$\text{Market Capitalization} = \text{Market Price per Share} \times \text{Number of Shares}$

$\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$

$\text{P/E Ratio} = \frac{\text{Market Capitalization}}{\text{Net Income}}$

Question 1

Which of the following best describes the purpose of the Statement of Financial Position (Balance Sheet)?

Accepted Answer

It provides a snapshot of the firm's assets, liabilities, and shareholders’ equity at a specific point in time.

Question 2

Under IFRS, which financial statement includes both the income statement and 'other comprehensive income'?

Accepted Answer

Statement of Comprehensive Income

Question 3

A company has current assets of $500,000 and current liabilities of $350,000. What is its net working capital?

Accepted Answer

$150,000

Question 4

If a firm has total assets of $2,000,000 and total liabilities of $1,500,000, what is its book value of equity?

Accepted Answer

$500,000

Question 5

Which formula correctly calculates a firm's market capitalization?

Accepted Answer

$	ext{Market Capitalization} = 	ext{Market Price per Share} 	imes 	ext{Number of Shares}$

Question 6

A company has a market capitalization of $1,000,000 and a book value of equity of $400,000. What is its market-to-book ratio?

Accepted Answer

$2.5$

Question 7

Which of the following is NOT included in the calculation of enterprise value?

Accepted Answer

Inventory

Question 8

Given the following: Market Value of Equity = $800 million, Debt = $500 million, Cash = $100 million. What is the enterprise value?

Accepted Answer

$1,300$ million

Question 9

Which ratio best reflects a company's ability to sell a product for more than the direct costs of making it?

Accepted Answer

Gross Margin

Question 10

A firm has sales of $2,000,000 and gross profit of $600,000. What is its gross margin?

Accepted Answer

$0.30$

Question 11

Which formula is used to calculate the quick ratio (acid-test ratio)?

Accepted Answer

$	ext{Quick Ratio} = \frac{	ext{Current Assets} - 	ext{Inventory}}{	ext{Current Liabilities}}$

Question 12

A company has operating income of $300,000 and sales of $1,500,000. What is its operating margin?

Accepted Answer

$0.20$

Question 13

If a firm has net income of $100,000 and sales of $1,000,000, what is its net profit margin?

Accepted Answer

$0.10$

Question 14

Which ratio measures how efficiently a company turns its inventory into sales?

Accepted Answer

Inventory Turnover

Question 15

A firm has cost of goods sold of $900,000 and average inventory of $150,000. What is its inventory turnover?

Accepted Answer

$6$

Question 16

Which of the following best describes the purpose of the Sarbanes-Oxley Act (SOX)?

Accepted Answer

To improve the accuracy of financial information given to boards and shareholders.

Question 17

A company has total debt of $600,000, total equity of $400,000, and excess cash of $100,000. What is its net debt?

Accepted Answer

$500,000$

Question 18

Which formula is used to calculate the price-earnings (P/E) ratio?

Accepted Answer

$	ext{P/E Ratio} = \frac{	ext{Market Capitalization}}{	ext{Net Income}}$

Question 19

A firm has net income of $250,000 and book value of equity of $1,000,000. What is its return on equity (ROE)?

Accepted Answer

$0.25$

Introduction to Financial Statement Analysis – Fundamentals of Corporate Finance (Canadian Edition, Chapter 2)

Study Guide - Practice Questions