Fundamental Analysis

Which of the following information sources would be used to evaluate a corporate security trading in the Secondary Market? I Feasibility Study II Income Statement III Balance Sheet IV Prospectus

II and III

Arrange the following in priority of claim in a corporate liquidation: I Unpaid Wages II Secured Bondholders III Subordinated Bondholders IV Debenture Bondholders

II, I, IV, III

Arrange the following in order of claim priority in a corporate liquidation: I Common stockholders II Preferred stockholders III Secured bondholders IV Unsecured bondholders

III, IV, II, I

What are included in the footnotes of a company's financial statement?

Inventory valuation method, potential legal liabilities, schedule of maturing debt, estimated legal liabilities, deferred tax liabilities, open contractual commitments

The current ratio measures:

Liquidity- it looks at whether the company can pay its current bills as they come due

What is the formula for the debt/equity ratio?

Long term debt/stockholder's equity

In a corporate liquidation, the priority of claim to corporate assets is:

Mortgage bond holders, unpaid wages and taxes, debenture holders, preferred stockholders

Which is the most important measure when analyzing a company's income statement?

Net Operating Profit Margin ratio

All assets minus all liabilities equals:

Net Worth

The formula for return on common equity for a company that has not issued preferred stock is:

Net income after tax / (Common at par + capital in excess of par +retained earning)

What is the best measure of profitability when analyzing an income statement?

Net profit margin because it deducts every expense from sales.

Current Assets minus current liabilities equals:

Net working capital

Which ratio is the best measure of a company's solvency?

Quick ratio (solvency is the same as liquidity)

A corporation that has only issued common stock has income after tax. If this is divided by total assets- total liabilities the result is:

Return on common equity

What are the components of stockholder's equity?

common at par; capital in excess of par; retained earnings

A company's net operating profit margin is:

gross profit-operating expenses (administrative, marketing & transportation)

A company's gross operating profit is:

gross sales- cost of goods sold

A company's net profit margin is:

operating profit- bond interest expense and taxes

In a corporate liquidation, the first to get paid is:

secured bondholders

Which item would be found on a company's income statement?

taxes paid

Following is the balance sheet of a company: Cash=$200,000 Accounts Receivable=$200,000 Inventory=$300,000 Long Term Assets=$500,000 Trade Payables=$200,000 Long Term Payables=$400,000 Long Term Debt=$500,000 What is the net working capital of the company?

$500,000= Net Working Capital of the Company

A corporation reports Earnings per Common Share of $8.00, of which $2.00 was retained by the company. The dividend payout ratio is: (question #6)

$6/$8=75%

Following is the balance sheet of a company: Cash =$20,000 Accts Receivable= $20,000 Inventory= $30,000 Marketable securities= $80,000 Trade Payables= $15,000 Taxes Payable= $30,000 Long Term Debt= $25,000 What is the net worth of the company? (question #8)

$80,000.00=Net Worth

A corporation has reported quarterly earnings of $3 per share. The corporation retained $3 of earnings at year end. The corporation's dividend payout ratio is: (question #5)

$9/$12=75%

What is the formula for the quick ratio? (question # 14,15,16 example of working it out)

(Current assets- inventories and prepaid expenses)/Current liabilities

A corporation shows the following in its capital structure: Long Term Debt: $ 20,000,000 Common at Par: $ 20,000,000 Capital in Excess of Par: $ 100,000,000 Retained Earnings: $ 80,000,000 The corporation's Debt/Equity Ratio is: (question #22)

1:10

If the reader of corporation's financial statements wishes to get additional detail on items presented, this can be found in the:

Footnotes

A corporation;s annual audited financial statements are reported to the SEC on:

Form 10K

ABC Corporation Income Statement for the year ending 12-31-XX ($000) Gross Sales 18,500 Returns 500 Net Sales 18,000 Cost of Goods Sold 9,000 Gross Margin 9,000 Operating Expenses 7,000 Operating Margin 2,000 Non Operating Income 1,000 Total Operating and Non Operating Income 3,000 Interest Expense 800 Net Income Before Tax 2,200 Taxes 900 Net Income After Tax 1,300 Statement of Changes To Retained Earnings for the year ending 12-31-XX ($000) Beginning of Year Retained Earnings 3,400 Add: Net Income For The Year 1,300 Deduct: Preferred Dividend 300 Common Dividend 400 End of Year Retained Earnings 4,000 ABC Corporation Balance Sheet at 12-31-XX Current Assets ($000) Cash and Marketable Securities=9,000 Accounts Receivable 3,000 Inventory 3,000 Total Current Assets 15,000 Current Liabilities ($000) Accounts Payable 900 Wages Payable 800 Taxes Payable 900 Interest Payable 400 Total Current Liabilities 3,000 Notes Receivable due after one year 1,000 Long Term Debt 10% 8,000 Property and Equipment (valued at cost less accumulated depreciation of $3,000) 6,000 Stockholder's Equity Intangible Costs 1,000 Preferred Stock - $100 par 10% 3,000 Common Stock - $2 par 2,000 Capital in excess of par value 3,000 Retained Earnings 4,000 Total Long Term Assets 8,000 Total Stockholder's Equity 12,000 Total Assets 23,000 Total Liabilities and Stockholder's Equity 23,000 What is ABC Corporation's Current Ratio? (question #11)

5:1

Net Tangible assets equals:

All assets of a company except for intangibles such as copyrights and patents, equals the tangible assets of a company. Netting out all liabilities of a company from this amount equals net tangible assets.

An individual is the sole shareholder of a privately-held company. This individual wants to purchase a $12 million yacht, and is applying for a bank loan to finance the purchase. The individual is seeking a $10,000,000 loan. The bank will not provide the financing unless the individual gives a personal guarantee. It has asked for income and expenses of the guarantor, which he has given as $5,000,000 of annual gross wages; $4,000,000 of investment income; $2,000,000 of housing expenses and $3,000,000 of personal expenses. When evaluating the credit of this individual, the bank is concerned with the company's debt/equity ratio. This is determined using the company's:

Balance Sheet

Which item is used when computing a corporation's current ratio?

Cash

What would technical analysts evaluate?

Chart movements, trading volumes, advance-decline ratios

What is the formula for the current ratio?

Current assets/current liabilities

What represents "leverage"?

Debt/Equity

Which item would not be found on a corporation's income statement?

Dividends

What would fundamental analysts evaluate?

Earnings trends, liquidity ratios, balance sheets, management