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45 Cards in this Set

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Which of the following would be helpful to an analyst evalutaing the performance of a firm?
Understanding the economic and political enviroment in which the company operates, reviewing the annual reports ofa company's suppliers, customers and competitors, preparig common-size financial statements and calculating key financial ratios for the company being evaluated.
All of the above
Which of the following is not required to be discussed in the MD&A of the Financial Condition and Results of Operations
Earnings projections
What type of information found in supplementary schedules is required for inclusion in an annual report
Segmental data
What is Form 10-K
A document filed with the SEC by companies selling securities to the publicm containing much of the same information as the annual report as well as additional detail
What info can be gained from sources such as Industry Norms and Key Business Ratios, Annual Statement Studies, Analyst's Handbook and Industry Surveys
A company's relative position within it's industry
Which of the following is not a tool or technique used by a financial statement analyst
Random Sampling analysis
What do liquiduty ratios measure
A firm's ability to meet cash needs as they arise
Which category of ratios is useful in assessing the capital structure and long-term solvency of a firm?
Leverage ratios
What is a serious limitation of financial ratios?
Ratios are not predictive
What is the most widely used liquidity ratio
Current ratio
What is a limitation common to both the current and the quick ratio?
Accounts receivable may not be truly liquid
Why is the quick ratio a more rigorous test of short0run solvency than the current ratio
The quick ratio considers only cash and marketable securites as current assets
What does an increasing collection period for accounts receivable suggest about a firm's credit policy?
The credit policy may be too lenient
Which of the following statements about inventroy turnover is false
A low inventory turnoer is generally a sign of efficient inventory management
Which would cause the cash conversion cycle to decrease
Increasing days payable outstanding
What do the asset turnover ratios measure
Management's effectiveness in generating sales from investments in assets
Which of the following ratios would not be used to measure the extent of a firm's debt financing
Times interest earned
Why is the amoung of debt in a company's capital structure important to the financial analyst
Debt implies risk
Why is the fixed charge coverage ratio a broader measure of a frim's coverage capabilities than the times interest earned ratio
The fixed charge ratio includes lease payments as well as interest payments
Which profit margin measures the overall operating efficiency of the firm
Operating profit margin
Which ratio or ratios measure the overall efficiency of the firm in managing its investment in assets and in generating return to shareholders
Return on investment and return on equity
What does a financial everage index greater than one indicate about a firm
Operating returns more than sufficient to cover interest paymetns on borrowed funds
What does the price to earnings ratio measure
The "multiple" that the stock market places on a firm's earnings
Effective Tax Rate
Decrease
Used to determine "effective" tax rates for companies based on income statement data
Current Ratio
CA/CL- Increase
Measures short-term liquidity, the ability of a firm to meet needs for cash as they rise
Cash-flow liquidity Ratio
Measures short term liquidity by considering as cash resources
Average collection period
Decrease Indicates days required to convert receivables into cash
Days inventory held
Decrease
Indicates days required to sell inventory
Days payable outstanding
Increase
Indicates days required to pay suppliers/vendors
Cash conversion Cycle
Decrease
Indicates how many times receivables are collected during a year, on average
Accounts Receivable Turnover
Increase
Indicates how many times receivables are collected during a year, on average
Inventory Turnover
Increase
Measures efficiency of the firm in management and selling of inventory
A/P Turnover
Decrease
Measures the efficiency of the firm paying it's suppliers
Fixed Asset Turnover
Depends
Measures efficiency of the firm in managing fixed assets
Total Asset Turnover
Measures efficiency of the firm in managing all assets
Return on assets
Increase
Measures overall efficiency of firm in managing asset and generating net profits/net income/net earnings. Reflects firm's ability to generate Net income/net profit from its total resources (assets)
Debt Ratio
Depends
Shows proportion of all assets that are financed with debt
Long term debt
Depends
Measures the extent to which long-term debt is used for permanent financing
Debt to equity
Depends
Measures the capital structure of the company, how much total debt they have relative to equity
Financial Leverage
depends
Indicates if a firm is employing debt successfully
Times interest earned
Increase
Measures how many times interest expense is covered by operating earnigns/operating profit
Cash interest earned
Increase
Measure how many times interest payments are covered by cash flow from operating activites
Fixed Charge coverage
Increase
Measures coverage capability more broadly than times interest earned by including operating lease payment as a fixed expense
Cash flow adequacy
Increase
Measures how many times capital expenditures, debt repayments, and cash dividends are covered by operating cash flow
Operating Leverage
The sue of fixed costs to increase net income as sales/revenue increase