Financial Statement Analysis Sample Exam

1. Return on equity (ROE) using the DuPont formula is: a) Earnings before Interest/Sales * Sales/Assets * Assets/Equity * Earnings before interest/Net Income b) Net income*asset turnover*tax rate c) Return on Assets (ROA)*financial leverage d) Both a) and c) 2. Which of the following is true a) Return on Assets is influenced by financing activities b) ROE is not affected by financial structure c) Profit margin is a measure of asset efficiency d) None of the above 3. Assume that cost of goods sold for a company consists only of variable costs and gross margin is = (revenue – cost of goods sold)/revenue. Which of the following is true a) Gross margin increases as the firm sells more units at the same price b) Earnings decreases as the firm sells more units at the same price c) Gross margin remains the same as the firm sells more units at the same price d) None of the above 4. Given the following information, calculate ROE. NI/Sales=8% Sales/Assets=1.6x Tax rate=35% Current ratio=2x ROA=0.20 Assets/Equity=1.8x Interest/Assets=3% 5. A company has annual sales of $100m, average accounts receivable of $ 20m. What is the company’s AR turnover? 6. In an environment of increasing costs, if a company changes from FIFO to LIFO inventory accounting, which of the following is true a) Profit margin will decrease and quick ratio will increase b) Profit margin will increase and current ratio will increase c) Profit margin will decrease and current ratio will decrease d) Profit margin will decrease and current ratio will increase 7. Which of the following industries is likely to have the lowest fixed asset turnover ratio on average a) Utilities b) Software c) Retailing 8. Quality of earnings can be evaluated by comparing