File: Ch. 15, Chapter 15: Company Analysis
Multiple Choice Questions
1. The last step in top-down fundamental analysis is to analyze:
a. individual industries
b. individual companies
c. individual securities
d. perform technical analysis
Ans: b
Difficulty: Easy
Ref: Company Analysis
2. Which of the following is not one of the relative valuation multipliers used in
fundamental analysis?
a. P/E ratio
b. P/S ratio
c. P/M ratio
d. P/B ratio
Ans: c
Difficulty: Easy
Ref: Fundamental Analysis
3. When analyzing stocks, the major variable of interest to a majority of investors is:
a. sales.
b. profit margins.
c. dividend yield.
d. earnings per share.
Ans: d
Difficulty: Moderate
Ref: Fundamental Analysis
4. EPS are of higher quality if:
a. the company is a blue chip.
b. the auditor's reputation is high.
c. they were derived using conservative principles.
d. FASB has approved them.
Ans: c
Difficulty: Moderate
Ref: The Accounting Aspects of Earning
Chapter Fifteen 187
Company Analysis
,5. Which of the following are shown on the balance sheet on a lower of cost or
market value basis?
a. cash
b. stockholders’ equity
c. marketable securities
d. fixed assets
Ans: d
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
6. Which of the following statements regarding retained earnings is not true?
a. It is part of stockholders’ equity.
b. It represents spendable funds for a company.
c. It designates that part of previous earnings not paid out as dividends.
d. It is irrelevant in security valuation..
Ans: b
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
7. The auditor's report:
a. guarantees accuracy.
b. guarantees the quality of the earnings.
c. attests that the statements are a fair presentation of financial position.
d. all of the above are true
Ans: c
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
8. On a company’s balance sheet, shareholder’s equity is nearly always described by
its?
a. Book value
b. Market value
c. Current value
d. Stock value
Ans: a
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
9. Fixed assets generally consist of?
Chapter Fifteen 188
Company Analysis
, a. Cash and marketable securities
b. Property, plant and equipment, at cost
c. Intangible assets, like goodwill
d. Shareholders' Equity
Ans: b
Difficulty: Easy
Ref: The Accounting Aspects of Earnings
10. How is EPS computed? After-tax net income divided by
a. current common shares outstanding.
b. previous years common shares outstanding.
c. treasury shares outstanding.
d. average common shares outstanding.
Ans: d
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
11. The generally accepted accounting principles (GAAP) require that the EPS be
calculated using a
a. conservative treatment.
b. liberal treatment.
c. standard set of rules developed by the accounting profession.
d. standard set of rules developed by the SEC.
Ans: c
Difficulty: Easy
Ref: The Accounting Aspects of Earnings
12. The key item for investors on the income statement is:
a. sales.
b. gross profit.
c. operating expenses.
d. after-tax net income.
Ans: d
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
13. Earnings derived under GAAP and shown on the income statement are known as:
a. reported earnings.
b. certified earnings.
c. audited earnings.
d. verified earnings.
Chapter Fifteen 189
Company Analysis
Multiple Choice Questions
1. The last step in top-down fundamental analysis is to analyze:
a. individual industries
b. individual companies
c. individual securities
d. perform technical analysis
Ans: b
Difficulty: Easy
Ref: Company Analysis
2. Which of the following is not one of the relative valuation multipliers used in
fundamental analysis?
a. P/E ratio
b. P/S ratio
c. P/M ratio
d. P/B ratio
Ans: c
Difficulty: Easy
Ref: Fundamental Analysis
3. When analyzing stocks, the major variable of interest to a majority of investors is:
a. sales.
b. profit margins.
c. dividend yield.
d. earnings per share.
Ans: d
Difficulty: Moderate
Ref: Fundamental Analysis
4. EPS are of higher quality if:
a. the company is a blue chip.
b. the auditor's reputation is high.
c. they were derived using conservative principles.
d. FASB has approved them.
Ans: c
Difficulty: Moderate
Ref: The Accounting Aspects of Earning
Chapter Fifteen 187
Company Analysis
,5. Which of the following are shown on the balance sheet on a lower of cost or
market value basis?
a. cash
b. stockholders’ equity
c. marketable securities
d. fixed assets
Ans: d
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
6. Which of the following statements regarding retained earnings is not true?
a. It is part of stockholders’ equity.
b. It represents spendable funds for a company.
c. It designates that part of previous earnings not paid out as dividends.
d. It is irrelevant in security valuation..
Ans: b
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
7. The auditor's report:
a. guarantees accuracy.
b. guarantees the quality of the earnings.
c. attests that the statements are a fair presentation of financial position.
d. all of the above are true
Ans: c
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
8. On a company’s balance sheet, shareholder’s equity is nearly always described by
its?
a. Book value
b. Market value
c. Current value
d. Stock value
Ans: a
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
9. Fixed assets generally consist of?
Chapter Fifteen 188
Company Analysis
, a. Cash and marketable securities
b. Property, plant and equipment, at cost
c. Intangible assets, like goodwill
d. Shareholders' Equity
Ans: b
Difficulty: Easy
Ref: The Accounting Aspects of Earnings
10. How is EPS computed? After-tax net income divided by
a. current common shares outstanding.
b. previous years common shares outstanding.
c. treasury shares outstanding.
d. average common shares outstanding.
Ans: d
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
11. The generally accepted accounting principles (GAAP) require that the EPS be
calculated using a
a. conservative treatment.
b. liberal treatment.
c. standard set of rules developed by the accounting profession.
d. standard set of rules developed by the SEC.
Ans: c
Difficulty: Easy
Ref: The Accounting Aspects of Earnings
12. The key item for investors on the income statement is:
a. sales.
b. gross profit.
c. operating expenses.
d. after-tax net income.
Ans: d
Difficulty: Moderate
Ref: The Accounting Aspects of Earnings
13. Earnings derived under GAAP and shown on the income statement are known as:
a. reported earnings.
b. certified earnings.
c. audited earnings.
d. verified earnings.
Chapter Fifteen 189
Company Analysis
