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    Quiz 1 - 4

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    Yong Ren
    The document contains 13 multiple choice questions that assess understanding of financial analysis concepts such as assessing firm efficiency using metrics like operating asset turnover and NOPAT margin, decomposing return on equity using traditional vs alternative approaches, calculating items from financial statements like net non-current operating assets and operating working capital, and determining metrics like days' inventories, sustainable growth rate, and free cash flow.

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    Quiz 1 - 4

    Uploaded by

    Yong Ren
    719 views4 pages
    The document contains 13 multiple choice questions that assess understanding of financial analysis concepts such as assessing firm efficiency using metrics like operating asset turnover and NOPAT margin, decomposing return on equity using traditional vs alternative approaches, calculating items from financial statements like net non-current operating assets and operating working capital, and determining metrics like days' inventories, sustainable growth rate, and free cash flow.

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    The document contains 13 multiple choice questions that assess understanding of financial analysis concepts such as assessing firm efficiency using metrics like operating asset turnover and NOPAT margin, decomposing return on equity using traditional vs alternative approaches, calculating items from financial statements like net non-current operating assets and operating working capital, and determining metrics like days' inventories, sustainable growth rate, and free cash flow.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    719 views4 pages

    Quiz 1 - 4

    Uploaded by

    Yong Ren
    The document contains 13 multiple choice questions that assess understanding of financial analysis concepts such as assessing firm efficiency using metrics like operating asset turnover and NOPAT margin, decomposing return on equity using traditional vs alternative approaches, calculating items from financial statements like net non-current operating assets and operating working capital, and determining metrics like days' inventories, sustainable growth rate, and free cash flow.

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    Chapter 5 – Financial Analysis

    Q5.1. To assess the efficiency of a firm’s investment management, an analyst would analyze the firm’s

    A. NOPAT margin
    B. Operating asset turnover
    C. Financial spread
    D. Financial leverage

    Q5.2. To assess the efficiency of a firm’s operating management, an analyst would analyze the firm’s

    A. NOPAT margin
    B. Operating asset turnover
    C. Financial spread
    D. Financial leverage

    Q5.3. One difference between the traditional and the alternative approach to decomposing return on
    equity is that

    A. The traditional approach defines leverage as debt-to-equity, whereas the alternative approach
    defines leverage as assets-to-equity.
    B. Only the traditional approach explicitly shows the impact of financial spread on return on equity.
    C. The approaches use different definitions of profit margins and asset turnover.
    D. One approach uses beginning-of-year balance sheet items to calculate ratios, whereas the other
    approach uses end-of-year balance sheet items.

    Q5.4. At the end of fiscal year 2019, company Z discloses the following balance sheet:

    Assets Equity and Liabilities


    Cash €500,000 Current debt €300,000
    Non-cash current assets €800,000 Other current liabilities €700,000
    Non-current assets €1,300,000 Non-current debt €1,400,000
    Minority equity investments €300,000 Deferred tax liability €150,000
    Equity €350,000
    Total €2,900,000 Total €2,900,000
    The company needs a cash balance of €300,000 for its operations. Company Z’s net non-current
    operating assets equal

    A. €1,400,000
    B. €1,300,000
    C. €1,150,000 (1,300,000-150,000)
    D. €2,900,000

    Q5.5. At the end of fiscal year 2019, company Z discloses the following balance sheet:

    Assets Equity and Liabilities


    Cash €500,000 Current debt €300,000
    Non-cash current assets €800,000 Other current liabilities €700,000
    Non-current assets €1,300,000 Non-current debt €1,400,000
    Minority equity investments €300,000 Deferred tax liability €150,000
    Equity €350,000
    Total €2,900,000 Total €2,900,000
    The company needs a cash balance of €300,000 for its operations. Company Z’s operating working
    capital and investment assets equal

    A. €400,000 and €500,000, respectively [2.9-0.2-1.3]-[2.9-0.35-1.4-0.15], [200,000+300,000]


    B. €100,000 and €500,000, respectively
    C. €400,000 and €300,000, respectively
    D. €100,000 and €300,000, respectively

    Q5.6. At the end of fiscal year 2018, company X discloses the following income statement:

    Revenue €6.500,000
    Operating expense (€4,800,000)
    Interest income €600,000
    Interest expense (€900,000)
    Tax expense (€490,000)
    Profit or loss €910,000
    Company X’s interest expense after tax and net operating profit after taxes equal

    A. €585,000 and €1,105,000, respectively [900,000x(1-0.35)], [6.5-4.8]x(1-35)]


    B. €195,000 and €1,105,000, respectively
    C. €300,000 and €910,000, respectively
    D. €300,000 and €1,105,000, respectively

    Q5.7. Company A discloses the following information:

    - Return on equity = 15 percent


    - Net operating and investment profit after taxes (NOPAT + NIPAT) = €500,000
    - Business assets = €4,000,000
    - Effective interest rate after tax = 8 percent

    Company A’s financial leverage (debt-to-equity ratio) is

    A. Between 40 and 49.9 percent


    B. Between 50 and 59.9 percent
    C. Between 60 and 69.9 percent
    D. Between 70 and 79.9 percent

    Q5.8. Company B discloses the following information:

    - Return on net operating assets = 10 percent


    - Net operating profit after taxes = €500,000
    - Revenue = €3,000,000
    - Equity = €2,000,000

    Company B’s operating asset turnover is

    A. Between 40 and 49.9 percent


    B. Between 50 and 59.9 percent
    C. Between 60 and 69.9 percent
    D. Between 70 and 79.9 percent

    Q5.9. Industry peers C and D disclose the following information:

    Company C Company D
    Operating asset turnover 5.6 2.3
    Return on operating assets 10 percent 10 percent
    Which of the two companies is more likely to follow a cost leadership strategy?

    A. Company C
    B. Company D

    Q5.10. Company E discloses the following information:

    - Inventories = €800,000
    - Cost of sales = €4,500,000
    - Business assets = €3,000,000

    Company E’s days’ inventories is

    A. Between 30 and 39.9 days


    B. Between 40 and 49.9 days
    C. Between 50 and 59.9 days
    D. Between 60 and 69.9 days [800,000/4,500,000] x 365

    Q5.11. If a firm’s return on equity is 20 percent, its return on business assets is 14 percent, its revenue
    growth rate is 15 percent, and its dividend payout ratio is 50 percent, its sustainable growth rate equals

    A. 7 percent
    B. 7.5 percent
    C. 10 percent SGR= ROE x (1-Dividend payout ratio) = 10%
    D. 15 percent

    Q5.12. At the end of fiscal year 2018, company Y discloses the following information:

    Net operating and investment profit after taxes (NOPAT + NIPAT) €1,100,000
    Interest expense after tax (= interest paid) €500,000
    Net investment in operating working capital (increase) €700,000
    Net investment in non-current assets / CAPX (increase) €900,000
    Non-operating losses €90,000
    Depreciation and amortization expense €910,000
    Increase in debt 550,000
    Dividends paid €300,000
    Company Y’s free cash flow available to debt and equity is

    A. €200,000 (positive)
    B. €1,050,000 (positive)
    C. €500,000 (positive) NET EARNING(1100000) - NET CAPITAL EXPENDITURE(900000) - NET
    INCEREASE IN WORKING CAPITAL(700000) + DEPERICIATION(910000) + NON-OPERATING
    LOSS(90000)
    D. (€500,000) (negative)

    Q5.13. At the end of fiscal year 2018, company Y discloses the following information:

    Net operating and investment profit after taxes (NOPAT + NIPAT) €1,100,000
    Interest expense after tax (= interest paid) €500,000
    Net investment in operating working capital (increase) €700,000
    Net investment in non-current assets / CAPX (increase) €900,000
    Non-operating losses €90,000
    Depreciation and amortization expense €910,000
    Increase in debt 550,000
    Dividends paid €300,000
    Company Y’s free cash flow available to equity is

    A. €200,000 (positive)
    B. (€450,000) (negative)
    C. (€550,000) (negative)
    D. €550,000 (positive) NET EARNING(1100000) - INTEREST PAID(500000) - NET CAPITAL
    EXPENDITURE(900000) - NET INCEREASE IN WORKING CAPITAL(700000) +
    DEPERICIATION(910000) + NON-OPERATING LOSS(90000) + INCEREASE IN DEBT(550000)

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