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Principles of Finance

Multiple Choice

Principles of FinanceMultiple Choice
1 .
Which of the following is financial statement analysis not used for?
  1. identifying trends over time
  2. benchmarking against other firms
  3. complying with SEC (Securities and Exchange Commission) regulations
  4. setting budget expectations
2 .
How is converting financial data to percentages helpful in financial analysis?
  1. It makes the figures easier to calculate.
  2. It masks actual financial data so the competition can’t see it.
  3. It saves time.
  4. It makes comparisons to companies of varying sizes possible.
3 .
What is a common economic influence that has the potential to skew financial analysis figures?
  1. past performance
  2. inflation
  3. Generally Accepted Accounting Principles
  4. benchmark data
4 .
What is the formula for accounts receivable turnover?
  1. net credit sales / average accounts receivable
  2. total sales / average accounts receivable
  3. net credit sales / beginning accounts receivable
  4. net cash sales / ending accounts receivable
5 .
What is the formula for the times interest earned ratio?
  1. net income / interest expense
  2. earnings before interest and taxes / interest expense
  3. interest expense / earnings before interest and taxes
  4. earnings before interest and taxes – interest expense
6 .
What is the formula for the calculation of earnings per share?
  1. (net income + preferred dividends) / weighted average common shares outstanding
  2. net income / weighted average common shares outstanding
  3. (net income – preferred dividends) / weighted average common shares outstanding
  4. (net income – preferred dividends) / treasury shares outstanding
7 .
Most analysts believe which of the following is true about earnings per share?
  1. Consistent improvement in earnings per share year after year is an indication of continuous improvement in the company’s earning power.
  2. Consistent improvement in earnings per share year after year is an indication of continuous decline in the company’s earning power.
  3. Consistent improvement in earnings per share year after year is an indication of fraud within the company.
  4. Consistent improvement in earnings per share year after year is an indication that the company will never suffer a year of net loss rather than net income.
8 .
What is the formula for profit margin?
  1. net sales / net income
  2. cost of goods sold / net sales
  3. sales / cost of goods sold
  4. net income / net sales
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