|| C. Few rivals, low distribution access, high switching costs
|| || || || || || || || ||
D. Many rivals, few barriers to entry, low switching costs
|| || || || || || || || || ||
E. Supply < demand, low supplier switching costs, steep industry learning curves - ✔✔Answer D
|| || || || || || || || || || || || || ||
Acquirer Company buys Target Company. Target's pre-acquisition balance sheet at historical cost
|| || || || || || || || || || || ||
showed Total Assets at $900,000 and Total Liabilities at $300,000. Upon acquisition, Acquirer
|| || || || || || || || || || || || ||
revalued Target's identifiable assets at $1,600,000 and liabilities at $360,000. Acquirer paid
|| || || || || || || || || || || ||
$2,000,000 in cash for Target. Determine the amount of Goodwill Acquirer must recognize in the
|| || || || || || || || || || || || || || ||
purchase of Target. || ||
A. $1,460,000 B. $1,400,000 C. $760,000 D. $780,000 E. $820,000 - ✔✔C. $760,000
|| || || || || || || || || || || ||
1600000-360000= 1240000 ||
2000000-1240000= 760000 ||
3. The last possible line item reported on the income statement is:
|| || || || || || || || || || ||
A. Net Revenue B. Operating Income C. Gross Profit D. Income from Continuing Operations E.
|| || || || || || || || || || || || || || ||
Net Income - ✔✔Answer E Net Income
|| || || || || ||
The ability of diamond miners to dictate price and quantity to jewelry makers and sellers is an
|| || || || || || || || || || || || || || || || ||
example of: ||
,A. Customer bargaining power B. Supplier bargaining power C. Product differentiation D.
|| || || || || || || || || || || ||
Barriers to entry E. Fixed-variable cost ratios - ✔✔B. supplier bargaining power
|| || || || || || || || || || ||
The figure below is a simple income statement. Use the figure to answer questions 5 and 6:
|| || || || || || || || || || || || || || || ||
PERIOD ENDING 31-Dec-14 31-Dec-15 Total Revenue 129,184,000 161,480,000 Cost of
|| || || || || || || || || || ||
Revenue 90,428,800 96,888,000 Gross Profit 38,755,200 64,592,000 Operating Expenses
|| || || || || || || || ||
Research & Development 498,000 610,000 Selling General and Administrative 5,948,000
|| || || || || || || || || ||
7,538,000 Total Operating Expenses 6,446,000 8,148,000 Operating Income or Loss 32,309,200
|| || || || || || || || || || ||
56,444,000 5. What was the cost of goods sold for the year ending December 31, 2015. - ✔✔Cost || || || || || || || || || || || || || || || || || ||
of revenue
||
Assuming investors only care about intrinsic value, managers should attempt to maximize
|| || || || || || || || || || || ||
shareholder wealth by increasing the stock price. || || || || || ||
True or False - ✔✔False || || || ||
An entrepreneur is attempting to sell you a 20% stake in his company in exchange for $1 million
|| || || || || || || || || || || || || || || || || ||
dollars. They plan to invest all of their retained earnings and your $1 million back into the
|| || || || || || || || || || || || || || || || ||
company to help it grow. The company is only one year old and their revenue last year was $4
|| || || || || || || || || || || || || || || || || || ||
million dollars. Because it is a new company, fixed costs are practically zero; so, the only cost is
|| || || || || || || || || || || || || || || || || ||
the cost of goods sold. Their cost of goods sold is $2,000 and their current gross profit margin is
|| || || || || || || || || || || || || || || || || || ||
50%. You estimate that only 1,200 people will want the product (including those that already
|| || || || || || || || || || || || || || ||
purchased it). Should you invest? - ✔✔No || || || || || ||
Which of the following is true regarding accrual accounting?
|| || || || || || || ||
|| A. Accrual accounting is the basis for inputs into most financial models.
|| || || || || || || || || || ||
|| B. Accrual accounting attempts to measure the period in which cash flows occur.
|| || || || || || || || || || || ||
C. Accrual accounting attempts to measure economic activities in the period transactions take
|| || || || || || || || || || || || || ||
place, regardless of when cash flows transpire.
|| || || || || || ||
D. Accrual accounting forces land acquisitions to be recorded at historical cost. E. Accrual
|| || || || || || || || || || || || || ||
accounting mostly affects the statement of cash flows. - ✔✔Answer C || || || || || || || || || ||
Which of the following shows a proper sequence on an income statement:
|| || || || || || || || || || || ||
, A. Net Revenue, Gross Profit, Depreciation Expense, Net Income, Operating Income
|| || || || || || || || || || ||
B. Sales, Operating Income, Gross Profit, Depreciation Expense, Net Income
|| || || || || || || || ||
|| C. Net Revenue, Gross Profit, Depreciation Expense, Operating Income, Net Income
|| || || || || || || || || ||
|| D. Sales, Operating Income, Depreciation Expense, Net Income, Gross Profit
|| || || || || || || || || ||
E. Net Revenue, Depreciation Expense, Gross Profit, Operating Income, Net Income - ✔✔C. Net
|| || || || || || || || || || || || || ||
Revenue, Gross Profit, Depreciation Expense, Operating Income, Net Income
|| || || || || || || ||
Which of the following, if absolutely true in the real world, would make financial statement
|| || || || || || || || || || || || || || ||
analysis useless? ||
|| A. Technical analysis and momentum trading B. the Capital Asset Pricing Model (CAPM)
|| || || || || || || || || || || ||
|| C. Strong Form Efficiency Market Hypothesis
|| || || || || ||
D. Modigliani and Miller Theorem
|| || || || ||
E. Stagflation or negative interest rates - ✔✔C. Strong Form Efficiency Market Hypothesis
|| || || || || || || || || || || ||
Which of the following investment strategies is most consistent with financial statement analysis?
|| || || || || || || || || || || ||
A. Fundamental analysis
|| || ||
B. Technical analysis
|| || ||
C. Passive investing
|| || ||
D. All of the above
|| || || || ||
E. None of the above - ✔✔A Fundamental Analysis
|| || || || || || || ||
Where should you go to find a company's financial statements?
|| || || || || || || || || ||
A. EDGAR || ||
B. FRED|| ||
C. Company's retail webpage
|| || ||
D. Google || ||
E. None of the above - ✔✔A EDGAR
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