Test bank for financial statement analysis and valuation 3rd edition

Test Bank for Financial Statement Analysis and Valuation 3rd
Edition

Which of the following groups would likely not be interested in the financial
statements of a large public company such as Berkshire Hathaway?

1. A) Shareholders
2. B) Employees
3. C) Competitors
4. D) Taxing agencies
5. E) None of the above
The SEC adopted Regulation FD, to curb public companies’ practice of:

1. A) Routinely filing extensions for annual reports (Form 10-K)
2. B) Selectively disclosing information


3. C) Reporting pro forma (non-GAAP) numbers
4. D) Hiring auditors for non-audit services such as consulting engagements
5. E) None of the above
A list of assets, liabilities and equity can be found on which of the
following?

1. A) Balance Sheet
2. B) Income Statement
3. C) Statement of Assets and Liabilities
4. D) Statement of Cash Flows
5. E) Statement of Stockholders’ Equity
Which of the following items would not be found on a balance sheet? (Select
all that apply)

1. A) Stockholders’ Equity
2. B) Property, plant and equipment
3. C) Nonowner financing
4. D) Sales
5. E) Cost of Goods Sold
A company’s net cash flow will equal its net income …

1. A) Almost always
2. B) Rarely
3. C) Occasionally


4. D) Only when the company has no investing cash flow for the period
5. E) Only when the company has no investing or financing cash flow for the
period
Which of the following statements are correct (select all that apply):

1. A) A balance sheet reports on investing and financing activities.
2. B) An income statement reports on financing activities.
3. C) The statement of equity reports on changes in the accounts that make up
equity.
4. D) The statement of cash flows reports on cash flows from operating,
investing, and financing activities over a period of time.
5. E) A balance sheet reports on a company’s assets and liabilities over a period
of time.
The Goodyear Tire & Rubber Company’s December 31, 2011 financial
statements reported the following (in millions) Total assets $17,629 Total
liabilities 16,005 Total shareholders’ equity 1,624 Net income (loss) 343
Retained earnings, December 31, 2010 $ 866 What did Goodyear report for
Retained earnings at December 31, 2011?

1. A) $1,624 million
2. B) $1,209 million
3. C) $ 523 million
4. D) $2,833 million
5. E) There is not enough information to determine the answer.


American Airlines’ 2011 balance sheet reported the following (in millions)
Total Assets $23,589 Total Liabilities 32,626 Contributed Capital $ 4,455 What
was American Airlines’ Total liabilities and Stockholders’ Equity at December
31, 2011?

1. A) $23,589 million
2. B) $32,626 million
3. C) $37,081 million
4. D) $ 4,455 million
5. E) There is not enough information to determine the answer.
On October 2, 2011 Starbuck’s Corporation reported, on its Form 10-K, the
following (in millions): Total assets $7,360.4 Total stockholders’ equity
4,387.3 Total current liabilities 2,075.8 What did Starbuck’s report as Total
liabilities on October 2, 2011?

1. A) $7,360.4 million
2. B) $2,075.8 million
3. C) $2,973.1 million
4. D) $2,311.5 million
5. E) None of the above
In its 2011 annual report, Snap-On Incorporated reported the following (in
millions): Current assets $1,530.7 Total shareholders’ equity $1,547.3 Total

liabilities $2,125.6 What did Snap-On report as total assets at year-end
2011?

1. A) $3,078.8 million
2. B) $1,530.7 million
3. C) $3,656.3 million


4. D) $3,672.9 million
5. E) None of the above
In its 2011 annual report, Kohl’s Corporation reported the following (in
millions): Total assets $14,094 Total shareholders’ equity $ 6,508 Total
liabilities $ 7,586 What proportion of Kohl’s Corporation is financed by
nonowners?

1. A) 86%
2. B) 54%
3. C) 46%
4. D) 73%
5. E) None of the above
In its 2011 annual report, Mattel Inc. reported the following (in millions): Total
liabilities $3,061 Total shareholders’ equity $2,611 What proportion of Mattel
is financed by nonowners?

1. A) 54%
2. B) 37%
3. C) 85%
4. D) 46%
5. E) None of the above
The Goodyear Tire & Rubber Company’s December 31, 2011 financial

statements reported the following (in millions) Sales $22,767 Cost of sales
$18,821 Other expenses (excluding cost of sales) $ 3,529 What did Goodyear
report for Net income for the year ending December 31, 2011?

1. A) $ 3,946 million


2. B) $ (417) million
3. C) $ 417 million
4. D) $19,238 million
5. E) There is not enough information to determine the answer.
Intel Corporation reported the following on its 2007 income statement (in
millions) Sales revenue $38,334 Gross profit $19,904 Total expenses $12,928
What did Intel report for Cost of goods sold during 2007?

1. A) $25,406 million
2. B) $ 5,502 million
3. C) $18,430 million
4. D) $ 2,988 million
5. E) None of the above
On October 2, 2011, Starbucks Corporation reported, on its Form 10-K, the
following (in millions): 2011 2010 Total expenses $10,452.4 $9,759.1
Operating income 1,728.5 1,419.4 Net earnings 1,248.0 948.3 What amount of
revenues did Starbucks report for the year ending October 2, 2011?

1. A) $10,452.4
2. B) $ 8,723.9
3. C) $11,700.4
4. D) $12,180.9
5. E) None of the above

On October 2, 2011, Starbucks Corporation reported, on its Form 10-K, the
following (in millions): 2011 2010 Operating income $ 1,728.5 $1,419.4 Net
earnings $ 1,248.0 $ 948.3 Calculate year-over-year increase in Net earnings,
in percentage terms.

1. A) 22%
2. B) 32%
3. C) 72%
4. D) 67%
5. E) None of the above
In its 2010 annual report, Caterpillar Inc. reported the following (in millions):
2010 2009 Sales $39,867 $29,540 Cost of goods sold 30,367 23,886 As a
percentage of Sales, did Caterpillar’s Gross profit increase or decrease during
2011?

1. A) Gross profit increased from 19% to 24%
2. B) Gross profit decreased from 24% to 19%
3. C) Gross profit increased from 76% to 81%
4. D) Gross profit decreased from 81% to 76%
5. E) There is not enough information to answer the question.
The Goodyear Tire & Rubber Company’s December 31, 2011, financial
statements reported the following (in millions). Cash December 31, 2011 $
2,772 Cash from operating activities 773 Cash from investing activities (902)
Cash from financing activities 896 What did Goodyear report for Cash on its
December 31, 2010 balance sheet?

1. A) $2,772 million
2. B) $3,539 million

3. C) $767 million
4. D) $2,005 million
5. E) None of the above
Procter & Gamble’s June 30, 2011, financial statements reported the following
(in millions): Cash, beginning of year $ 2,879 Cash, end of year 2,768 Cash
from operating activities 13,231 Cash from investing activities (3,482) What
did Procter & Gamble report for Cash from financing activities for the year
ended June 30, 2011?

1. A) $(12,628) million
2. B) $ 15,396 million
3. C) $ (15,396) million
4. D) $ 9,860 million
5. E) $ (9,860) million
A company’s return on assets (ROA) can be disaggregated to reveal which of
the following (select all that apply):

1. A) Financial leverage
2. B) Profit margin
3. C) Sales growth
4. D) Asset growth
5. E) Asset turnover
The ratio of net income to equity is also known as:

1. A) Total net equity ratio
2. B) Profit margin

3. C) Return on equity
4. D) Net income ratio
5. E) None of the above
Sales for the year = $108,229, Net Income for the year= $13,144, Income
from equity investments = $3,309, and average Equity during the year =
$47,556. Return on equity (ROE) for the year is:

1. A) 12.1%
2. B) 27.6%
3. C) 43.9%
4. D) 227.6%
5. E) There is not enough information to answer the question.
Sales for the year = $82,229, Net Income for the year= 8,186, and average
Assets during the year = $52,445. Return on Assets (ROA) for the year is:

1. A) 63.8%
2. B) 1 0.0%
3. C) 15.6%
4. D) There is not enough information to calculate ROA.
5. E) None of the above
Sales for the year = $277,022, Profit margin = 16%, and average Assets
during the year = $259,108. Return on Assets (ROA) for the year is:

1. A) 17.1%
2. B) 16.0%


3. C) 84.0%
4. D) There is not enough information to calculate ROA.
5. E) None of the above

On December 31, 2010, Harley-Davidson, Inc., reported, on its Form 10-K, the
following (in millions): 2010 2009 Total assets $9,431 $9,156 Total sales 4,859
4,782 Net income 147 (55) Calculate return on assets (ROA) for 2010.

1. A) 1.6%
2. B) 51.5%
3. C) 71.5%
4. D) 9.7%
5. E) None of the above
Which of the following are not one of the five forces that determine a
company’s competitive intensity? (select as many as apply)

1. A) Bargaining power of suppliers
2. B) Threat of substitution
3. C) Ability to obtain financing
4. D) Threat of entry
5. E) Threat of regulatory intervention
Which of the following are relevant in an analysis of a company’s business
environment? (select as many as apply)

1. A) Financing
2. B) Labor


3. C) Buyers
4. D) Governance
5. E) All of the above
A clean audit opinion includes which of the following assertions: (select as
many as apply)

1. A) Financial statements present fairly the company’s financial condition
2. B) The auditor certifies the financials to be error free
3. C) The financial statements are management’s responsibility
4. D) Management has handled transactions efficiently in all material respects
5. E) All of the above
The audit report is addressed to:

1. A) The audit committee
2. B) The board of directors
3. C) The shareholders
4. D) The board of directors and the shareholders
5. E) The Securities and Exchange Commission (SEC)
Generally Accepted Accounting Principles (GAAP) are created by: (select all
that apply)

1. A) The Securities and Exchange Commission
2. B) The Generally Accepted Accounting Principles Task Force
3. C) The Sarbanes Oxley Act


4. D) The Financial Accounting Standards Board
5. E) The Emerging Issues Task Force
Shareholders demand financial information primarily to assess profitability
and risk whereas bankers demand information primarily to assess cash flows
to repay loan interest and principal.

1. True
2. False
Publicly traded companies are required to provide quarterly financial reports
directly to the public.

1. True
2. False
Publicly traded companies provide financial information primarily to satisfy
the SEC and the tax authorities (that is, the Internal Revenue Service).

1. True
2. False
Publicly traded companies must provide to the Securities Exchange
Commission annual audited financial statements (10K reports) and quarterly
audited financial statements (10Q reports).

1. True
2. False


If a company reports retained earnings of $175.3 million on its balance sheet,
it must also report $175.3 million in cash.

1. True
2. False
A balance sheet shows a company’s position over a period of time, whereas
an income statement, statement of stockholders’ equity, and statement of
cash flows show its position at a point in time.

1. True
2. False
Assets must always equal liabilities plus equity.

1. True

2. False
The income statement reports net income which is defined as the company’s
profit after all expenses and dividends have been paid.

1. True
2. False
A statement of cash flows reports on cash flows for operating, investing and
financing activities at a point in time.

1. True
2. False


An increase in treasury stock would be reflected in the statement of
stockholders’ equity.

1. True
2. False
Return on Assets (ROA) measures the profit the company makes on each
dollar of total assets it uses.

1. True
2. False
Return on Assets (ROA) = Net Income / Sales × Asset Turnover

1. True
2. False
Consider two companies (A and B) with equal profit margins of 15%. Company
A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If
all else is equal, Company B with its’ higher asset turnover, is less profitable

because it is expensive to turn assets over.

1. True
2. False
Financial statements are influenced by five important forces that determine a
company’s competitive intensity: (A) industry competition, (B) buyer power,
(C) supplier power, (D) product substitutes, and (E) threat of entry.

1. True
2. False


A “clean” audit report asserts – among other things – that (a) the auditor has
prepared all necessary financial statements and (b) management has
expressed its opinion that they are prepared in conformity with GAAP.

1. True
2. False