Question

1. If a firm's debt ratio is greater than 100% and its net debt to EBITDA ratio is 1.0x, the firm is:

   1. A debt ratio can never be over 100%.

   2. probably over-leveraged.

   3. not necessarily over- or under-leveraged, but does need to raise equity capital.

   4. probably under-leveraged.

2. Question 2

   2 Points

   The number of shares repurchased and/or issued in a given period are shown on the:

   1. statement of shareholders equity.

   2. cash flow statement.

   3. balance sheet.

   4. income statement.

3. Question 3

   2 Points

   Of the following, which ratio would be the best ratio to judge the financial leverage of a firm?

   1. Debt-to-equity ratio

   2. Times interest earned

   3. Debt ratio

   4. Net debt to free cash flow

4. Question 4

   2 Points

   Changes to prepaid expenses would be found on the:

   1. cash flow statement.

   2. income statement.

   3. statement of shareholders equity.

   4. balance sheet.

5. Question 5

   2 Points

   Assume a firm has a current ratio of 2.0x and a debt ratio of 0.5x. The firm takes a charge to write-down some obsolete inventory. The firm's current ratio and debt ratio will:

   1. Both increase.

   2. Both decrease.

   3. The current ratio will increase and the debt ratio will decrease.

   4. The current ratio will decrease and the debt ratio will increase.

6. Question 6

   2 Points

   What does a falling accounts receivable turnover ratio mean?

   1. Management is becoming more efficient in managing collections.

   2. Net sales are growing faster in relation to accounts receivable.

   3. Accounts receivable will a source of cash on the cash flow statement.

   4. The amount money needed to fund working capital is growing.

7. Question 7

   2 Points

   Operating leverage is defined as:

   1. Sales growing faster than operating expenses allowing operating margins to expand.

   2. Sales growing faster than operating cash flow on the cash flow statement.

   3. Operating cash flow growing faster than net income.

   4. The use of debt capital instead of equity capital to fund the operations of a firm.

8. Question 8

   5 Points

   Define is free cash flow and explain why it is important.

9. Question 9

   2 Points

   Depreciation is defined as:

   1. The amount of assets that must be replenished every period.

   2. The cost allocation method for some long-lived assets.

   3. A non-cash expense used to gauge how fast current assets are being depleted.

   4. A non-cash expense on the cash flow statement.

10. Question 10

    2 Points

    An analyst has built a forecast showing a rapidly rising Fixed Asset Turnover Ratio. What error has the analyst likely made?

    1. The net profit forecast is too low.

    2. The net sales forecast is too low.

    3. The depreciation forecast is too low.

    4. The capex forecast is too low.

11. Question 11

    2 Points

    The firm takes a charge to write down some obsolete inventory. The firm's net working capital and its quick ratio will:

    1. Net working capital will remain unchanged and the quick ratio will increase.

    2. Net working capital will remain unchanged and the quick ratio will remain decrease.

    3. Net working capital will increase and the quick ratio will remain unchanged.

    4. Net working capital will decrease and the quick ratio will remain unchanged.

12. Question 12

    2 Points

    The Securities and Exchange Commission's main goal with a prospectus is to:

    1. make sure full disclosure to investors has been made.

    2. identify for investors the fair value of the company.

    3. insure investors that it is a legitimate company.

    4. identify companies that do not have the proper capital structure.

13. Question 13

    2 Points

    Assuming a period of inflation, which inventory costing method will result in the highest profits?

    1. Specific identification

    2. LIFO

    3. Average costs

    4. FIFO

14. Question 14

    2 Points

    Non-GAAP accounting might be an appropriate metric to use if:

    1. If there are significant one-time charges reported on the balance sheet.

    2. If it is a better representation of the firms reoccurring earnings power.

    3. Non-GAAP accounting should never be used.

    4. Management is sure that their stock price is too low.

15. Question 15

    2 Points

    Why might a company decide not to pay out all of their free cash flow in dividends?

    1. Management may have decided that employees need a raise.

    2. The company may need to repair or replace some existing equipment.

    3. The company may want to buy a competitor.

    4. The company may need to purchase more inventory due to strong sales demand.

16. Question 16

    2 Points

    The income statement should not be relied upon to accurately measure a firm's operating cash generation because:

    1. it is based on accrual accounting.

    2. It does not take into account borrowings and repayments of debt.

    3. The income statement can be relied upon to accurately measure a firm's operating cash generation.

    4. It is based on cash accounting.

17. Question 17

    2 Points

    If a firm had beginning retained earnings of $200,000, net income of $60,000, sales of $150,000, total assets of $500,000, ending retained earnings of $175,000, share repurchases of $35,000 and total liabilities of $250,000, how much did the company pay out in dividends, if any?

    1. $0

    2. $25,000

    3. $50,000

    4. $35,000

18. Question 18

    2 Points

    An auditor's report that signifies that the financials of a company are fairly presented in accordance with GAAP accounting is called a _____________ report.

    1. qualified

    2. disclaimer of opinion

    3. unqualified

    4. adverse

19. Question 19

    5 Points

    Why is working capital management important?

20. Question 20

    2 Points

    Which of the following statements is NOT true?

    1. Fully diluted shares outstanding can not decrease unless shares are repurchased.

    2. Fully diluted shares outstanding include all potentially dilutive securities that have been issued.

    3. Basic shares outstanding are always included in fully diluted shares outstanding.

    4. Basic shares outstanding are always equal to or less than fully diluted shares outstanding.

21. Question 21

    2 Points

    If the inventory account rises on a balance sheet over the course of an accounting period it represents a(n):

    1. source of cash.

    2. neither a source or use of cash if the inventory was purchased on account.

    3. use of cash.

    4. impossible to determine without additional information.

22. Question 22

    2 Points

    Which one of the following is NOT considered a working capital account?

    1. accrued liabilities

    2. accounts payable

    3. accounts receivable

    4. notes payable

Answer 1