FA-FFA Other Statements

1. Which of the following is not a reason financial analysis is useful to investors?

2. In relation to a company, creditors are least concerned with:

3. In relation to a company, investors are least concerned with:

4. Which of the following is not true of trend analysis? (several possible answers)

5. In order to have a smoothed rate of growth, we use:

6. Which of the following statements are true in relation to common-size statements analysis? (several possible answers)

7. The difference between total current assets and total current liabilities is:

8. Which of the following is a short-term liquidity ratio?

9. Gofrade srl has a current ratio of 1.2. If its ending inventory is understated by € 12,000 and beginning inventory is overstated by € 20,000, Gofrade’s inventory turnover, current and quick ratios would be:

11. ABC recognises revenue at the point of shipment. Management decides to increase sales for the current quarter by filling all customer orders. Which one of the following statements is true?

12. Which ratios would you not use to assess the capital gearing of an enterprise?

13. Which two of the following are not long-term solvency ratios?

14. A rate of return on investment may be produced using:

15. Operating performance is best measured by:

16. Which of the following enterprises do you expect to have particularly low asset turnover?

17. Which of the following enterprises do you expect to have the lowest margin on sales?

18. In a period of rising prices, the accounting decision to select LIFO, rather than FIFO, for the valuation of slow-moving inventory would :

19. Which of the following statements is true?

20. Which of the following statements is not true?

21. The ‘capitalisation’ of a lease (e.g. considering a lease as a finance lease and not as an operating lease) will increase the lessee’s:

22. The market value of a listed company is not shown on its balance sheet because:

23. Which of the following statements is not true of diluted EPS?

24. In 2005, Lorenzo Ltd. had sales of € 120,000, cost of sales of € 78,000 and other expenses of € 36,000. Ordinary shares outstanding for the whole period were 3000. Lorenzo Ltd. had 400 convertible bonds outstanding with a conversion ratio of 10 ordinary shares for each bond. If the bonds were converted, Lorenzo Ltd. would have saved € 1,000 in interest.

What is the basic and diluted EPS?

26. Diletta & Emanuele Spa is a company listed on the Milan Stock Exchange. Its financial statements for the year ended 31 December 2005 showed EPS of € 1.70.

On 1 July 2006, Diletta & Emanuele Spa made a 3 for 1 bonus issue. According to IAS 33 – ‘Earnings per Share’, what figure for the 2005 EPS will be shown as comparative information in the financial statements for the year ended 31 December 2006?

27. Dora & Ezio Ltd is listed on the Utopia Stock Exchange. At 31 December 2005, the company had € 400,000 ordinary shares of € 1.00 in issue. EBT for the year was € 90,000 and tax expenses were € 22,500.

According to IAS 33 – ‘Earnings per Share’, what is Dora & Ezio Ltd’s basic EPS for 2005?

28. Frances & Amit Ltd is listed on the Utopia Stock Exchange.

During the year ended 31 December 2005, the company had 5 million ordinary shares of € 2.00 and 400,000 4% irredeemable preference shares of € 2.00 in issue.

EBT for 2005 was € 1.4m and tax expenses € 350,000.

According to IAS 33 – ‘Earnings per Share’, what is Frances & Amit Ltd’s basic EPS for 2005?

30. If a company’s share price falls, then its P/E ratio and dividend yield:

31. Quartile Co is in the jewellery retail business which can be assumed to be highly seasonal. For the year ended 30 September 20X5, Quartile Co assessed its operating performance by comparing selected accounting ratios with those of its business sector average as provided by an agency. Assume that the business sector used by the agency is a meaningful representation of Quartile Co’s business.

Which of the following circumstances may invalidate the comparison of Quartile Co’s ratios with those of the sector average?

(1) In the current year, Quartile Co has experienced significant rising costs for its purchases

(2) The sector average figures are compiled from companies whose year ends are between 1 July 20X5 and 30 September 20X5

(3) Quartile Co does not revalue its properties, but is aware that other entities in this sector do

(4) During the year, Quartile Co discovered an error relating to the inventory count at 30 September 20X4. This error was correctly accounted for in the financial statements for the current year ended 30 September 20X5

32. Which of the following criticisms does NOT apply to historical cost financial statements during a period of rising prices?

33. The following information has been taken or calculated from Fowler’s financial statements for the year ended 30 September 20X5:

Cash cycle at 30 September 20X5 70 days

Inventory turnover six times

Year-end trade payables at 30 September 20X5 $230,000

Credit purchases for the year ended 30 September 20X5 $2 million

Cost of sales for the year ended 30 September 20X5 $1•8 million

What is Fowler’s trade receivables collection period as at 30 September 20X5?

34. A company’s figures for an accounting period include sales £56m, PBIT £1.4m, equity £16m and non-current liabilities £4m. The company’s return on capital employed for the period is:

35. A company’s figures for an accounting period include profit after tax £3m, ordinary share capital and reserves £8m and preference share capital £2m. The preference dividend was £200,000. The company’s return on equity for the period is:

36. A company’s figures for an accounting period include sales £25m, cost of sales £15m and equity £5m. The gross profit margin for the period is:

37. A company’s current assets and current liabilities at the end of an accounting period are £6m and £2.4m respectively. Current assets include inventories of £1.8m. The current ratio and the quick assets ratio at the end of the period are:

38. A company has inventory of £7m at the start of an accounting period and £8m at the end of the period. Sales for the period are £60m and the gross profit is £15m. The inventory holding period is:

39. A company’s average trade receivables and trade payables for an accounting period are £12.5m and £18m respectively. Credit sales and credit purchases for the period are £210m and £78m respectively. The trade receivables collection period and the trade payables collection period are:

40. A company’s profit after tax for an accounting period is £12m. The company’s issued share capital consists of 50m ordinary shares of 50p each and 10m preference shares of £1 each. The preference dividend is £1m. Earnings per share for the period are:

41. In general, a low price/earnings ratio is viewed more favourably than a high price/earnings ratio. True or False?

42. A company’s profit after tax for an accounting period is £27.5m. Issued share capital consists of 50m ordinary shares of £1. There are no preference shares. A dividend of 22p per share is paid for the period and the market price per ordinary share is £3.90. Dividend cover and dividend yield for the period are:

43. The capital gearing ratio measures the extent to which a company’s long-term finance has been provided by shareholders rather than lenders. True or False?

44. A company’s issued share capital consists of 10m ordinary shares and 2m preference shares. All shares have a nominal value of £1. The company’s reserves consist entirely of retained earnings of £8m. The company’s non-current liabilities comprise long-term loans of £5m. The capital gearing ratio is:

45. A ratio analysis of the financial statements of two companies shows that one of the companies has a much better ROCE than the other. However, this comparison could be misleading. True or False?