Financial Statement Analysis

Question 1

Which of the following is true regarding the calculation of EPS? It is:

Answer 1

Profit after tax divided by share capital excluding preference shares

Question 2

Analysts assess the prospects of companies on their investment potential and also assist the board to assess their company’s position in the current market. Which of the following is the main tool for making these assessments?

Answer 2

Ratio analysis

Question 3

An uncovered dividend is one paid out of:

Answer 3

Retained earning

Question 4

How is dividend cover calculated?

Answer 4

Earnings Per Share/Dividend payments per share

Question 5

Dividend cover

Answer 5

Dividend cover = EPS / DPS

Question 6

Return on capital employed

Answer 6

Operating profit before interest and tax / (assets - current liabilities) x 100

Question 7

PE ratio

Answer 7

PE ratio = market price per share / EPS.

Question 8

Which of the following is most likely to cause an increase in interest coverage?

Answer 8

Switching to depreciate an asset over ten years rather than just five years

Question 9

share price.

Answer 9

Price/Earnings x earnings/share = share price.

Question 10

gearing

Answer 10

A measure of the proportion of debt to equity that a company raises

Question 11

The measure of income return provided by an equity investment is known as which ratio?

Answer 11

Dividend yield

Question 12

If a company undergoes a stock split, which of the following will have to be restated?

Answer 12

Net asset value per share

Question 13

Return on capital employed = profit before interest and tax / capital employed.

Answer 13

Return on capital employed = profit before interest and tax / capital employed.

Question 14

Which of the following events would not lead to a dilution of earning per share?

Answer 14

A negative cash flow

Question 15

What is net asset value per ordinary share?

Answer 15

(Assets - liabilities) / number of ordinary shares

Question 16

When using ratio analysis to consider how well a company acquires and manages its resources, we are considering the efficiency of which department?

Answer 16

Finance

Question 17

An analyst is making comparisons between companies’ enterprise value relative to earnings before interest, tax, depreciation and amortisation. Which of the following would NOT be a factor they will consider?

Answer 17

The true cash earnings of the company

Question 18

Gross profit margin

Answer 18

Gross profit margin = gross profit / revenues x 100%

Question 19

Dividend yield

Answer 19

Dividend yield = dividend / market price

Question 20

Dividend cover

Answer 20

Dividend cover = EPS/dividend.

Question 21

Share price

Answer 21

Share price divided by EPS gives the PE ratio

Question 22

Price = PE x EPS

Answer 22

Price = PE x EPS

Question 23

Dividend cover

Answer 23

Dividend cover = profit after tax / net dividend.

Question 24

Earnings Per Share

Answer 24

Earnings Per Share = (Net income for the financial year – Dividends on preferred shares) / Number of ordinary shares in issue.

Question 25

Which of the following statements is most likely to be FALSE regarding a company with a low P/E ratio relative to its sector?

Answer 25

It is likely to have a low dividend yield

Question 26

Which of the following statements is most likely to be false regarding a company with a low P/E ratio relative to its sector?

Answer 26

It is likely to have a low dividend yield

Question 27

Dividend cover is calculated by dividing earnings by:

Answer 27

Dividends

Question 28

Which one of the following is NOT a type of P/E ratio?

Answer 28

Permitted

Question 29

Return on capital employed takes into consideration which of the following?

Answer 29

Profits before interest and tax

Equity + non-current liabilities

Question 30

Which of the following makes ratio analysis most beneficial?

Answer 30

Comparing the ratios of companies in a similar sector

Question 31

EPS is calculated after all of the following except:

Answer 31

Ordinary dividends

Question 32

If a company has high interest cover on unsecured loan stock which it has recently issued, what is the consequence of this?

Answer 32

Improved market rating