FSA 1 Final
Details relating to a company's revenue recognition policies are most likely found in:
Financial Statement Footnotes
How is Basic Earnings Per Share calculated?
(Net Income - Preferred Dividends)/ Average Number of Shares Outstanding
An analyst wanting to use cross‐sectional analysis to analyze R&G Industrials' will most likely prepare which of the following documents?
A vertical common‐size balance sheet that compares R&G to another company.
How many specific events are there currently that require a company to file a Form 8-K with the SEC?
22
A company that has cash flow from operations of $100 million free cash flow of $120 million and net borrowing of $20 million has capital expenditures closest to: A. 0 dollars B. $20 million C. $40 million
A
A company with a price earnings ratio of 14 has an earnings yield closest to: A. 7.14% B. 14.00% C. 92.86%
A
A stock of a company that has a high book to market ratio is most likely referred to as a A. Value stock B. Growth stock C. Defensive stock
A
Channel stuffing is best described as: A. Pushing product onto dealers before the end of the fiscal. B. Exaggerating loan losses only to reverse these in a subsequent fiscal period. C. Increasing goodwill by allocating ever larger amounts of the account and acquisitions
A
If a company has a return on equity of 30% and a return on assets of 20% its debt to asset ratio is closest to: A. 33% B. 50% C. 70%
A
If a company is net income is $30 million it's depreciation and amortization is $10 million it's interest expense is $5 million and its tax rate is 30% the companies capital EBDA and a BITDA respectively are closest to: A. $40 million and $62 million B. $42 million and $48 million C. $45 million and $64 million
A
Lengthening the useful life of a depreciable assets will most likely: A. Increase profitability B. Decrease profitability C. Have no effect on profitability
A
The 10Q filing with the SEC is produced by the companies: A. management B. Beneficial owners C. independent accountant
A
The CFAR ratio is best described as a comparison of free cash flow and: A. Debt obligations B. Interest expense C. Capital expenditures
A
The SEC requires companies that present pro forma accounting statements or data to also provide: A. A reconciliation with GAAP B. Forecasted financial statements C. And auditors opinion on the fairness of the pro forma statements
A
The operating profit of a company is best described as the earnings: A. Before interest and taxes B. After interest but before taxes C. Before depreciation and amortization interest and taxes
A
Which of the following is best described as a liquidity ratio? A. Quick ratio B. Return on assets C. Times interest earned ratio
A
Which of the following is not a technique used to inflate revenue or net income? A. Increasing the rate of uncollectible accounts as a percentage of accounts receivable B. Forcing customers to accept more inventory than reasonable giving anticipated demand C. Overstating loan losses in profitable years reversing these loan losses in years with less expected probability
A
Which of the following is not produced by a company to communicate its financial results? A. Schedule 13D B. Annual Report C. 10-k Statement
A
Which of the following statements is correct: A. Publicly traded corporation must disclose information to all investors at the same time in the interest of fairness. B. Publicly traded corporations are under no obligation to disclose information beyond the 10K and 10Q filings with the SEC C. Publicly Traded corporations are permitted to disclose information to analysts before investors because analysts understand this information better.
A
Which of the following statements is incorrect? A. There is one formula used in calculating free cash flow according to GAAP. B. The ratio of cash flow to debt indicates a company's ability to meet its debt obligations C. An increase in cash flow to capital expenditures ratio indicates it's increasing financial flexibility
A
Which of the following statements represents the evaluation of accounts as of the end of the fiscal period? A. Balance sheet B. Income statement C. Statement of cash flow's
A
Which of the following types of ratios are best for evaluating how well a company puts its assets to use? A. Activity ratios B. Liquidity ratios C. Financial leverage ratios
A
Which of the following is not capitalized as inventory?
Abnormal cost of waste material
Which of the following is an analyst most likely to examine in order to learn more about a firm's operating activities?
Accounts Receivable
Common size income statements provide which of the following ratios? A. Activity ratios B. Profitability ratios C. Financial leverage ratios
B
Forecasts are used in which of the following steps in the financial statement analysis framework?
Analyzing Data
Common‐size statements are an input for which step in the financial statement analysis framework?
Analyzing data
Cyclical company with a constant dividend growth rate strategy most likely will have: A. Constant dividend yield B. Variable dividend payouts C. Constant dividend payouts
B
Dilutive earnings per share will always be: A. Equal to basic earnings per share B. Less than or equal to basic earnings per share C. Greater than or equal to basic earnings per share
B
For a company with dividends that are expected to grow at a rate of 4% per year a current dividend that is $1.50 per share and investors who require a 9% return on their investment the value of a share of stock is closest to: A. $30.00 B. $31.20 C. $39.00
B
Goodwill impairment is best described as: A. The sale of an intangible asset B. A write down of the goodwill account C. The disclosure of a value for goodwill that is less than what is reported in the balance sheet
B
A cash waterfall is best described as a breakdown of cash flows by: A. Time B. Source C. Operations financing and investments
B
A company that writes down its inventory by too much in one fiscal year will most likely experience: A. No effect on subsequent fiscal years profits B. Increase profitability the following fiscal year C. Decrease profitability the following fiscal year
B
A company with an underfunded pension plan that reduces its assumed return on plant assets for its defined benefit plan will holding all other factors constant most likely report: A. Less plan underfunding B. More plan underfunding C. No effect on its plan funding
B
According to the molodovsky effect is recessionary environment is the price earnings ratio of self cyclical companies are most likely: A. Correct B. Overstated C. Understated
B
An increase in cash flow to capital expenditures ratio is consistent with: A. Increase in capital intensity B. Increasing financial flexibility C. Decreasing financial flexibility
B
Based on the relationships in the dividend valuation model an increase in the dividend payout ratio most likely result in: A. A lower price earnings ratio B. A higher price earnings ratio C. No change in the price earnings ratio
B
Cash flow from operations may differ from net income because of: A. Taxes paid B. Changes in working capital capital C. Interest payments on debt obligations
B
If a company has a net income of $400 million revenues of $1 billion in total assets of $800 million it's total asset turnover and return on assets respectively are: A. 2 times and 40% B. 1.25 times and 40% C. 1.25 times and 50%
B
If a company has cash flow from operations of $10 million capital expenditures of $2 million in net borrowings of $3 million it's free cash from two equity is closest to: A. $5 million B. $11 million C. $15 million
B
If a company has no debt it's: A. Equity multiplier will be undefined B. Return on assets will be equal to its return on equity C. Operating return on assets will be equal to its return on assets
B
If it takes on average 40 days to collect on its customers accounts the companies accounts receivable turnover is closest to: A. 2.500 times B. 9.125 times C. 10.959 times
B
Suppose a company currently pays one dollar in dividends and dividends are expected to grow at a rate of 5% per year for two years and then grow at a rate of 3% per year ad infinitum if investors require 8% return on their investment is the value of a share of stock is closest to: A. $19.85 B. $21.20 C. $35.00
B
Suppose a company has the following current assets 10 million current liabilities 8 million net property plant and equipment 20 million long-term liabilities 12 million shareholders equity is closest to: A. 2 million B. 10 million C. 12 million
B
The announcement of a restatement that is perceived as a result of an intentional act to deceive investors is most likely accompanied by: A. No stock market reaction B. A negative stock market reaction C. A positive stock market reaction
B
WHich of the following statements best describes the use of economic data: A. Financial statements should be analyzed without the potential influence or bias arising from using econ data B. Financial statements should be analyzed considering company events, the industry in which it operates and the economy. C. Financial statements of one company cannot be compared with those with another company if the companies use different accounting principles.
B
Which of the following is a direct result of the Sarbanes-Oxley act? A. Shareholders can vote on executive compensation B. Trading is prohibited by corporate insiders during a pension black out. C. Publicly traded corporation's are required to have a code of ethics for financial officers.
B
Off-balance sheet financing is a concern because: A. It is illegal B. It is recorded at book value instead or market value C. There is debt that is not fully reported in the financial statements
C
Lander, an analyst of Mexit Industries, is going through the financial statements of the company. He experienced constraints when checking the Statement of Financial Position. Which of the following is not one of the limitations of balance sheet analysis?
Balance sheet data presents data for a given period of time.
If a user wants to know about the current position of a company's assets, she is most likely to refer to the:
Balance sheet.
Which of the following is least likely to be included in equity?
Bank borrowings
A company with current assets of $50 million current liabilities of $30 million in inventory of $10 million has a current ratio and a quick ratios respectively of: A. 2 and 1 B. 2 and 1.33 C. 1.67 and 1.33
C
A major source of deferred income taxes is the use of: A. Off balance sheet financing B. Net operating loss carryovers C. Straight-line depreciation for reporting purposes but MACRS depreciation for tax purposes
C
Depreciation is added back to net income in the statement of cash flow's because it is: A. A cash flow B. Not taxable C. A non-cash expense that was deducted to arrive at net income.
C
Free cash flow to equity is cash flow from operations less capital expenditures plus: A. Taxes B. Interest paid C. Net borrowings
C
If a company borrows during the period using long-term debt to buy processing equipment this directly affects all but which of the following A. Cash flow for investing B. Cash flow from financing C. Cash flow for operations
C
If a company's management select straight-line depreciation for an asset that is expected to lose most of its value in the earliest years of its life this selection is most likely consistent with: A. Accruals management B. Earnings manipulation C. Earnings management
C
If the investor would like to find out the compensation of the highest paid employees of the company, the best source of this information is the company's: A. 8K Filing B. 10K filing C. Proxy Statement
C
It takes a company 80 days to convert its purchase from materials into sold inventory 50 days to collect on its receivables from its customers and 30 days to pay its own suppliers this company has an operating cycle closest to: A. 60 days B. 100 days C. 130 days
C
Net free cash flow is best described as free cash flow after: A. Taxes B. Financing cost C. Financing costs and taxes
C
Possible explanations for the role of the book value to market value in explaining stock returns include all but which of the following: A. The book value to market value ratio is a proxy for risk B. The book value to market value ratio is a proxy for future growth C. The book value to market value ratio is a proxy for financial leverage.
C
Pro forma earnings are best described as: A. Projected earnings B. Projected earnings without extraordinary items C. Earnings determined using accounting principles other than GAAP
C
The DuPont system involves the breakdown of a return on equity ratio into: A. Profitability and activity components B. Liquidity activity and financial leverage components C. Profitability activity and financial leverage components
C
The accounting standards used in many non-US countries are the: A. Financial Accounting B. International Financial Standards C. International Financial Reporting Standards
C
The auditor opinion that indicates that the financial statements are presented fairly in conformity with GAAP without exception is the A. Adverse opinion B. Qualified opinion C. Unqualified opinion
C
The independent auditors opinion is best described as an opinion as to whether the: A. Performance of the company is sufficient B. companies management has committed fraud C. company's financial statements conform to generally excepted accounting principles
C
The role of a 8k filing with the SEC is best described as to disclose: A. Annual Report B. Executive compensation C. Holdings of beneficial owners
C
Treasury stock is best described as: A. Outstanding shares of stock of the company B. Authorized yet on issued shares of stock of the company C. Shares of stock of the company that are purchased by the company
C
When a company sells products to a customer on credit the resulting accrual is be best described as: A. Accruals management B. A discretionary accrual C. A non-discretionary accrual
C
Which of the following methods will result in the highest depreciation expenses hence lowest reported earnings in the first few years that an asset is depreciated? A. Straight-line depreciation B. Declining balance depreciation C. Double declining balance depreciation
C
Which of the following is a direct result of the Dodd Frank act? A. Increased penalties for white collar crime B. Rating agencies are not permitted to disclose the analysis behind the credit rating that they assigned. C. Publicly traded corporations must disclose the relationship between corporations performance and executive compensation.
CC
An increase in interest expense will least likely affect the:
Cash flow from investing activities.
A firm's fixed charge coverage has risen from five to seven times. This is least likely to be explained by the firm having:
Changed its policy and has started using operating lease arrangements to acquire the use of fixed assets.
Ratio analysis is most likely to be performed after which of the following steps in the financial statement analysis framework? You Answered
Collecting data
When determining a company's price‐to‐book value ratio, the book value amount is most likely based on the book value per share of the company's
Common Equity
Which of the following is a technique used by a company to smooth income by overstating liabilities in good earning years and reversing those entries in tough years?
Cookie Jar
Which of the following will most likely lead to a decrease in equity?
Dividends Paid
Which of the following is not considered a current asset?
Equipment
Which of the following decisions least likely requires the analysis of financial statements?
Estimating the useful life of a non current asset
Which of the following equations is the most accurate expression to calculate free cash flow to equity (FCFE)?
FCFE = Cash flow from operations - Fixed capital investment + Net borrowing.
A cash inflow for Investing activities is a good indicator that the company is continually growing.
False
A company can choose to change their inventory valuation method purely for income tax purposes.
False
A company's Annual Report is more comprehensive than the 10K report and includes an MD&A.
False
Earnings Manipulation is perfectly legal and works within the bounds of US GAAP.
False
Historical cost measures an item at the discounted value of future net cash flows expected from the asset/liability.
False
The 10Q report must be filed within 60 days of the end of the company's quarter.
False
Which of the following is least likely a step in the financial statement analysis framework?
Forecasting data
Which of the following formulas is incorrect as to the formula for computing free cash flow?
Free cash flow to equity = Cash flows from operations − Fixed capital investment − Net borrowing
Which of the following is most likely to be used to conduct trend analysis?
Horizontal common‐size financial statements
Which of the following ratios is least affected by the purchase of Treasury stocks?
Interest Coverage Ratio
Which of the following is least likely included in the statement of changes in shareholders' equity?
Interest Recieved
Where would an analyst most likely find recent information on a company's financial position?
Interim Reports
Which inventory valuation method uses the most recent inventory item's cost when recognizing COGS?
Last in First out
Which of the following is least likely a limitation of ratio analysis?
Most companies around the world subscribe to the same set of accounting standards.
When an income statement explicitly shows gross profit as a subtotal, it most likely uses a:
Multi-step format
The following equations are DuPont models for calculating ROE, except for one. Which is it?
Net Profit Margin × Interest Burden × Tax Retention Rate
A common‐size cash flow statement shows each line item as a percentage of:
Net Revenues
Which of the following is a reason to not use a P/E ratio?
Net income can be manipulated.
Consider the following two statements: Statement 1: Companies should ideally have net income that exceeds operating cash flows. Statement 2: The variability of operating cash flow and net income is an important determinant of the overall risk inherent in the company. Which of the following is most likely?
Only Statement 2 is correct
Shares that are currently owned by common shareholders are most likely referred to as:
Outstanding Shares
Which of the following is least likely a motivation to issue low‐quality financial reports?
Poor corporate internal controls
The financial report, which summarizes a company's economic resources and the claims against those resources, will most likely be used by an analyst to determine a company's financial:
Position
An auditor to a company is least likely to be responsible for: Correct!
Preparing the financial statements.
Information regarding management compensation is most likely to be found in the:
Proxy statement.
Which of the following would be least likely to be included in comprehensive income?
Purchase of treasury stock
A company slows its payments on its accounts payables. The freed up cash from this effort is then used to buy back equity and this causes the company's leverage (average total assets / average total equity) to rise. Assuming no changes in other variables, what is the most likely effect(s) on the company's ROA and ROE?
ROA will be unchanged and ROE increase.
Which of the following is least accurate about ratio analysis?
Ratios are not affected by different accounting treatments used by companies.
King, analyst for Town Company, is in the process of identifying trends and forecasting future cash flows. On which items will the relevant common‐size cash‐flow statement be based?
Revenue
A company has employed a new financial controller who has installed a new system to improve the efficiency of inventory management, and who has written off a large amount of uncollectible receivables. This is likely to: Inventory Turnover Receivables Turnover A. Increase Increase B. Increase Decrease C. Decrease Increase
Row A
A company provides the following information: Year 1 Year 2 Return on equity 8.9% 9.4% Return on total assets 4.5% 4.2% Total asset turnover 1.5 1.7 The numbers could be explained by: Financial Leverage Net Profit Margin A. Increased Increased B. Increased Decreased C. Decreased Increased
Row B
Which of the following act resulted in the creation of the PCAOB and extended the authority of the SEC?
Sarbanes-Oxley Act of 2002
Which of the following is a suitable method for computing free cash flow to the firm?
Sum of operating cash flow and after tax interest payments minus capital expenditures.
Information about extraordinary items and other unusual or infrequent events is most likely found in:
Supplementary schedules
In which of the following circumstances is an auditor least likely to issue an unqualified audit opinion?
The auditor believes that the financial statements contain some exceptions to the accounting standards.
Which of the following statements is most accurate?
The cash to income ratio measures the ability of the business operations to generate cash.
If a manufacturing company has a very low total asset turnover compared to its competitors, this could be explained by which of the following?
The company has too much capital invested in assets for the size of its revenue.
A computer manufacturing company has very short days of inventory on hand compared with its competitors. This could be explained by the fact that:
The company runs a just‐in‐time manufacturing system.
Relative to other industry players, which of the following BEST describes a firm reporting high sales growth and high inventory turnover?
The firm is efficient in managing its inventory.
Which of the following is least likely a condition for recognizing financial statement elements?
The item is tangible.
Which of the following is NOT an indicator that revenue should be recognized?
The seller has not performed any of the required services.
The role of financial reporting is most likely:
To provide information that is useful to a wide range of users in making economic decisions.
Cromwell Associates has 15 million authorized shares, 8 million issued shares, and 6.5 million outstanding shares. Which of the following statements regarding Cromwell Associates is most accurate?
Treasury stock amounts to 1.5 million shares
A discretionary accrual is one that requires management judgement like Allowance for Bad debt.
True
The Investors relations office cannot give material financial information to an analyst that is not available to others.
True
Under U.S. GAAP, if a company is using LIFO method they must include a footnote that shows what ending inventory would be under the FIFO method.
True
Which of the following statements regarding a company's internal controls is most accurate?
Under U.S. GAAP, an auditor is also required to express an opinion on the company's internal controls system.
Apple, an analyst, is tasked to model and forecast a company's earnings for the next three years. Which method would Apple least likely use?
Use common‐size financial statements to forecast expenses, based on a certain percentage of net income.
Bishop Steel Manufacturing reported little change in net income, whereas the operating cash flows rose sharply. This might be explained by the company:
Using inventory to meet their customers' orders and minimizing raw material purchases.
An analyst wants to evaluate the use of ratio analysis in analyzing the financial performance and condition of Go Inc. Which one is not a limitation of the use of ratio analysis?
XXXSimilar accounting practices and policies can distort comparisons
Which of the following correctly describes the five‐way DuPont analysis?
XXXTax retention rate, interest burden, operating profit margin, financial leverage, and asset turnover
In preparing its financial statements, an underlying assumption for a company was going concern. This most likely means that the company is assuming:
it will continue to operate for the foreseeable future.
An analyst wishing to assess a company's ability to use its resources to generate profits will most likely calculate the company's:
return on equity.
Which of the following is not a desirable attribute of a standard setting board?
should succumb to pressure from external forces
When analysts are developing forecasts of future performance they should most likely:
use judgment in the process, as it allows analysts to provide more of their own insight.