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Quiz 1 Final Sem I

This document outlines the details for Quiz 1 of the Business Analysis and Valuation course at Birla Institute of Technology and Science, Pilani, including instructions, question format, and a series of multiple-choice questions. The quiz consists of 23 questions, with a total of 45 marks and a weightage of 15%, to be completed in 30 minutes. It emphasizes the importance of proper answer submission and penalizes unreasonable assumptions.

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kirito.k.2116
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25 views

Quiz 1 Final Sem I

This document outlines the details for Quiz 1 of the Business Analysis and Valuation course at Birla Institute of Technology and Science, Pilani, including instructions, question format, and a series of multiple-choice questions. The quiz consists of 23 questions, with a total of 45 marks and a weightage of 15%, to be completed in 30 minutes. It emphasizes the importance of proper answer submission and penalizes unreasonable assumptions.

Uploaded by

kirito.k.2116
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Name:______________________________________ Id.

No:____________________

Birla Institute of Technology and Science, Pilani


First Semester: 2024-2025
Announced Quiz 1
Course Name & No.: Business Analysis and Valuation (ECON F355)
Maximum Marks: (45 Marks) 15% Weight-age Date: 4th Sept 24
Duration: 30 Minutes Type: Closed Book

Instructions for the students


1. Write your name and BITS ID No in the space provided at the top of this page
2. This paper consists of 23 multiple-choice questions (choose the most appropriate answer; 2
marks each, except Q.23, which is of one mark). There is no negative marking.
4. Write your answers in the table provided below. Answers written elsewhere or in incorrect
order will not be evaluated. Overwritten/ambiguous answers will not be evaluated.
5. Unreasonable assumptions will be penalized.
6. In all the analytical questions mark the closest value

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

16 17 18 19 20 21 22 23

1. Providing information about the performance and financial position of companies so


that users can make economic decisions best describes the role of:
A) auditing. B) financial reporting. C) financial statement analysis.

2. Which of the following best describes the role of financial statement analysis?
A) To provide information about a company's performance.
B) To provide information about a company's changes in financial position.
C)To form expectations about a company's future performance and financial position.

3. The financial statement that presents a shareholder's residual claim on assets is the:
A) balance sheet. B) income statement. C) cash flow statement.

4. The income statement is best used to evaluate a company's:


A) financial position. B) sources of cash flow. C) financial results from
business activities.

5. Accounting policies, methods, and estimates used in preparing financial statements are most
likely to be found in the:
A) auditor's report. B) management commentary. C)notes to the
financial statements.
6. Which of the following best describes why the notes that accompany the financial
statements are required? The notes:
A) permit flexibility in statement preparation.
B) standardize financial reporting across companies.
C) provide information necessary to understand the financial statements.

7. A company chooses to change an accounting policy. This change requires that, if practical,
the company restate its financial statements for:
A) all prior periods. B) current and future periods. C) prior periods shown in a report.

8. Which statement is most accurate? A common-size income statement:


A) restates each line item of the income statement as a percentage of net income.
B) allows an analyst to conduct cross-sectional analysis by removing the effect of company
size.
C) standardizes each line item of the income statement but fails to help an analyst identify
differences in companies' strategies.

9. When preparing an income statement, which of the following items would most likely be
classified as other comprehensive income?
A) A foreign currency translation adjustment.
B) An unrealized gain on a security held for trading purposes.
C) A realized gain on a derivative contract not accounted for as a hedge.

10. Shareholders’ equity reported on the balance sheet is most likely to differ from the market
value of shareholders’ equity because:
A) historical cost basis is used for all assets and liabilities.
B) some factors that affect the generation of future cash flows are excluded.
C) shareholders' equity reported on the balance sheet is updated continuously.

11. Debt due within one year is considered:


A) current. B) preferred. C) convertible.

12. Defining total asset turnover as revenue divided by average total assets, all else equal,
impairment write-downs of long-lived assets owned by a company will most likely
result in an increase for that company in:
A) the debt-to-equity ratio but not the total asset turnover.
B) the total asset turnover but not the debt-to-equity ratio.
C) both the debt-to-equity ratio and the total asset turnover.

13. An investor concerned whether a company can meet its near-term obligations is most likely
to calculate the:
A) current ratio. B) return on total capital. C) financial leverage ratio.

14. The most stringent test of a company liquidity is its:


A) cash ratio. B) quick ratio. C) current ratio.

15. Which is an appropriate method of preparing a common-size cash flow statement?


A) Show each item of revenue and expense as a percentage of net revenue.
B) Show each line item on the cash flow statement as a percentage of net revenue.
C) Show each line item on the cash flow statement as a percentage of total cash outflows.
16. Which of the following is an appropriate method of computing free cash flow to the firm?
A) Add operating cash flows to capital expenditures and deduct after-tax interest payments.
B) Add operating cash flows to after-tax interest payments and deduct capital expenditures.
C) Deduct both after-tax interest payments and capital expenditures from operating cash flows.

17. Comparison of a company's financial results to other peer companies for the same time
period is called:
A. technical analysis. B. time-series analysis. C. cross-sectional analysis.

18. An analyst is interested in assessing both the efficiency and liquidity of Spherion PLC. The
analyst has collected the following data for Spherion:
FY3 FY2 FYI
Days of inventory on hand 32 34 40
Days sales outstanding 28 25 23
Number of days of payables 40 35 35

Based on this data, what is the analyst least likely to conclude?


A. Inventory management has contributed to improved liquidity.
B. Management of payables has contributed to improved liquidity.
C. Management of receivables has contributed to improved liquidity.

19. An analyst is evaluating the solvency and liquidity of Apex Manufacturing and has collected
the following data (in millions of euro):

FY5 (€) FY4 (€) FY3 (€)

Total debt 2,000 1,900 1,750


Total equity 4,000 4,500 5,000

Which of the following would be the analyst's most likely conclusion?


A. The company is becoming increasingly less solvent, as evidenced by the increase in its debt-
to-equity ratio from 0.35 to 0.50 from FY3 to FY5.
B. The company is becoming less liquid, as evidenced by the increase in its debt-to-equity ratio
from 0.35 to 0.50 from FY3 to FY5.
C. The company is becoming increasingly more liquid, as evidenced by the increase in its debt-
to-equity ratio from 0.35 to 0.50 from FY3 to FY5.

20. With regard to the data in Problem 19, what would be the most reasonable explanation of the
financial data?
A. The decline in the company's equity results from a decline in the market value of this
company's common shares.
B. The €250 increase in the company's debt from FY3 to FY5 indicates that lenders are viewing
the company as increasingly creditworthy.
C. The decline in the company's equity indicates that the company may be incurring losses,
paying dividends greater than income, and/or repurchasing shares.

21. An analyst observes a decrease in a company's inventory turnover. Which of the following
would most likely explain this trend?
A. The company installed a new inventory management system, allowing more efficient
inventory management.
B. Due to problems with obsolescent inventory last year, the company wrote off a large amount
of its inventory at the beginning of the period.
C. The company installed a new inventory management system but experienced some
operational difficulties resulting in duplicate orders being placed with suppliers.

22. Which of the following ratios would be most useful in determining a company's ability to
cover its lease and interest payments?
A. ROA. B. Total asset turnover. C. Fixed charge coverage.

23. In order to assess a company's ability to fulfil its long-term obligations, an analyst would
most likely examine:
A. activity ratios. B. liquidity ratios. C. solvency ratios.

Rough Work

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