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If a company's P/E ratio is 24 and the company's EPS is $1.50 then the company's share price is:


A) $36.00.
B) $25.50.
C) $16.00.
D) $6.25.

E) B) and D)
F) C) and D)

Correct Answer

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P/E ratios can be calculated using the average EPS from the last four quarters. BT: Knowledge

A) True
B) False

Correct Answer

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When using ratio data for comparison to other companies,analyst should:


A) not assume that all companies in the industry are in direct competition.
B) not interpret the data as a way of determining which companies will survive and outperform others.
C) only use data from one time period.
D) use industry averages,rather than individual companies,for the comparison.

E) A) and B)
F) A) and C)

Correct Answer

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Company X has a capital acquisitions ratio of 0.8.Company Y has a capital acquisitions ratio of 1.2.Which of the following statements is true?


A) Company X is more likely to have a higher quality of income ratio than Company Y.
B) Company Y is less likely to need external financing than Company X.
C) Company X is more likely to have a higher times interest earned ratio than Company Y.
D) Company X is less likely to need external financing than Company Y.

E) A) and B)
F) B) and C)

Correct Answer

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Liquidity measures the ability of a company to meet its current financial obligations. BT: Knowledge

A) True
B) False

Correct Answer

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How competitors calculate inventory cost is least likely to affect comparisons between competitors if inventory makes up a:


A) large percent of assets and inventory costs are stable.
B) large percent of assets and inventory costs are not stable.
C) small percent of assets and inventory costs are not stable.
D) small percent of assets and inventory costs are stable.

E) B) and C)
F) A) and B)

Correct Answer

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Time-series analysis is an example of trend analysis. BT: Knowledge

A) True
B) False

Correct Answer

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If an analyst wants to examine a company's short-run ability to survive,which of the following would best be considered?


A) Liquidity
B) Market share
C) Profitability
D) Solvency

E) None of the above
F) A) and B)

Correct Answer

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In general,P/E ratios are fairly consistent across industries,regardless of the goods or services sold. BT: Comprehension

A) True
B) False

Correct Answer

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Company X has net sales revenue of $1,250,000,cost of goods sold of $760,000,and all other expenses of $290,000.The beginning balance of shareholders' equity is $400,000 and the beginning balance of fixed assets is $361,000.The ending balance of shareholders' equity is $600,000 and the ending balance of fixed assets is $389,000.What is the fixed asset turnover ratio?


A) 0.53
B) 2.50
C) 3.33
D) 0.80

E) B) and D)
F) A) and C)

Correct Answer

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Benchmarks involves comparing one company to itself over time or to another company or industry average. BT: Knowledge

A) True
B) False

Correct Answer

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A company that has a current ratio less than one cannot cover:


A) current liabilities with its current cash flow.
B) current expenses with its current sales revenue.
C) expenses with its current revenues.
D) current liabilities with its current assets.

E) A) and C)
F) B) and C)

Correct Answer

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If a company's P/E ratio suddenly decreases:


A) you should sell the shares as soon as possible.
B) you should buy more of the shares to increase your average gain.
C) the company probably announced higher earnings forecasts.
D) the market must have reacted to some bad news that is expected to affect the company in the future.

E) None of the above
F) All of the above

Correct Answer

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A current ratio of 2.5 means that for every dollar of:


A) accounts payable,there is $2.50 of cash.
B) current liabilities,there is $2.50 of current assets.
C) current assets,there is $2.50 of current liabilities.
D) total liabilities,there is $2.50 of current liabilities.

E) C) and D)
F) None of the above

Correct Answer

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Calculate the company's days to sell ratio for the current year?


A) 16.82
B) 21.69
C) 5.94
D) 26.53

E) B) and D)
F) All of the above

Correct Answer

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Calculate the company's accounts receivable turnover ratio for the current year?


A) 10.62
B) 4.0
C) 4.3
D) 6.31

E) A) and D)
F) A) and C)

Correct Answer

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The P/E ratio indicates how much investors are willing to pay for a share as a multiple of current earnings. BT: Knowledge

A) True
B) False

Correct Answer

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A company originally issues 180,000 shares at a price of $22; one year later the share price is $40 and the number of outstanding shares is unchanged.During the year,the company had net income of $230,400.The P/E ratio at the end of the year is:


A) 0.0002.
B) 24.22.
C) 31.25.
D) 0.0001.

E) A) and B)
F) A) and C)

Correct Answer

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Unlike solvency rates,liquidity ratios relate to the company's long-run survival. BT: Knowledge

A) True
B) False

Correct Answer

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Company X has net sales revenue of $436,000,cost of goods sold of $343,000,and all other expenses of $157,000,if interest expense is $16,000 and income tax expense is zero,the times interest earned ratio is:


A) -3.0
B) +5.0
C) +6.8
D) -4.8

E) C) and D)
F) A) and B)

Correct Answer

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