Financial Analysis MCQs
Financial Analysis MCQs
These Financial Analysis multiple-choice questions and their answers will help you strengthen your grip on the subject of financial Analysis. You can prepare for an upcoming exam or job interview with these 100+ Financial Analysis MCQs.
So scroll down and start answering.
1: Assets that that can be converted into cash quickly are considered:
A. Tangible and fixed
B. Lucid
C. Liquid
D. Illiquid
2: The minimum rate of return that capital investment projects have to meet, usually based on the cost of capital, is known as the:
A. Debt ceiling
B. Debt to asset ratio
C. Sale rate
D. Cutoff rate
3: What does a Bear Market mean?
A. A market characterized by falling prices for securities.
B. Volatile market.
C. A market characterized by rising prices for securities.
4: What does the Beta Coefficient of a stock indicate?
A. A stock’s volatility in relation to the overall market
B. Stock's dividend
C. Company's growth factor
D. Stock's growth factor
5: Fiduciary duty effectively requires all financial organizations and people to act in the best interests of their client
A. FALSE
B. True
6: What is Arbitrage?
A. Buying something of value and the selling it for a higher price at another Exchange
B. Buying stock options.
7: What is the difference between APR and EAR?
A. APR is annual rate and EAR is effective rate after compounding
B. APR and EAR are same
C. EAR is the rate typically mentioned on loan
D. APR is greater than EAR
8: Which technique is used to find volume of sales at which a company just covers the total cost?
A. Profit-Sensitivity analysis
B. Target-Profit analysis
C. Breakeven-point analysis
D. Activity based cost analysis
9: True or False: Projections and Simulators (Monte Carlo etc) are only as good as their assumptions
A. FALSE
B. True
10: True or False The purpose of auditing financial statements is to form a view that the information presented is an accurate general view of the financial situation of a company at a given date.
A. FALSE
B. True
11: What is capital?
A. Dividend.
B. Paper money.
C. Any assets ready to be used in the production of new assets .
12: What is a Buy Back?
A. Buying back of stocks or bonds by the issuing company.
B. Issuing new company shares
C. Initial Public Offering
13: What do you call the discount rate that equates the cash inflows and cash outflows of an investment project, resulting in a net present value of zero?
A. Internal Rate of Return
B. Investment value
C. Going-concern rate
D. Historical rate principle
14: __________ of the cash flow generated by the firm's operations, investments and financial activities.
A. The income statement is a report
B. The statement of cash flows is a report
C. the auditor's statement of financial condition
D. None of the above is a report
E. The balance sheet is a report
15: Which of the following is an example of fixed income security?
A. Mutual Funds
B. Bonds
C. Equity
16: Basic principle for Financial Analysis
A. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in.Continue or discontinue its main operation or part of its business
B. Its is a key factor to determine their suitability for investment.
C. The process of evaluating businesses, projects, budgets and other finance-related entities
D. Make decisions regarding investing or lending capital by the board of directors
E. The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough t
17: Ratio Interpretation : High EPS , high book value & high Dividend pay out per share represents
A. Its not a BLUECHIP company
B. Companies growth in worst poth
C. company share / stock price will not good investment
D. Good company grows in better both - eligible Investment & Investor friendly
E. Its a conservative company & not advisable for investments
18: What are the three financial statements that are used for business analysis?
A. Income statement
B. Balance sheets
C. Cash flow statements
D. All of these
19: What is a bond?
A. Paper money.
B. A certificate of debt.
C. A security for a loan.
20: __________ of the profitability of the firm over a period of time such as a year
A. None of the above is a summary
B. The balance sheet is a summary
C. That statement of cash flows is a summary
D. The audit report is a summary
E. The income statement is a summary
21: In the US most companies follow which accounting standard?
A. APA
B. IFAS
C. IFRS
D. GAAP
22: True or False? Depreciation is not affected by how an asset purchase is financed.
A. False
B. True
23: The process of testing the impact on the results of an analysis from changes of one or more of the input variables is called:
A. A sequential analysis
B. A blanket analysis
C. A sensitivity analysis
D. An A/B analysis
24: The interest on government bonds (treasuries, t-bills etc) are typically considered:
A. Cost of capital for large corporations
B. Overnight lending rate for large banks.
C. Risk free lending rate
D. Cost of doing business with the government
25: The recorded value of the shareholders equity on the balance sheet reflects:
A. Gross profit
B. Operational cash flow
C. Net profit
D. Net worth
26: The accounting term for a company to continue functioning into the foreseeable future is
A. Liveliness
B. Going Concern
C. Comparability
D. Durability
27: True or False? At the half-way time of mortgage period, the remaining balance is half of the original loan amount.
A. True
B. False
28: Among other responsibilities The Federal Reserve is the lender of last resort
A. FALSE
B. True
29: Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company
A. will not experience any difficulty with its creditors.
B. has greater than average financial risk when compared to other firms in its industry.
C. has less liquidity than other firms in the industry.
D. will be viewed as having high creditworthiness.
30: What is net working capital?
A. Cash - debt
B. Total assets - total liabilities
C. Total assets - current assets
D. Current assets - current liabilities
31: True or False? Retained earnings are largely the same as paid-in capital
A. False
B. True
32: Company A is incorporated in the US and operates in the US only. Calculate the corporate tax on EBT of $57,000 for 2012, assuming no tax reduction practices and 40% tax rate.
A. $11,400
B. $22,800
C. $14,250
D. $8,550
33: The cash conversion cycle (CCC) measures
A. how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth
B. how long a firm will be deprived of cash if it decreases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth
34: An "acid test" measures the ability of a company to use its ______ to extinguish or retire its current liabilities immediately.
A. near cash
B. net sales
C. credit
D. bonds
35: How does Capital Asset Pricing Model (CAPM) help?
A. It exactly shows stock price for a later date
B. It attempts to explain company's profit margin
C. It attempts to explain company's revenue
D. It attempts to explain how stock prices are set in the market
36: __________ a snapshot of the financial condition of the firm at a particular time.
A. None of the above provides
B. The balance sheet provides
C. The income statement provides
D. All of the above provide
E. The statement of cash flows provides
37: If a company faces a 15% increase in production while production costs increase 35% it is most likely experiencing:
A. Returns to Market
B. Diseconomies of Scale
C. Economies of Scope
D. Economies of Scale
38: What is a leveraged buyout?
A. An acquisition of a business in which the purchasing company becomes a subsidiary of the purchased company
B. The acquisition of a business by investors using a high percentage of debt carried by the business itself
C. Two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits
39: Which costing method allocates overhead cost to a product using activities required to produce the product?
A. Activity based costing
B. Volume based costing
C. Unit level costing
D. Product costing
40: In the case of conflict, why is the NPV method preferred over IRR?
A. IRR is not always a reliable method especially with a mixture of positive and negative cash flows.
B. NPV has a more simple assumption for the discount rate
C. NPV has more probability of indicating to undertake a project
D. NPV is the robust formula for capital budgeting
41: Banks relative to most other types of companies are more likely to have more
A. Shareholders
B. Taxes
C. Fixed Assets
D. Current Assets
42: Which of the following is not a quality of accounting information?
A. None of the Above
B. Reliability
C. Consistency
D. Relevance
43: A creditor whose claim is specifically designed as ranking below the claims of other creditors in the company is called a:
A. Stock creditor
B. Safe creditor
C. Lower creditor
D. Subordinate creditor
44: Regarding dividend payments: common stock and preferred stock differ in which way most importantly?
A. Size of dividends
B. Timing of dividends
C. Seniority of dividends
D. Quantity of dividends
45: The term "fund" as in Mutual Fund suggests
A. An investment vehicle only for stocks
B. A large company responsible for investing for the 'Mutual' benefit of investors
C. Intermingling of multiple investors money in a single vehicle
D. An investment vehicle primarily for investing outside of the investor's domestic country
46: A bond covenant is a:
A. Contract outlining rights and responsibilities of the involved parties
B. Another term for coupon
C. Person responsible for administering the bonds coupons and principle payment
D. Term describing asymmetric risks/returns of bonds
47: Which process shows an internal detailed plan of the use of financial and operating resources over a specific period of time?
A. Budgeting
B. Planning
C. Financial statements
D. Profit & Loss statements
48: What is the other name for Earnings before interest and taxes?
A. Operating Profit
B. Net Income
C. Gross Earnings
D. Revenue
49: The standard model for valuing a company based on it's dividends is called?
A. Dividend Valuation Technique
B. Dividend NPV
C. Dividend Discount Model
D. Stakeholder Dividend Model
50: What is a corporation's taxable income?
A. Revenue
B. EBTDA
C. EAT
D. EBT
51: Why is cost allocation necessary?
A. There are always dedicated resources for business activities
B. Finding indirect cost is the ultimate goal
C. Different products or services often share common resources
D. Different products or services can not share common resources
52: What is an equity security that has some of the characteristics of debt?
A. Treasury
B. Common Stock
C. Preferred Stock
D. Private Placement Bond
E. Bank Loan
53: The appropriate objective of an enterprise is
A. Maximisation of owners wealth
B. Maximisation of profits.
C. None of these.
D. Maximisation of sale
E. Maximisation of revenue
54: True or False: It is the job of auditors to comment on the capabilities of management and governance
A. False
B. True
55: True or False? Equity is historically much riskier than debt.
A. False
B. True
56: The efficient market hypothesis is true in all cases
A. False
B. TRUE
C. It has never been properly tested
57: When creating projections over a long period of time it is important to assume
A. Management will change impacting the projects longevity
B. Interest rates will increase impacting cash flow
C. Taxes will increase substantially
D. Growth rates will stabilize
58: Which one of the following best describes the Cost of Capital?
A. The required return on a company's outstanding securities
B. An average number of shares held by its investors
C. The cost of repaying company debts
D. The cost of buying fixed assets
59: When comparing mutually exclusive projects to undertake which methodology is most appropriate?
A. NPV
B. Payback Period
C. IRR
D. MIRR
60: What is the main financial disadvantage of a C-Corp?
A. Complex structure to set up
B. Double taxation on earnings
C. Requires personal guarantees
D. Not easy to get loan
61: Accounting Profit and Economic Profit differ most in their attention to:
A. Depreciation
B. Future Value
C. Interest Rates
D. Opportunity Cost
62: Which valuation method is suitable to use when a company's leverage structure is constantly changing over time?
A. Dividend Discount model
B. Discounted Cash flow
C. Adjusted Present Value
D. WACC or Cost of Capital
63: When valuing a start-up with limited funding these types of ratios are most important
A. Liquidity
B. Efficiency
C. Leverage
D. Business
64: Which of the following best describes period expense?
A. Cost of selling and raw material
B. Cost of raw material and admin activities
C. Cost of selling and admin activities
D. Cost of labor and raw material activities
65: A firm faces leverage both explicitly and implicitly. Which of the following is a type of leverage?
A. Close proximity to customers
B. Hiring smart people and 'leveraging' their talents
C. Purchases of expensive equipment for production
D. Government intervention on behalf of the firm
66: A method to represent an unknown variable in a financial plan is known as a:
A. Principal
B. Plug
C. Operator
D. Option
67: Which of these is an example of an amortized bond?
A. Treasury
B. Semi Annual Corporate Bond
C. Zero Coupon Bond
D. 30 Year Mortgage
68: A company has a high quality of earnings, when it has ....
A. High return on average assets
B. High net profit margin
C. High cash flow in comparison with reported net income
D. High operational leverage
69: In the American tax system, what is total Effective Tax Rate (TETR)? (Tf=federal tax, Ts=state tax)
A. Tf+Ts(1-Tf)
B. Ts+Tf(1-Tf)
C. Ts+Tf(1-Ts)
D. Tf+Ts(1-Ts)
70: What does the market risk premium indicate?
A. A very general market risk factor
B. Degree of risk aversion felt by investor
C. It is the risk free rate of return
D. It is the market's rate of return
71: What is the relative measure of variation in Risk Theory?
A. Variance
B. Coefficient of Variation
C. Standard Variation
D. Mean/Standard Deviation
72: What type of asset is 'Stock' classified as?
A. Investment assets
B. Real assets
C. Financial assets
D. Security assets
73: True or False? APR is always less than or equal to EAR.
A. True
B. False
74: Which of the following indicates off-balance-sheet activities of a bank?
A. Issuing loan
B. Credit check of prospective borrowers
C. Generating cash
D. Loan sales
75: When discussing the NPV of a start-up company in addition to considering the cost of capital its important to consider this concept to properly discount cash flows?
A. Likelihood of failure
B. Location
C. The expected return from stock market
D. Required Return
76: When using NPV the discount rate should take into account:
A. Interest rates paid by the company on it's bonds
B. The WACC (Weighted Average Cost of Capital) of the company
C. The risk of the relative project
D. Current rate of inflation
77: B&A Company has an EBIT of $20 million and faces a tax rate of 40% and an interest rate of 6%. What are B&A's Earnings?
A. $10.8 million
B. $13.2 million
C. At least $12 million
D. $12 million
78: Under U.S GAAP, where is the dividend received so it will be presented in the cash flow statement?
A. Financing activities
B. Investing activities
C. Operating activities
79: The profitability of a vacation resort in Hawaii that does all its transactions in USD cannot be exposed to fluctuations of the USD against other currencies.
A. False
B. True
80: A firm should not hedge its short-term (up to 1 year) foreign currency exposure since exchange rates are unpredictable in the short run.
A. True
B. False
81: Deviations from Purchasing Power Parity (PPP) disappear quickly such that the real exchange rate is one most of the time.
A. True
B. False
Return on Assets is defined as _______.
A. Net Income/Current Assets
B. Net Income/Total Assets
C. Gross Margin/Current Assets
D. Gross Margin/Total Assets
Why would a company calculate their Risk Adjusted Return on Capital?
A. Is required by the SEC
B. Auditors will overlook other abnormalities if a firm demonstrates a favorable RAROC
C. Gives companies the ability to allocate capital in the optimal structure
D. Keeps the financial analysis department busy
Operating Efficiency is defined as ______.
A. Net Income/Operating Expenses
B. Gross Profit/Operating Expenses
C. Gross Profit/Sales
D. Net Income/Sales
To measure a firm's solvency as completely as possible, we need to consider ______.
A. the firm's relative proportion of debt and equity in its capital structure
B. the firm's capital structure and the liquidity of its current assets
C. the firm's ability to use Net Working Capital to pay off its current liabilities
D. the firm's leverage and its ability to make interest payments on its long-term debt
E. the firm's leverage and its ability to turn its assets into sales
How does Gross Income differ from Net Income?
A. Gross Income determines the company's cash flow, Net Income does not
B. Gross Income includes several fixed costs, Net Income does not
C. Gross Income includes all fixed costs, Net Income does not include any
D. Gross Income measures profitability before operating expenses, whereas Net Income is calculated after all operating expenses
By doing/issuing which of the following could a company raise short-term funds by selling receivables?
A. By factoring receivable
B. By pledging inventory
C. By line of credit
D. By Notes
E. By term loan
Why do you not subtract interest expense from operating profit when calculating Return on Investment Capital?
A. Denominator includes debt capital
B. Numerator includes debt capital
C. Interest is not material in the calculation
D. It is important to include interest as it is part of expenses
Which of the following is a flaw with financial analysis?
A. Each company uses different formulas to calculate the ratios
B. Ratios are too difficult to calculate and require a specialist
C. Auditors do not look at financial ratios
D. One ratio alone does not tell much about the entire financial situation of a company
What does the Price to Earnings (P/E) ratio demonstrate?
A. The price of the company's products relative to how much they earn on the sale of those products
B. A company's stock price relative to its earnings. Higher growth companies have higher P/E ratios
C. The prices paid for goods relative to how much the company earns on those goods
D. The ability of a company to pay dividends
Which of the following is not a part of cost of goods sold?
A. Raw material
B. Labor
C. Capital
D. All of the above are part of cost of goods sold
If a company has a high P/E ratio relative to it's competitors ____.
A. it is expected to grow more rapidly
B. the analyst has inside information
C. it has a bad year for earnings, making the denominator smaller, and the P/E ratio higher
D. everyone should invest in this stock and not the competitor's
Financial managers use the _____________ to plan for monthly financing needs.
A. capital budget
B. cash budget
C. pro forma
D. income statement
With which of the following regulatory bodies would a publicly traded company be much more involved than a private company would be?
A. SEC
B. GAAP
C. IRS
D. FCC
Which of the following transactions would have no impact on the stockholder's equity?
A. Purchase of land from the proceeds of a bank loan
B. Dividends to stockholders
C. Net loss
D. Investments in cash by stockholders
What is historical value?
A. Prices adjusted for inflation
B. The current sale value of an asset
C. The original cost or price paid for an asset
D. The average value of an asset
Which is the primary financial statement used to measure profitability?
A. Balance Sheet
B. Income Statement
C. Cash Flow Statement
D. Statement of Retained Earnings
What is operating leverage defined as?
A. Extent to which variable costs are utilized
B. Extent to which fixed assets are utilized
C. Extent to which fixed assets and fixed costs are utilized
D. Extent to which fixed costs are utilized
E. Extent to which prices change
Which report does a publicly traded company file quarterly with the SEC?
A. 8K
B. 10K
C. 10Q
D. Prospectus
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 ?
A. $75,000
B. $60,000
C. $53,000
D. $40,000
E. $20,000
List of Financial Analysis MCQ...
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Financial Analysis MCQs
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