C. fi nancial leverage multiplier.

Chapter 9

A. is a large, diversifi ed company operating in mature industries.

B. is in the commodities business.

C. operates in a single business segment.

2. Galambos Corporation had an average receivable collection period of 19 days in 2003.

Galambos has stated that it wants to decrease its collection period in 2004 to match

the industry average of 15 days. Credit sales in 2003 were $300 million, and analysts

expect credit sales to increase to $400 million in 2004. To achieve the company ’ s goal of

decreasing the collection period, the change in the average accounts receivable balance

from 2003 to 2004 that must occur is closest to

A. – $420,000.

B. $420,000.

C. $836,000.

3. Credit analysts are likely to consider which of the following in making a rating recommendation?

A. Business risk, but not fi nancial risk

B. Financial risk, but not business risk

C. Both business risk and fi nancial risk

4. When screening for potential equity investments based on return on equity, to control

risk an analyst would be most likely to include a criterion that requires

A. positive net income.

B. negative net income.

C. negative shareholders ’ equity.

5. One concern when screening for low price - to - earnings stocks is that companies with low

price - to - earnings ratios may be fi nancially weak. What criteria might an analyst include

to avoid inadvertently selecting weak companies?

A. current - year sales growth lower than prior - year sales growth

B. net income less than zero

C. debt - to - total assets ratio below a certain cutoff point

6. When a database eliminates companies that cease to exist because of a merger or bankruptcy,

this can result in

A. look - ahead bias.

B. backtesting bias.

C. survivorship bias.

7. In a comprehensive fi nancial analysis, fi nancial statements should be

A. used as reported without adjustment.

B. adjusted after completing ratio analysis.

C. adjusted for differences in accounting standards, such as IFRS and U.S. GAAP.

8. When comparing fi nancial statements prepared under IFRS with those prepared under

U.S. GAAP, analysts may need to make adjustments related to

A. realized losses.

B. unrealized gains and losses for trading securities.

C. unrealized gains and losses for available - for - sale securities.

9. When comparing a U.S. company using the LIFO method of inventory to companies

preparing their fi nancial statements under IFRS, analysts should be aware that according

to IFRS, the LIFO method of inventory

A. is never acceptable.

B. is always acceptable.

C. is acceptable when applied to fi nished goods inventory only.

10. An analyst is evaluating the balance sheet of a U.S. company that uses LIFO accounting

for inventory. The analyst collects the following data:

Dec 05 31 Dec 06

Inventory reported on

balance sheet

$500,000 $600,000

LIFO reserve $50,000 $70,000

Average tax rate 30% 30%

After adjustment to convert to FIFO, inventory on 31 December 2006 would be closest to

A. $600,000.

B. $620,000.

C. $670,000.

11. An analyst gathered the following data for a company ($ millions):

Dec 2000 31 Dec 2001

Gross investment in fi xed assets $2.8 $2.8

Accumulated depreciation $1.2 $1.6

The average age and average depreciable life, respectively, of the company ’ s fi xed assets at

the end of 2001 are closest to

Date: 2016-03-03; view: 789