Financial Statement Analysis

A company reports net income of $500,000 and has 100,000 weighted-average shares outstanding. If the company also has 10,000 dilutive stock options, what is the diluted earnings per share?

Which ratio is most useful in assessing a company's ability to meet its short-term obligations as they come due?

When comparing two companies, Company A has a gross profit margin of 45% and Company B has a gross profit margin of 30%. What does this most likely indicate?

A company's quick ratio is 0.8 while its current ratio is 2.1. What does this discrepancy most likely suggest?

Under the indirect method of preparing the statement of cash flows, depreciation expense is added back to net income because:

A company changes its inventory valuation method from FIFO to LIFO during a period of rising prices. What is the most likely effect on the financial statements?

When performing a DuPont analysis, return on equity (ROE) is decomposed into which three components?

A company reports the following: Operating income $200,000; Interest expense $50,000; Tax rate 30%. The company capitalizes a new lease that adds $20,000 in annual interest. What is the adjusted times interest earned ratio?

An analyst is evaluating earnings quality and notices that a company's cash flow from operations has been significantly lower than net income for three consecutive years. Which of the following is the most concerning implication?

Company X acquires Company Y and records $2 million in goodwill. Two years later, a goodwill impairment test reveals the carrying amount of the reporting unit exceeds its fair value by $500,000. How should this be reported?

Which ratio measures a company's ability to pay its short-term obligations using its most liquid assets?

A company has net income of $200,000 and total revenue of $1,000,000. What is the net profit margin?

Vertical analysis of the income statement expresses each line item as a percentage of:

Horizontal analysis compares financial data over multiple periods to identify:

A company has total debt of $600,000 and total equity of $400,000. What is the debt-to-equity ratio?

Which of the following ratios measures how efficiently a company uses its assets to generate sales?

If a company's current ratio is 2.5 and its current liabilities are $200,000, what are its current assets?

The inventory turnover ratio is calculated as:

A common-size balance sheet expresses each item as a percentage of:

Return on equity (ROE) is calculated as:

The price-to-earnings (P/E) ratio is calculated as:

The days sales outstanding (DSO) ratio measures:

Which ratio is most useful for assessing a company's long-term solvency?

Operating cash flow ratio is calculated as:

A company's gross profit margin decreased from 45% to 38% year over year. This most likely indicates:

Book value per share is calculated as:

The times interest earned (TIE) ratio is calculated as:

Which of the following is an activity ratio?

Free cash flow is generally calculated as:

A company with a high accounts payable turnover ratio relative to industry peers most likely:

Which of the following best describes the purpose of trend analysis?

The dividend payout ratio is calculated as:

A company has operating income of $300,000, total assets of $2,000,000, and total equity of $800,000. What is the return on assets (ROA) using operating income?

The market-to-book ratio compares:

Cash flow adequacy ratio measures a company's ability to:

If a company's receivables turnover is 12, what is the average collection period in days?

Which profitability ratio eliminates the effects of financing and tax decisions?

A company has sales of $5,000,000 and average total assets of $2,500,000. Its total asset turnover is:

The earnings yield is the inverse of which ratio?

A company's working capital is calculated as:

A company has net income of $500,000, average equity of $2,000,000, net profit margin of 10%, and total asset turnover of 1.25. Using the DuPont formula, what is the equity multiplier?

A company reports net income of $800,000 but cash flow from operations of $600,000. This discrepancy most likely indicates:

Company A has a quick ratio of 0.8. Which of the following actions would improve this ratio?

A company has EBIT of $400,000 and interest expense of $80,000. Its tax rate is 25%. What is the fixed charge coverage ratio if the company also has $40,000 in required lease payments?

In the extended DuPont analysis (five-component decomposition), ROE is decomposed into tax burden, interest burden, operating profit margin, asset turnover, and:

A company has the following data: Year 1 revenue $2,000,000, Year 2 revenue $2,200,000, Year 3 revenue $2,530,000. What is the compound annual growth rate (CAGR) of revenue from Year 1 to Year 3?

A company has the following information: Sales $10,000,000; COGS $6,000,000; Average inventory $1,200,000. What is the days inventory outstanding (DIO)?

A company reports the following: Operating cash flow $1,200,000; Capital expenditures $400,000; Dividends paid $200,000; Debt repayment $300,000. What is the free cash flow?

A company's ROE is 18%, its retention ratio is 60%, and its cost of equity is 12%. Using the sustainable growth rate model, the company's sustainable growth rate is:

Which of the following is an off-balance-sheet item that an analyst should consider when evaluating a company's financial leverage?

A company has an operating cycle of 120 days and an accounts payable period of 45 days. Its cash conversion cycle is:

When performing vertical analysis of a balance sheet, if cash is $50,000 and total assets are $500,000, cash would be expressed as:

A company's earnings per share has grown from $2.00 to $3.50 over the past 5 years, while cash flow per share grew from $2.80 to $3.00 over the same period. This divergence most likely suggests:

The Altman Z-score model is used to predict:

A company has total equity of $5,000,000 and total assets of $12,000,000. The equity multiplier is:

Segment reporting requires companies to disclose certain information about operating segments. Which of the following must be disclosed for each reportable segment?

A company's return on invested capital (ROIC) exceeds its weighted average cost of capital (WACC). This indicates that the company is:

An analyst is comparing two companies in the same industry. Company X has a P/E ratio of 25 while Company Y has a P/E ratio of 12. All else being equal, this suggests:

The cash flow to debt ratio is calculated as:

A company reports the following: Beginning receivables $400,000; Ending receivables $600,000; Net credit sales $3,000,000. What is the accounts receivable turnover?

Which of the following would improve a company's return on equity (ROE) without changing net income?

Pro forma financial statements are best described as:

A company's interest coverage ratio declined from 8.0x to 3.0x over three years while revenue increased 20%. This most likely indicates:

The defensive interval ratio measures:

A company has net income of $1,000,000, depreciation of $200,000, increase in accounts receivable of $150,000, and decrease in accounts payable of $50,000. Using the indirect method, cash flow from operations is:

Which of the following statements about earnings quality is most accurate?

The Beneish M-score model is used to detect:

A company has the following: Net income $600,000; Preferred dividends $50,000; Weighted average common shares 100,000; Convertible preferred shares 20,000 (each convertible into 2 common shares). If the convertible preferred is dilutive, what is diluted EPS?

When comparing companies across countries, an analyst should be most cautious about differences in:

A company's operating leverage is considered high when:

An analyst notices that a company's days payable outstanding (DPO) has increased significantly. This could indicate:

The economic value added (EVA) formula is:

A company has total liabilities of $3,000,000 and total assets of $5,000,000. The debt ratio is:

Which analytical procedure would most likely detect an unusual relationship between revenue and accounts receivable?

A company reports EBITDA of $2,000,000 and total debt of $6,000,000. The debt-to-EBITDA ratio is:

An analyst adjusts a company's financial statements by capitalizing operating leases. This adjustment would most likely:

The accrual ratio, used to assess earnings quality, is calculated as:

Which ratio best measures a retailer's efficiency in managing its primary revenue-generating asset?

If a company's DuPont ROE shows increasing leverage (equity multiplier) but declining profit margin, the overall effect on ROE depends on:

A company has the following data: Year 1 total assets $8,000,000; Year 2 total assets $9,200,000; Year 1 total liabilities $4,500,000; Year 2 total liabilities $5,800,000. Using horizontal analysis, which item grew at a faster rate?

A company has the following: Net income $1,200,000; Interest expense $300,000; Tax rate 25%; Total assets $10,000,000; Total equity $4,000,000; Total debt $6,000,000. What is the return on invested capital (ROIC)?

An analyst is evaluating two companies with identical ROE of 15%. Company A achieves this through high margins and low leverage, while Company B achieves this through low margins and high leverage. Which company likely has higher risk?

A company reports the following over three years: Year 1 net income $500,000, OCF $480,000; Year 2 net income $700,000, OCF $550,000; Year 3 net income $950,000, OCF $580,000. The accrual component of earnings (net income minus OCF) as a percentage of net income in Year 3 is approximately:

A company has the following data: Sales $8,000,000; COGS $5,000,000; Average inventory $1,000,000; Average receivables $800,000; Average payables $600,000. What is the cash conversion cycle?

A company has a 5-component DuPont analysis showing: Tax burden 0.75; Interest burden 0.80; Operating margin 12%; Asset turnover 1.5; Equity multiplier 2.0. What is the ROE?

An analyst is normalizing a company's earnings. The company had a $2,000,000 gain on sale of a division, $500,000 in restructuring charges, and $300,000 in litigation settlement expense. Pre-adjustment net income was $5,000,000, and the tax rate is 25%. What is normalized after-tax net income?

A company reports the following segment data: Segment A revenue $3,000,000, operating profit $600,000, assets $2,000,000; Segment B revenue $5,000,000, operating profit $400,000, assets $4,000,000. Which segment has a higher return on segment assets?

A company's stock trades at $60 per share with EPS of $4.00, book value of $25 per share, and dividends of $1.20 per share. The PEG ratio is 1.5 and the P/E ratio is 15. What is the implied earnings growth rate?

An analyst is comparing two companies. Company X uses aggressive revenue recognition (recognizing revenue at shipment) while Company Y uses conservative recognition (recognizing upon customer acceptance). If both companies have similar operations, Company X likely has:

A company has EBIT of $2,000,000, depreciation of $400,000, interest expense of $500,000, required principal repayment of $300,000, and a tax rate of 25%. What is the debt service coverage ratio?

A company switches from capitalizing certain costs to expensing them. In the year of the change, compared to continuing to capitalize, the company will report:

An analyst calculates that a company's Altman Z-score is 2.2. This score falls in:

A company has the following: Revenue $20,000,000 (Year 2) vs. $18,000,000 (Year 1); COGS $12,000,000 (Year 2) vs. $10,000,000 (Year 1); SG&A $4,000,000 (Year 2) vs. $3,500,000 (Year 1). Calculate the Year 2 operating leverage effect using the change in EBIT vs. change in revenue.

An analyst adjusts financial statements for off-balance-sheet operating leases by capitalizing $5,000,000 in future lease obligations. This adjustment would change the debt-to-equity ratio from 1.0 to approximately what level if equity is $10,000,000?

A company has NOPAT of $3,000,000, invested capital of $20,000,000, and WACC of 10%. The economic value added (EVA) is:

A company's financial statements show the following trends over 3 years: increasing revenue, stable gross margins, declining operating margins, and increasing interest expense. The most likely explanation is:

A manufacturing company reports the following quality of earnings indicators: increasing days sales outstanding from 35 to 55 days, declining cash flow from operations despite growing net income, and rising inventory levels relative to sales. An analyst should be most concerned about:

A company has the following structure: Total assets $50,000,000; Interest-bearing debt $20,000,000 at 6% average rate; Equity $20,000,000; Non-interest-bearing liabilities $10,000,000. EBIT is $6,000,000 and tax rate is 25%. What is the spread between ROIC and the after-tax cost of debt?

An analyst performs a common-size analysis and finds that a company's SG&A as a percentage of revenue has increased from 22% to 28% over three years while competitors average 20%. The most appropriate conclusion is:

A company has the following per-share data: Market price $80; EPS $5.00; Book value $32; Dividends $2.00. The dividend yield, earnings yield, and price-to-book ratio are, respectively: