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Ch.16 S7 Flashcards

1
Q

What ratio tests a company’s ability to pay its current liabilities with its current assets, but excludes inventory?

A

The Quick Asset Ratio (the Acid Test)

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2
Q

If given a stocks PE ratio and market price from a stock Tavel, how is EPS calculated?

A

Market price ➗ PE ratio

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3
Q

T/F: When prices are rising, switching from a FIFO to LIFO investors method will reduce COGS?

A

F; switching from FIFO to LIFO inventory method will increase COGS

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4
Q

How would the issuance of stock affect a company’s balance sheet?

A
  1. Current assets (cash) increased
  2. Shareholders equity is increased (working capital is increased)
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5
Q

Working capital, current ratio, and the quick asset ratio (acid test) are examples of ___________ ratios.

A

Liquidity

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6
Q

What is the formula for calculating operating profit margin?

A

Operating profit ➗ sales

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7
Q

A company with more debt than equity outstanding is considered _________.

A

Leveraged

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8
Q

Identify the following formula: Annual dividend ➗ EPS

A

Dividend payout ratio

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9
Q

What is the benefit of using accelerated depreciation?

A

Higher depreciation expenses, and therefore, lower taxable income in the short term

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10
Q

How is cash flow calculated?

A

Net income plus depreciation. Depreciation is added back, since it is a non cash expense

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11
Q

(Current Assets-___________) ➗ Current Liabilities = Quick Asset Ratio (or Acid Test)

A

Inventory

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12
Q

T/F: When prices are rising, switching from a FIFO to LIFO investors method will reduce EVITDA.

A

T

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13
Q

____________ - ___________= Working Capital

A

Current assets - current liabilities = working capital

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14
Q

If the price of a stock falls while it’s earnings remain the same, what happens to its PE ratio?

A

The PE ratio will fall

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15
Q

What is the formula for calculating the PE ratio?

A

PE = Market price of common stock ➗ earnings per share (EPS)

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16
Q

How is book value per share calculated?

A

Commons shareholders equity divided by the number common share outstanding.

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17
Q

If earnings are fallen while the price of the stock remains the same, what happens to its PE ratio?

A

The PE ratio will rise

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18
Q

What is the formula for determining a stocks price to earnings ratio?

A

Current market price ➗ earnings per share (EPS)

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19
Q

How would the declaration of a dividend affect a company’s balance sheet?

A
  1. Retained earnings is reduced
  2. Current liabilities is increased (working capital is reduced)
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20
Q

Identify the acronym: LIFO

A

last in first out

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21
Q

What is the ROE formula?

A

ROE = earnings available to common shareholders ➗ average common equity

22
Q

What is the formula for calculating the division payout ratio?

A

Dividend payout ratio = annual dividend ➗ EPS

23
Q

Identify the following formula: stocks market price ➗ EPS

A

PE ratio (also called the earnings multiple)

24
Q

T/F: when prices are rising, switching from a LIFO to FIFO investors method will reduce EBITDA.

25
How is book value calculated?
Shareholders equity ➗ number of shares outstanding
26
Goodwill is an example of what type of asset?
Intangible
27
T/F: Fundamental analysis focuses on analyzing the market using charts, patterns, trends, and short interest.
F; charts, trends, pattern analysis, and theories would be the focus of a technical analyst
28
Identify the following formula: Total Asset = Total Liabilities + Shareholders Equity
Balance sheet equation
29
For inventory purposes, what is the benefit of using LIFO versus FIFO during an inflationary period?
LIFO would create lower earnings; therefore, a lower tax expense
30
How is fully diluted EPS different than basic EPS?
Fully diluted EPS includes all rights, warrants, and convertible securities, even if they have not been exercised
31
T/F: when prices are rising, switching from a FIFO to LIFO inventory method will increase EBITDA.
F
32
How would the issuance of debt affect a company’s balance sheet?
1. Current assets is increased 2. Long term liabilities is increased (working capital is increased)
33
T/F: Depreciation is a source of cash on the Cash Flow Statement.
T
34
T/F: When prices are rising, switching from a LIFO to FIFO inventory method will increase EBITDA.
T
35
Identify the follow formula: (Net income - preferred dividend) ➗ common shares outstanding
EPS
36
What is the difference between the current ratio and the quick asset ratio?
The current ratio includes inventory, while the quick asset ratio excludes inventory
37
What is the formula calculating return on equity (ROE)?
Earnings available to common ➗ average common stockholders equity
38
What is the difference between the current ratio and the quick asset ratio?
The quick asset ratio is more stringent since it excludes inventory from the current assets
39
Identify the acronym: FIFO
First in first out
40
T/F: in a period of rising prices, the FIFO inventory method would create a greater profit than using LIFO.
T
41
How would the payment of a dividend affect a company’s balance sheet?
1. Current assets is reduced 2. Current liabilities is reduced (working capital stays the same)
42
What is the formula for calculating the debt to equity ratio?
Total debt ➗ total equity
43
_________ ➗ _________ = current ratio
Current assets ➗ current liabilities = current ratio
44
If earnings are rising while the price of the stock remains the same, what happens to its PE ratio?
The PE ratio will fall
45
The analysis of a specific company (its balance sheet, income statement, etc. ) are the focus of the _________ analyst.
Fundamental
46
If the price of a stock rises while it’s earnings remain the same, what happened to its PE ratio?
The PE ratio will rise
47
T/F: When prices are rising, switching from a LIFO to FIFO inventory method will reduce COGS?
T; switching from a LIFO to FIFO inventory method will reduce COGS
48
Define earnings before interest and taxes. (EBIT)
Operating in elm (adjusted for other income (or expenses) that is not generated by normal operations
49
Why would an investment banker use EBITDA instead of EPS?
EBITDA is used for companies with different depreciation costs. It also neutralizes capital structure differences.
50
What is the formula for the PE ratio?
Price ➗ EPS
51
T/F: When calculating book value, exclude preferred stock.
T

S7 (18 decks)

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