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Financial Analysis Test Answers (new)

Please press Ctrl + F to find your desired answers of the test question, In this post you will have most recent test answers of Financial Analysis Test for Upwork Finance and Accounting category.
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1. Return on Assets is defined as _______.
 Answers: • Net Income/Total Assets

 2. Why would a company calculate their Risk Adjusted Return on Capital?
 Answers: • Gives companies the ability to allocate capital in the optimal structure



 3. What is the purpose of measuring profitability?
 Answers: • To measure a company's ability to earn a profit and continue to grow in the short-term and long-term

 4. Operating Efficiency is defined as ______.
 Answers: • Net Income/Operating Expenses

 5. To measure a firm's solvency as completely as possible, we need to consider ______.
 Answers: • the firm's capital structure and the liquidity of its current assets

 6. How does Gross Income differ from Net Income?
 Answers: • Gross Income measures profitability before operating expenses, whereas Net Income is calculated after all operating expenses

 7. Which of the following are traded in the capital markets?
 Answers: • All of the above

 8. By doing/issuing which of the following could a company raise short-term funds by selling receivables?
 Answers: • By pledging inventory

 9. Government mandated requirements, such as installing pollution control equipment ______.
 Answers: • may reduce a company's earnings but are considered a necessary social responsibility for the firm

 10. Why do you not subtract interest expense from operating profit when calculating Return on Investment Capital?
 Answers: • It is important to include interest as it is part of expenses

 11. Which of the following is a flaw with financial analysis?
 Answers: • Each company uses different formulas to calculate the ratios

 12. What does the Price to Earnings (P/E) ratio demonstrate?
 Answers: • A company's stock price relative to its earnings. Higher growth companies have higher P/E ratios

 13. Which of the following is not a part of cost of goods sold?
 Answers: • Capital

 14. What is the purpose of measuring solvency?
 Answers: • To determine a firm's ability to pay its creditors in the long term

 15. If a company has a high P/E ratio relative to it's competitors ____.
 Answers: • everyone should invest in this stock and not the competitor's

 16. Financial managers use the _____________ to plan for monthly financing needs.
 Answers: • capital budget

 17. With which of the following regulatory bodies would a publicly traded company be much more involved than a private company would be?
 Answers: • SEC

 18. Which of the following transactions would have no impact on the stockholder's equity?
 Answers: • Purchase of land from the proceeds of a bank loan

 19. Which of the following is a flaw with financial analysis?
 Answers: • Changes in accounting policy can drastically affect the results of a ratio, making comparison analysis difficult

 20. What is historical value?
 Answers: • The original cost or price paid for an asset

 21. Which is the primary financial statement used to measure profitability?
 Answers: • Balance Sheet

 22. What is operating leverage defined as?
 Answers: • Extent to which variable costs are utilized

 23. Which report does a publicly traded company file quarterly with the SEC?
 Answers: • 10Q

 24. If a company using financing has a 60% chance of a $75,000 return under normal conditions but a 40% chance of a $20,000 return when money is tight and borrowing costs are higher, what is the expected return for this firm ?
 Answers: • $53,000

 25. What is one caveat when calculating ROA and comparing to other companies?
 Answers: • Carrying value of assets may be valued differently (historical, market) by different companies

 26. Which is/are the primary financial statements used to measure stability?
 Answers: • Balance Sheet

 27. Which ratio would you use to assess a company's ability to pay bills?
 Answers: • Current ratio

 28. In breakeven analysis, if fixed costs rise, then the breakeven point will __________.
 Answers: • rise

 29. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has a ROE of 15% during the same year. Both firms have a total debt ratio (D/V) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. From this, it can be assessed that ______.
 Answers: • Firm B has a higher profit margin than firm A

 30. In 2002, the US passed the Sarbanes-Oxley law which ____.
 Answers: • was developed in response to the accounting scandals at Enron, Tyco, WorldCom and others

 31. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the final inventory valuation is ________.
 Answers: • Weighted-average

 32. What is financial analysis?
 Answers: • Comparing ratios using numbers from the income statement and balance sheet

 33. Which of the following equations properly represents a derivation of the fundamental accounting equation?
 Answers: • Assets - liabilities = owner's equity

 34. Accounting scandals of the past 5 years ______.
 Answers: • resulted in criminal convictions of senior executives at large US corporations like Enron and WorldCom

 35. CAPM formula calculates which of the following?
 Answers: • Expected return on equity

 36. Which of the following is an example of an area of business where use of "questionable" ethics is considered a necessity?
 Answers: • None of the statements above is correct

 37. The accounting scandals of recent years ______.
 Answers: • have been dismissed as falling within the latitude of judgment for applying GAAP rules

 38. Which ratio would you use to measure how effectively the firm uses the money shareholders have invested?
 Answers: • Earnings per share

 39. Which of the following types of firms may operate with high operating leverage?
 Answers: • An auto manufacturing facility

 40. What is meant by "the goal of the corporation is to maximize shareholder wealth"?
 Answers: • Achieve the highest possible value for the firm

 41. Which of the following is considered a profitability measure?
 Answers: • Return on Assets

 42. Which is/are the primary financial statements used to measure liquidity?
 Answers: • Balance Sheet

 43. What does CAPM stand for?
 Answers: • Current Asset Pricing Model

 44. Which is a characteristic of an efficient market?
 Answers: • Prices adjust rapidly to new information

 45. What does Return on Assets indicate?
 Answers: • How well a company employs its capital investments

 46. Which of the following would not be included in a balance sheet?
 Answers: • Sales

 47. Gerald's had opening total stockholders' equity of $160,000. During the year, total assets increased by $240,000 and total liabilities increased by $120,000. Their net income was $180,000. No additional investments were made. However, some amount was paid as dividend during the year. What was the amount of the dividend paid?
 Answers: • $60,000

 48. Which short-term financing rate always requires the use of international data?
 Answers: • LIBOR

 49. A company wants to increase its current ratio. Which of the following would help the most?
 Answers: • Creating more stringent collection policies to decrease accounts receivable

 50. Rate of profit (r) is defined as ______.
 Answers: • r=(surplus-value)/(capital invested)

 51. Which of the following is not a financial intermediary?
 Answers: • Credit unions

 52. Which is an example of a variable cost?
 Answers: • Raw material

 53. Insider trading _____.
 Answers: • is not legal under any circumstances

 54. If a firm has $100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital?
 Answers: • $100

 55. Which of these items would be accounted for as an expense?
 Answers: • Purchase of land

 56. Which of the following inventory methods will always produce the same results under both a periodic and a perpetual system?
 Answers: • All of these

 57. Which of the following does the cash flow cycle measure?
 Answers: • The time between purchase of raw materials and collection of cash

 58. If two companies have equal risk, which one will have the higher stock price?
 Answers: • All of the above

 59. Which of the following is not an area which is assessed by financial analysis?
 Answers: • Adequate Cash balances

 60. What is the formula for Return on Investor Capital?
 Answers: • ROIC = (NetOperatingProfitLessAdjustedTaxes) / (InvestedCapital)

 61. Which financial statement best allows a firm to assess its ability to pay dividends?
 Answers: • Statement of Retained Earnings

 62. How often can a company change its inventory valuation methodology and still be compliant with GAAP?
 Answers: • Once per year, but not every year

 63. Which security makes up the majority of external financing for corporations?
 Answers: • Bank loans

 64. What type of analysis will describe how changes in volume affect costs and profits?
 Answers: • Break even analysis

 65. The three sections of a Statement of Cash Flows are _____.
 Answers: • Operating, investing, financing

 66. What is the DuPont analysis?
 Answers: • Breaks Return on Equity into 3 pieces: Operating Efficiency, Asset Use Efficiency, Financial Leverage

 67. How does Cash Flow Return on Investment differ from most financial ratios?
 Answers: • It assumes the stock market sets prices based on cash flow, not profitability

 68. Which cash collection technique is the most cost-effective for companies with many locations?
 Answers: • Regional collection offices

 69. What is the purpose of measuring stability?
 Answers: • To determine the firm's ability to stay in business in the long run

 70. Retained earnings will change over time because of several factors. Which of the following factors would lead to an increase in the Retained Earnings?
 Answers: • Net income

 71. Planning for future growth is called ________.
 Answers: • capital budgeting

 72. Pro forma statements are _______ statements.
 Answers: • projected

 73. Which of the following is not a fundamental of accounting?
 Answers: • Magnitude

 74. Asset Turnover is defined as ______.
 Answers: • Assets/Inventory

 75. What is the purpose of measuring liquidity?
 Answers: • To measure a firm's ability to remain cash flow positive and meet its short-term obligations

 76. Which is/are the primary financial statements used to measure solvency?
 Answers: • Cash Flow Statement and Income Statement

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