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Financial St. Analysis Exam > Exam Questions > Flashcards

Exam Questions Flashcards

1
Q

A company’s value to owners is its

A

Economic value assuming actual payoffs are known

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2
Q

A letter of credit…

A

Provides guarantee of payment from the buyer, reducing the credit risk to the seller

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3
Q

Covenants represent

A

Promises the company makes to the creditor

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4
Q

Many companies have cyclical operating cash needs due to…

A

Seasonality of sales

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5
Q

The overarching purpose of credit risk analysis is to…

A

Quantify potential credit losses

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6
Q

The variable EBIT divided by Total Assets in the Altman Z-Score measures which of the following concepts?

A

Current level of profitability

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7
Q

The variable Market Value of Equity divided by Total Liabilities in the Altman Z-Score measures which of the following concepts?

A

Current level of leverage

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8
Q

Which of the following concepts is not captured by one of the variables in Altman’s Z-score?

A

Current level of net operating assets

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9
Q

Which of the following is not one of Porter’s five forces that determine a company’s competitive intensity?

A

Ability to obtain financing

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10
Q

On April 24, 2009, Ford Motor Company reported net loss of $1.4 billion for the fiscal quarter. That day, Ford’s stock price climbed from $4.49 per share to $5.00. This demonstrates that:

A

The net loss was smaller than investors expected

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11
Q

This is a advantage of the ROPI model

A

Utilizes both the balance sheet and income statement, and captures the information in accrual accounting

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12
Q

One critique of the ROPI model is that it focuses managers’ attention solely on short term operating assets and neglects investments in long-term operating assets.

A

This assumption is incorrect

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13
Q

Decrease in A/R is not included in calculating…

A

NOPAT

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14
Q

What are 5 nonoperating assets?

A 
1 cash
2 short term investments
3 trading assets
4 Marketable Equity securities
5 Other long term investments
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15
Q

2 nonoperating liabilities

A

Short term debt

Long term debt

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16
Q

As uncertainty of cash flows increases, companies generally…2

A

Substitute equity for debt

In order to reduce the magnitude of contractual payment
Obligations

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17
Q

A cash asset is on what financial statements?

A

Balance sheet

Statement of cash flows

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18
Q

Are expenses on the statement of cash flows?

A

Not according to the HW solutions

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19
Q

Cash inflow from stock issued is on which financial statements?

A

Statement of cash flows

Statement of stockholder’s equity

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20
Q

Cash outflow for dividends is on which financial statements?

A

Statement of cash flows

Statement of stockholder’s equity

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21
Q

Net income is on which financial statements?

A

Income statement

Statement of cash flows

Statement of stockholder’s equity

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22
Q

Why would we expect a company like Intel to report a relatively high proportion of equity vs. debt?2

A

High tech companies have a lot of risk relating to changing
Technology

Future cash flows are not as certain to maintain high levels
Of debt

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23
Q

A negative amount from investing activities reflects…2

A

Further investment by company in investment activities

Often a positive sign

24
Q

A negative amount for cash from financing activities reflects…2

A

Reflects reduction in long term debt

Often a positive sign

25
Q

Inventory that had been purchased on credit, is sold on credit (for more than it cost). What income statement accounts are affected either positive or negative?

A

IS: increase in revenues, expenses and net income

26
Q

What area on the cashflow statement does interest expense affect?

A

Operating cash flow

27
Q

Companies with the highest profit margins have either…2

A

Effectively succeeded at differentiating their brands

Or controlling their costs

28
Q

Reporting the highest level of operating cash flow as a percentage of sales indicates…

A

Very efficient operations

29
Q

It is accurate for companies to exclude discontinued operations from GAAP earnings because…

A

They are not included in the company’s future cash flows

30
Q

Disaggregation means

A

Break out into each individual component

31
Q

The excess of ROE to RNOA signifies…2

A

Debt is financing assets that earn an excess return in excess to the cost of debt

Improving returns for shareholders

32
Q

When ROA is much lower than ROE, this signifies that the company…

A

Holds a significant amount of investment securities that have
A low return

33
Q

Current ratio above 1 implies…

A

Positive working capital

34
Q

It is not uncommon for quick ratios to…

A

Be below 1

35
Q

Median total liabilities to equity ratios for publicly traded companies in the S&P 500 is…

Anything around there is…

A

1.5

Modest leverage

36
Q

A high times interest earned ratio…

A

Lessens the company’s solvency concerns

37
Q

If a current ratio is below 1, a company is liquid if…3

A

1 customers all pay within 30 days

2 company holds very little inventory

3 cash flow is sufficient to meet short term bills

38
Q

To put a company’s current ratio in perspective, we would want to know the…

A

Average current ratio for the industry

39
Q

Around 6, times interest earned is considered…

A

Strong

40
Q

To assess a companies solvency, you should compare the liabilities to equities ratio to…

A

Competitors

41
Q

If a company has significant debt in its capital structure capital expenditures could…

A

Negatively impact the company’s competitive position

42
Q

When assessing liquidity it is helpful to know when…2

A

Cash flows from current assets will be realized

When current liabilities will need to be paid

43
Q

Liability to equity and debt to equity ratios can worsen due to…2

A

Decrease in retained earnings

Increase in other comprehensive loss

44
Q

Reduced equity will worsen a companies solvency (liabilities to equity, debt to equity) when a company is…3

A

Highly leveraged

Does stock buy backs

Pays high dividends

45
Q

ROE is lower than RNOA when the company…

A

Holds a large amount of low return investments

46
Q

When liabilities to equity and debt to equity ratios are below 1, this indicates…

A

Solvency ratios are very strong

47
Q

The cash conversion cycle measures the average time (in days) to…4

A

Sell inventories
Collect receivables
Pay the payables
Return to cash

48
Q

Companies prefer a lower cash conversion cycle, this means that operating cycle is…2

A

Generating profit and cash flow quickly

49
Q

Cash conversion cycle analysis focuses on…2

A

Trends over time

Comparisons to peers

50
Q

Delaying payment on payables is…

A

An improvement on the cash conversion cycle

51
Q

Cash is calculated as a percentage of…

A

Sales

52
Q

Increases in assets on the statement of cash flow are…

A

Negative

53
Q

On the statement of cash flows, Decrease in long term debt includes…

A

Change in short term debt

54
Q

Amortization of purchased intangibles is estimated as…

A

Purchased intangibles net at the start of the year

55
Q

When excess cash is forecasted we assume, excess cash will be…

A

Invested in marketable securities

Financial St. Analysis Exam (1 decks)

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