Corporate Financial Analysis
Midterm Exam
Course Introduction
Corporate Financial Analysis provides students with the tools and techniques used to evaluate the financial health and performance of companies. The course covers key topics such as financial statement analysis, ratio analysis, cash flow assessment, and the interpretation of financial data to inform business decisions. Students will learn how to assess profitability, liquidity, solvency, and operational efficiency, as well as explore forecasting, budgeting, and valuation methods. Through case studies and real-world examples, the course equips learners with practical skills necessary for corporate finance roles, investment evaluation, and strategic planning within organizations.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 7th Edition by James M. Whalen
Available Study Resources on Quizplus
14 Chapters
1065 Verified Questions
1065 Flashcards
Source URL: https://quizplus.com/study-set/2796 Page 2
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/55698
Sample Questions
Q1) The tools for studying industry economics do not include
A) Value chain analysis
B) Classification using Porter's five forces
C) Classification of cash flows
D) Economic attributes framework
Answer: C
Q2) Which two organizations are working together to harmonize financial reporting worldwide?
A) FASB and IASB
B) GAAP and FASB
C) SEC and FASB
D) EU and SEC
Answer: A
Q3) Which of the following economic characteristics is consistent with a pharmaceutical company?
A) Low barriers to entry.
B) High levels of research and development.
C) Low profit margins.
D) Low business risk.
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Asset and Liability Valuation and Income
Measurement
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/55699
Sample Questions
Q1) Net income equals revenues plus ____________________ minus expenses and ____________________.
Answer: gains,losses
Q2) Plaxo Corporation has a tax rate of 35% and uses the straight-line method of depreciation for its equipment,which has a useful life of four years.Tax legislation requires the company to depreciate its equipment using the following schedule: year 150%,year 2 - 30%,year 3 - 15% and year 4 - 5%.In 2010 Plaxo purchases a piece of equipment with a four year life and an original cost of $100,000.What amount will Plaxo record as a deferred tax asset or liability in 2010?
A) Deferred tax asset of $25,000.
B) Deferred tax liability of $25,000.
C) Deferred tax asset of $8,750.
D) Deferred tax liability of $8,750.
Answer: D
Q3) The amount initially paid to acquire an asset is called ______________________________.
Answer: acquisition cost
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Income Flows Versus Cash Flows: Understanding
the Statement of Cash Flows
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/55700
Sample Questions
Q1) Which of the following is an approximation of a cash-based measure of pretax operating earnings?
A) Net sales less income taxes
B) EBITDA
C) Net income
D) Gross profit
Answer: B
Q2) In a statement of cash flows,proceeds from issuing equity instruments should be classified as cash inflows from
A) lending activities.
B) operating activities.
C) investing activities.
D) financing activities.
Answer: D
Q3) The expense incurred by issuing stock options should be A) classified as a financing activity.
B) added back to net income in the operating activities section.
C) subtracted from net income in the operating activities section.
D) does not appear in the statement of cash flows.
Answer: B
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Profitability Analysis
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/55701
Sample Questions
Q1) The ability of a firm to generate income from operations given a particular level of sales is measured by the ______________________________.
Q2) Sustainable earnings represent
A) the level of earnings expected to persist in the future.
B) the level of earnings and the growth in the levels of earnings expected to persist in the future.
C) the growth rate of future earnings.
D) retained earnings.
Q3) The ___________________________________ of interest expense on net income equals one minus the marginal tax rate times interest expense.
Q4) ________________________________________ is the level of earnings and the growth in the levels of earnings expected to persist in the future.
Q5) One problem with using EPS as a measure of profitability is that it does not consider the amount of ____________________ or ____________________ required to generate a particular level of earnings.
Q6) Return on assets can be disaggregated into asset turnover and ____________________________________________________________.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Risk Analysis
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/55702
Sample Questions
Q1) The source of risk related to political unrest and exchange rate changes are
Q2) In bankruptcy prediction analysis a type ____________________ error is classifying a firm as nonbankrupt when it ultimately goes bankrupt.
Q3) One problem with debt ratios is that they provide no information about the ability of the firm to generate ________________________________________ to service debt.
Q4) Beta captures the _________________________ of the firm.
Q5) When management takes deliberate steps at a balance sheet date to produce a better current ratio than is normal it is called
Q6) All of the following are common industry risks faced by companies except: A) litigation
B) technology
C) regulation
D) competition
Q7) In general,the shorter the number of days of needed financing,the ____________________ is the cash flow from operations to average current liabilities.
Q8) Discuss the differences between Chapter 7 and Chapter 11 bankruptcy filings?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Financing Activities
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/55703
Sample Questions
Q1) Which kind of dividends typically pay dividends with additional shares of the corporation's stock?
A) property dividend
B) stock dividend
C) liquidating dividend
D) scrip dividend
Q2) Liabilities requiring the future delivery of goods or services appear on the balance sheet at the ______________________________ of those goods and services.
Q3) Under the fair value method of accounting for stock options,firms must value stock options on the date of ____________________.
Q4) Which is the first date when employees can exercise their stock options?
A) vesting date
B) grant date
C) exercise date
D) liquidating date
Q5) Under an operating lease agreement the lessee recognizes ______________________________ each period that the leased asset is used.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Investing Activities
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/55704
Sample Questions
Q1) Assume that Hsu Company needs to acquire a large special-purpose materials handling facility.Given that no outside vendor exists for this type of facility and that the company has available engineering,management,and productive capacity,the Hsu borrows funds and builds the facility.Identify the costs that should be capitalized as part of this facility.
Q2) Ashley Company Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd,Inc.'s common stock for $60,000 on January 1,2010.During 2010,Judd declared a dividend of $5 per share and reported net income of $75,000.At the end of 2010 the market value of a share of Judd,Inc.stock has increased to $32 per share.
If Ashley Company accounts for the investment as a minority,passive and classifies the investment as an available-for-sale investment,Ashley will recognize what amount of 2010 income from the investment?
A) $4,000
B) $10,000
C) $25,000
D) $15,000
Q3) Securities that are purchased in order to take advantage of short-term changes in market value should be classified as ____________________ securities.
To view all questions and flashcards with answers, click on the resource link above.
9
Chapter 8: Operating Activities
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/55705
Sample Questions
Q1) All of the following are conditions for revenue recognition outlined by SAB 104 except:
A) There is pervasive evidence that an arrangement exists.
B) Delivery has occurred or services have been performed.
C) The seller's price to the buyer can be variable.
D) Collectability is reasonably assured.
Q2) ____________________ over sufficiently long time periods equals cash inflows minus cash outflows from operating,investing,and financing activities
Q3) A contractor would not use ________________________________________ method of income recognition when there is substantial uncertainty regarding the total costs it will incur in completing the project.
Q4) Differences between income before taxes and taxable income are either ____________________ or ____________________.
Q5) A LIFO liquidation during periods when prices are increasing results in a company A) recording a large inventory write down.
B) recording higher earnings than it would have if it had used FIFO.
C) recording lower earnings than it would have if it had used FIFO.
D) having operational problems, but no financial statement effects.
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Accounting Quality
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/55706
Sample Questions
Q1) Accounting information should provide relevant information to forecast the firm's expected future earnings and _________________________.
Q2) ____________________ represents the concept of being able to compare financial statement data across years for any particular firm.
Q3) Achieving comparability in financial reporting is important to the analysis of multinational firm.However,the data from the reconciliation of foreign firms financial statement to U.S.GAAP must be carefully interpreted.What types of things complicate the analysis of multinational firms?
Q4) Which of the following does not describe an extraordinary gain or loss?
A) infrequent in occurrence
B) peripheral to the company's core business
C) unusual in nature
D) material in amount
Q5) The _________________________ is the date on which a firm commits itself to a formal plan to dispose of a business segment.
Q6) The _________________________ is the date of closing the sale,if the firm intends to sell the segment,or the date operations cease,if the firm intends to abandon the segment.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Forecasting Financial Statements
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/55707
Sample Questions
Q1) As a firm progresses through the decline life-cycle stage,what type of flexible account will it be more likely to use to balance the balance sheet?
A) issued debt.
B) growth related assets.
C) issued equity.
D) stock buy-backs.
Q2) Common-size financial statements recast each statement item as
A) a percentage of the "bottom line."
B) a percentage using industry averages for the "base number."
C) a percentage using a base year number for each line item.
D) a percentage of some "base number" on the financial statement in question.
Q3) Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.
Q4) To develop forecasts of individual assets,the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.
Q5) Financial statement forecasts should rely on ____________________ within financial statements.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/55708
Sample Questions
Q1) If dividend projections include the effect of inflation,then the discount rate used should be a ____________________ rate.
Q2) The CAPM computes expected rates of return on common equity capital using the following model:
E[R<sub>Ej</sub>] = E[R<sub>F</sub>] + b<sub>j</sub> x {E[R<sub>M</sub>]E[R<sub>F</sub>]}
What are the roles of each of the three components of this model?
Q3) Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.
Q4) Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?
Q5) Identify the types of firm-specific factors that increase a firm's nondiversifiable risk (systematic risk).Identify the types of firm-specific factors that increase a firm's diversifiable risk (idiosyncratic risk or nonsystematic risk).Why do models of risk-adjusted expected returns include no expected return premia for diversifiable risk?
Page 13
Q6) Provide the rationale for using expected dividends in a valuation model. To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: Valuation: Cash-Flow-Based Approaches
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/55709
Sample Questions
Q1) Net income for the year for Tanglewood Inc.was $750,000,but the statement of cash flows reports that cash provided by operating activities was $860,000.Tanglewood also reported capital expenditures of $75,000 and paid dividends in the amount of $30,000.Compute Tanglewood's free cash flow.
Q2) Changes in general price levels cause the ______________________________ of the monetary unit to change over time.
Q3) ____________________ is an estimate of systematic risk based on the degree of covariation between a firm's stock returns and an index of stock returns for all firms in the market.
Q4) ________________________________________ typically include accounts payable,accrued expenses,accrued taxes,deferred taxes,pension obligations and other retirement benefit obligations.
Q5) Currently financial reporting does not take into account changes in prices,either at the general level or at the specific level.Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports.How do changing prices affect financial reports?
Q6) When should an analyst use nominal cash flows and when should an analyst use real cash flows?
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Valuation: Earnings-Based Approaches
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/55710
Sample Questions
Q1) What is meant by the term clean surplus accounting?
Q2) The appropriate discount rate for the residual income model is
A) Weighted average cost of capital
B) The risk free interest rate
C) The risk free interest rate plus the market premium
D) Cost of common equity capital
Q3) Accounting earnings numbers provide a basis for valuation because earnings are the primary measure of ______________________________ produced by the accrual accounting system.
Q4) ______________________________ is the amount by which expected future earnings exceed the required earnings.
Q5) Over the life of a firm,the capital invested in the firm by the shareholders plus the income of the firm will reflect
A) the dividend paying ability of the firm.
B) the free cash flows available to shareholders.
C) the value of the firm to shareholders.
D) the value of the firm for debtholders and shareholders.
Q6) Why is the weighted average cost of capital not used as the discount rate when computing residual income?
Page 15
To view all questions and flashcards with answers, click on the resource link above.
Chapter 14: Valuation: Market-Based Approaches
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/55711
Sample Questions
Q1) What information can a PEG ratio provide about a company's stock price? What does a PEG ratio greater than one mean? less than one?
Q2) What is the value of reverse engineering stock prices? How does the process work?
Q3) In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.
Q4) The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.
Q5) Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be
A) 8
B) 16.7
C) 14
D) 4.5
Q6) Market multiples capture ____________________ valuation per dollar of book value or per dollar of earnings.
Q7) Explain the analysts' role in making the capital markets efficient.
To view all questions and flashcards with answers, click on the resource link above. Page 16