An investor is examining a company's balance sheet and subtracts current liabilities
from current assets. What is the investor trying to understand by this calculation?
Correct Answer: Working capital
A company's chief financial officer (CFO) wants to determine how much cash is used for
norma...
An investor is examining a company's balance sheet and subtracts current liabilities
from current assets. What is the investor trying to understand by this calculation?
Correct Answer: Working capital
A company's chief financial officer (CFO) wants to determine how much cash is used for
normal business operations. Which element of a statement of cash flows aids in this
calculation?
Correct Answer: Increase in accounts receivable
A legal strategist is advising management on ways to gain market share and has made
growth-oriented investments. Sales have stayed stagnant despite the investment, and
Page 1 of 17
,the company wants to increase the company's valuation. Which strategy should
increase this company's common stock price?
Correct Answer: Stock buybacks
An investor calculates a firm's basic earnings per share (EPS) and notices the ratio has
doubled year over year while the weighted average number of common shares
outstanding has remained constant. What caused the rise in the ratio?
Correct Answer: An increase in net income
An investor is analyzing firms in the retail industry. They notice customers are not very
price-sensitive, and the individuals' behaviors do not change significantly with the
business cycle. Which economic attribute is the investor examining?
Correct Answer: Demand
An analyst is studying a firm's common-size balance sheet where the current year cash
and the cash equivalents item is equal to 15%. What is the divisor of the percentage?
Correct Answer: Total assets
A stock market analyst searches the Securities and Exchange Commission (SEC)
filings for companies who recently filed a prospectus. Which business activity is the
analyst looking for in the filings?
Correct Answer: An issuance of equity shares or bonds
Page 2 of 17
, An investor is reviewing a firm's statement of cash flows and identifies a significant
increase from operations. Which business activity is a driver of the increase?
Correct Answer: Providing services and selling goods
An analyst is reviewing a firm's income statement and notices that while the gross profit
amount increased $5 million year over year, the gross profit percentage on the
common-size income statement decreased. What might cause this to occur?
Correct Answer: An increase in revenue
A company provides unique materials used in space rockets with little competition and
can set high prices. Which economic force is described?
Correct Answer: High supplier power
A firm's management produces a good faith estimate of pension liabilities for financial
statement reporting. What is the difference between the estimated value of the liability
and the actual value?
Correct Answer: Measurement error
Management decides to use the last-in, first-out (LIFO) inventory method to measure
the amount reported on the balance sheet. What is the result of this decision during a
period when prices have risen significantly over time?
Correct Answer: The future cash flow potential is understated.
Page 3 of 17
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