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CFI FMVA – 4: Questions With Correct Answers
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CFI FMVA – 4: Questions With Correct Answers
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CFI FMVA – 4: Questions With Correct AnswersWhich of the following items are not included when determining income from
operations? Right Ans - Taxes
Which ratio would you use to determine the profitability of the goods sold by
a company? Right Ans - Gross profit margin
When performing a vertical analysis which income statement item do you use
to determine the cost contribution for each expense category? (What is the
denominator?) Right Ans - Sales
Horizontal analysis allows us to analyze performance over: Right Ans -
Time
When calculating the quick ratio or "acid test" which current asset or liability
is omitted? Right Ans - Inventory
For which organization would you expect to see the highest inventory
turnover ratio? Right Ans - Grocery retailer
What actions could a company take to reduce its working capital funding gap?
Right Ans - Tighten customer credit terms
The debt to equity ratio indicates: Right Ans - The proportion of the
company financed by lenders versus owners
Which of the following items are not included in working capital? Right Ans
- Short term investments
When calculating turnover of property plant & equipment and receivables,
which item from the income statement do we use? Right Ans - Sales
If a company wanted to finance the purchase of equipment without diluting
shareholders equity, which of the following operation could it consider?
Right Ans - Obtaining a loan from a bank
Working capital movement is included in which section of the cash flow
statement? Right Ans - Operating activities
,The debt to tangible net worth ratio is calculated as follows: Right Ans -
Interest Bearing Liabilities / (Equity - Intangible Assets)
If the total assets to equity ratio of a company is increasing, it is possible that:
Right Ans - The company is increasing the use of debt and getting higher
financial leverage
Which ratio is not one of the three ratios that multiply together to produce the
return on equity ratio? Right Ans - Operating profit margin
Which financial leverage ratio is used with two other ratios to mathematically
produce the return on equity ratio? Right Ans - Total Assets / Equity
Which of the following is a tertiary ratio that drives profitability? Right Ans
- SG&A Expense / Sales
Which ratios indicate how efficiently the company generates sales from its
assets? Right Ans - Working capital turnover
The net profit margin ratio can mathematically be broken down as "Tax
impact x Capital structure impact x..." Right Ans - EBIT / Sales
Based on the following information from ABC Company's financial analysis,
which one of the following statements is NOT true? Right Ans - The
company's ability to cover its short-term obligations is getting higher over the
five years.
Which of the following best describes accounting principles in general?
Right Ans - They outline the fundamental rules and concepts and establish the
framework on which detailed accounting standards are based.
A sound accounting framework allows for all of the following benefits except:
Right Ans - Identical items being reported on the financial statements of
different companies
Conservatism Principle Right Ans - It provides guidance on how to record
transactions when there is uncertainty.
, Historical Cost Principle Right Ans - It states that assets and liabilities are
recorded on the financial statements at the cost at which they were acquired
or assumed.
Objectivity Principle Right Ans - It states that financial statements must be
free from bias and based on verifiable evidence.
Economic Entity Principle Right Ans - It states that transactions carried out
by a business are separated from those conducted by its owner.
Matching Principle Right Ans - It states that the expenses of a business
should be recorded in the periods in which the corresponding revenues are
earned.
On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. and paid
$960 for the entire program upfront. The program includes a total of 12
sessions and two sessions are delivered each month. How much revenue from
Mr. Smithe should Fit Co. recognize at the end of March? Right Ans - $160
Which of the following characteristics does not enhance the usefulness of
financial information? Right Ans - Relevance
Identify the statement that is most accurate. Right Ans - Financial
information that has confirmatory value provides feedback that either
confirms or changes previous evaluations.
Which of the following is not a correct description of how an operating lease is
recognized on the financial statements? Right Ans - The amortization
expense of the right-of-use asset is calculated using the straight-line
depreciation method over the lease term.
Company Inc. enters into a 10-year finance lease at the beginning of 2021 for a
total of $250,000. The annual lease payment is $25,000 (payable at the end of
each year) and the rate implicit in the lease is 5%. No initial direct costs are
incurred. How much interest expense should be recognized in 2021? Right
Ans - $9,652
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