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Investments, 4th Canadian Edition, 4/e

Zvi Bodie, Boston University School of Management
Alex Kane, University of California, San Diego
Alan Marcus, Boston College
Stylianos Perrakis, Concordia University
Peter Ryan, University of Ottawa

Financial Statement Analysis

Multiple Choice Quiz

Prepared by William Lim, University of New Brunswick.


1	An example of a liquidity ratio is
		A)	a. current ratio
		B)	b. fixed asset turnover
		C)	c. acid test or quick ratio
		D)	a and c
		E)	b and c


2	A firm has a higher asset turnover ratio than the industry average, which implies
		A)	the firm is utilizing assets more efficiently than other firms in the industry
		B)	the firm is more likely to avoid insolvency in the short run than other firms in the industry
		C)	the firm is more profitable than other firms in the industry
		D)	the firm has a higher P/E ratio than other firms in the industry
		E)	the firm has higher spending on new fixed assets than other firms in the industry.


3	A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies_______.
		A)	the firm is more profitable than other firms in the industry
		B)	the firm is more likely to avoid insolvency in the short run than other firms in the industry
		C)	the firm has a higher P/E ratio than other firms in the industry
		D)	the firm is utilizing its assets more efficiently than other firms in the industry
		E)	none of the above


4	Stock options
		A)	should be considered as one component of the firm's labour expense
		B)	is not required to be treated as an expense by GAAP
		C)	results in earnings of lower quality
		D)	creates comparability problems in financial statement analysis
		E)	all of the above


5	A measure of asset utilization is
		A)	sales divided by working capital
		B)	return on equity capital
		C)	return on total assets
		D)	operating profit divided by sales
		E)	none of the above


6	During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes
		A)	higher inventory turnover
		B)	higher reported sales
		C)	lower ending inventory
		D)	higher income taxes
		E)	none of the above


7	Which of the following ratios gives information on the amount of profits reinvested in the firm over the years:
		A)	Sales/total assets
		B)	Retained earnings/total assets
		C)	Equity/total assets
		D)	Debt/total assets
		E)	None of the above


8	Economic value added is another term for
		A)	EBIT
		B)	dividends
		C)	residual income
		D)	return on assets
		E)	return on equity


9	Which of the following refutes the usefulness of financial statement analysis?
		A)	Economic value added.
		B)	Efficient markets hypothesis.
		C)	GAAP.
		D)	Technical Analysis.
		E)	Enron.


10	Comparability problems arise in financial statement analysis due to:
		A)	Inflation
		B)	Accounting for inventories and depreciation
		C)	Quality of earnings
		D)	All of the above
		E)	None of the above

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