Chapter 5 – Financial Analysis

To assess the efficiency of a firm’s investment management, an analyst would analyze the firm’s
1. Net profit margin
2. Operating asset turnover
3. Financial spread
4. Net financial leverage
To assess the efficiency of a firm’s operating management, an analyst would analyze the firm’s
1. Net profit margin
2. Operating asset turnover
3. Financial spread
4. Net financial leverage
One difference between the traditional and the alternative approach to decomposing return on equity is that
1. The traditional approach defines leverage as debt-to-equity, whereas the alternative approach defines leverage as assets-to-equity.
2. Only the traditional approach explicitly shows the impact of financial spread on return on equity.
3. The approaches use different definitions of profit margins and asset turnover.
4. One approach uses beginning-of-year balance sheet items to calculate ratios, whereas the other approach uses end-of-year balance sheet items.
1. €1,700,000
2. €1,400,000
3. €1,200,000
4. €900,000
5. None of the above.
1. €600,000 and €1,550,000, respectively
2. €100,000 and €1,700,000, respectively
3. €600,000 and €2,200,000, respectively
4. €100,000 and €1,550,000, respectively
1. €585,000 and €1,495,000, respectively
2. €195,000 and €1,105,000, respectively
3. €300,000 and €910,000, respectively
4. €300,000 and €1,105,000, respectively
1. Between 40 and 49.9 percent
2. Between 50 and 59.9 percent
3. Between 60 and 69.9 percent
4. Between 70 and 79.9 percent
1. Between 40 and 49.9 percent
2. Between 50 and 59.9 percent
3. Between 60 and 69.9 percent
4. Between 70 and 79.9 percent
1. Company C
2. Company D
1. Between 30 and 39.9 days
2. Between 40 and 49.9 days
3. Between 50 and 59.9 days
4. Between 60 and 69.9 days
If a firm’s return on equity is 20 percent, its return on assets is 14 percent, its sales growth rate is 15 percent, and its dividend payout ratio is 50 percent, its sustainable growth rate equals
1. 7 percent
2. 7.5 percent
3. 10 percent
4. 15 percent
1. €200,000 (positive)
2. €1,050,000 (positive)
3. (€500,000) (negative)
4. €500,000 (positive)
1. €200,000 (positive)
2. €1,050,000 (positive)
3. (€500,000) (negative)
4. €500,000 (positive)
Under IFRS the recognized (on-balance) post-employment liability may not be equal to the unfunded post-employment benefit obligation because
1. Firms can delay the recognition of current actuarial gains or losses.
2. Firms can delay the recognition of unexpected plan contributions.
3. Firms can delay the recognition of past service cost.
4. Both A and B are correct
5. Both A and C are correct
New (planned) international rules for the recognition of fair value gains or losses on equity securities, which will replace IAS 39, imply that gains or losses are no longer recycled. This means that
1. Fair value gains or losses that have been recognized in net profit can no longer be reversed in later periods.
2. Fair value gains or losses will no longer be recognized in comprehensive income while being unrealized and recognized in net profit upon realization.
3. None of the above

Chapter 5 – Financial Analysis

Quiz